Unocal reports record quarterly earnings; net up 69%
EL SEGUNDO, Calif., April 28, 2005 -- Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the first quarter 2005 of $454 million, or $1.66 per share (diluted), 69 percent above the $269 million, or $1.00 per share (diluted), reported in the same period a year ago. The net earnings, the highest quarterly level in the company's history, included a number of special items discussed below in connection with Unocal's adjusted after-tax earnings.
Unocal's preliminary adjusted after-tax earnings for the first quarter 2005 were $441 million, or $1.62 per share (diluted). This compares with the Thomson/First Call mean of analyst estimates (published Apr. 25, 2005) of $1.37 per share. In the first quarter 2004, Unocal's adjusted after-tax earnings were $239 million, or 89 cents per share (diluted). In the fourth quarter 2004, Unocal's adjusted after-tax earnings were $313 million, or $1.17 per share (diluted). Adjusted after-tax earnings are net earnings excluding special items (discussed below) and the cumulative effect of accounting changes.
CONSOLIDATED RESULTS (UNAUDITED) 1st Q 4th Q 1st Q Millions of dollars except per share amounts 2005 2004 2004 Earnings from continuing operations $449 $268 $267 Earnings from discontinued operations 5 -- 2 Net earnings 454 268 269 Less: Special items in continuing operations 11 (45) 30 Less: Special items in discontinued operations 2 -- -- Adjusted after-tax earnings $441 $313 $239 DILUTED EARNINGS PER SHARE DATA (UNAUDITED) Net earnings per share: Continuing operations $1.64 $1.00 $0.99 Discontinued operations 0.02 -- 0.01 Total net earnings per share $1.66 $1.00 $1.00 Adjusted after-tax earnings per share $1.62 $1.17 $0.89 REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $2,186 $2,320 $1,876
"Our earnings in the first quarter were driven primarily by strong crude oil and natural gas prices, a 5 percent increase in our worldwide crude oil and natural gas production over the first quarter a year ago, and lower interest expense," said Charles R. Williamson, Unocal chairman and chief executive officer. "We initiated production from the first three major projects in our 2005 development pipeline - Mad Dog in the deepwater Gulf of Mexico, Central Azeri in the Caspian Sea, and Moulavi Bazar in Bangladesh. Looking forward, we expect initial oil production from two additional development projects on tap for this year - K2 in deepwater Gulf of Mexico and the Pattani oil development offshore Thailand."
Recent operational and financial highlights
Some of Unocal's recent operational highlights and other developments include:
- Entered into a merger agreement with ChevronTexaco Corporation to merge Unocal into a wholly owned subsidiary of ChevronTexaco; agreement is subject to Unocal stockholder approval, regulatory approvals and clearances and other customary closing conditions
- Began production from the Mad Dog deepwater Gulf of Mexico field (Unocal working interest, 15.6%); 1Q exit rate from two wells of 30,000 barrels-of-oil equivalent (BOE) per day gross, 4,100 BOE per day net
- Began oil production from Phase 1 (Central Azeri) in the Azeri-Chirag-Gunashli development in the Caspian Sea (Unocal, 10.3% interest), raising gross AIOC production at the end of the quarter to approximately 200,000 BOE per day (Unocal, 18,300 BOE per day net)
- Began natural gas production from the Moulavi Bazar field in Bangladesh, Unocal is operator and has a 100% working interest in the production-sharing contract encompassing two producing fields; 1Q exit rate for Bangladesh operations, including the Jalalabad field, was 41,000 BOE per day (gross), Unocal, 33,000 BOE per day net
- Successful appraisal well on the Mad Dog Southwest Ridge in the Gulf of Mexico encountered significant hydrocarbons, extending the limits of the field
- Completed the redemption of the outstanding 6-1/4% Trust Convertible Preferred Securities of Unocal Capital Trust
- Reduced total debt by $332 million to $2.73 billion
- Added $523 million to cash balance, bringing total cash to $1.68 billion; net debt (debt minus cash) reduced to $1.05 billion
- Reached final settlement of lawsuits related to Unocal's investment in the Yadana gas pipeline project in Myanmar
1Q 2005 financial and operating details
Unocal's first quarter 2005 adjusted after-tax earnings (compared with 1Q 2004) reflected higher worldwide crude oil and natural gas prices, international production and natural gas storage margins, and lower exploration and dry hole costs and interest expense. These positive factors were offset partially by lower North America natural gas production and higher administrative and general expense.
In the first quarter 2005, after-tax special items included a $22 million gain from the sale of Unocal's interest in Hindustan Oil Exploration Company, which was offset partially by $11 million in provisions for environmental and litigation matters. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table included at the end of this news release. Worldwide hydrocarbon liquids and natural gas production for the first quarter 2005 averaged 429,000 BOE per day, up from 409,000 BOE per day in the same period a year ago. The production increase was due primarily to higher liquids and natural gas production in Asia.
First-quarter 2005 worldwide price realizations (including hedging activities) for natural gas averaged $4.28 per thousand cubic feet (mcf), up from $4.00 during the prior year's first quarter. The company's first quarter 2005 worldwide liquids price realizations (including hedging activities) were $44.72 per barrel, up from $30.64 in the first quarter 2004. Hedging activities in the 2005 first quarter decreased worldwide liquids realizations by 8 cents per barrel and increased worldwide natural gas realizations by 20 cents per mcf.
Unocal's preliminary EBITDAX for the first quarter 2005 was $1.08 billion, or $3.95 per share (diluted). This compares with $756 million, or $2.73 per share (diluted), for the same period in 2004. EBITDAX is net earnings before interest, taxes, depreciation, depletion and amortization, impairments, exploration expenses, dry hole costs, special items, and the cumulative effect of accounting changes.
Full-year 2005 production outlook
Unocal currently expects worldwide average production for the full-year 2005 to exceed 430,000 BOE per day, up from 425,000 BOE per day that was previously estimated.
The company's updated 2005 net production outlook can be found in the Data Warehouse section of Unocal's Investor Relations web site, www.unocal.com. This document provides additional detailed estimated second quarter ranges for the numerous areas of production, which describe the company's lowest and highest production estimates in those areas. In locations where Unocal is limited by market demand or pipeline capacity, the range is between the contract minimum and the highest past production or the estimated capacity limits of the producing assets. A sensitivity factor is provided to adjust future production for the impacts of PSC adjustments due to changes in oil prices.
Discontinued earnings forecasts and conference calls
Pending Unocal's anticipated merger with ChevronTexaco, the company has discontinued providing its forecast of adjusted after-tax earnings per share, including its related assumptions for future commodity prices and future dry hole costs. Unocal has also discontinued holding quarterly earnings conference calls.
About Unocal Corporation
Unocal is one of the world's leading independent natural gas and crude oil exploration and production companies. The company's principal oil and gas activities are in Asia and North America.
Additional financial tables for the first quarter 2005 and the comparable prior periods are available in the company's "Quarterly Fact Book," which is posted in the Data Warehouse in the Investor Relations section of the company's web site. The Quarterly Fact Book is also available upon request from Unocal Investor Relations.
Forward-Looking Statements; Preliminary 2005 First Quarter Results
This news release contains forward-looking statements about matters such as Unocal's merger with ChevronTexaco and production rates and timing. Although these statements are based upon Unocal's current expectations and beliefs, they are subject to known and unknown risks and uncertainties that could cause actual results and outcomes to differ materially from those described in, or implied by, the forward-looking statements, including whether the pending merger with ChevronTexaco is completed and the effects on Unocal in the event that it is not completed; volatility in commodity prices; Unocal's ability to find or acquire commercially productive reservoirs and to develop and produce deepwater and other projects in a timely and cost-effective manner; the accuracy of Unocal's estimates and judgments regarding hydrocarbon resources and formations and reservoir performance; operational risks inherent in the exploration, development and production of oil and gas; the impact of environmental laws, permitting and licensing requirements and other regulations; international and domestic political and economic factors; and other factors discussed in Unocal's 2004 Annual Report on Form 10-K and subsequent reports filed by Unocal with the U.S. Securities and Exchange Commission (SEC).
Copies of Unocal's SEC filings are available from Unocal by calling 800-252-2233 or from the SEC by calling 800-SEC-0330. The reports are also available on the Unocal web site, www.unocal.com. Unocal undertakes no obligation to update the forward-looking statements in this news release to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
In addition, disclosures in this news release, including in the attached tables, regarding Unocal's first quarter 2005 financial results are preliminary and are subject to change in connection with Unocal's preparation and filing of its Form 10-Q for the three months ended March 31, 2005.
Supplemental Non-GAAP Financial Measures
The news release includes certain "non-GAAP financial measures" as defined under SEC regulations: (1) adjusted after-tax earnings (net earnings excluding special items and cumulative effects of accounting changes) and (2) EBITDAX (net earnings before interest, taxes, depreciation, depletion and amortization, asset impairments, exploration expenses, dry hole costs, special items and cumulative effects of accounting changes).
Special items represent certain significant matters which positively or negatively impact net earnings and that management determines to be not representative of the company's ongoing operations. Examples include: gain/loss from major asset sales; environmental remediation costs related primarily to inactive, closed or previously owned company facilities and third party sites; costs or settlements associated with major restructuring plans; litigation settlement costs primarily associated with former company operations or closed/inactive facilities; significant impairments due to changes in commodity prices; material damage to company facilities or operations due to fire, explosion, earthquakes, storms or other "acts of god" not covered by insurance; certain costs associated with major acquisitions including litigation and significant trading derivatives; and insurance recoveries associated with former company operations or for costs incurred in prior years.
Unocal's management believes that adjusted after-tax earnings is a useful supplemental financial measure to investors and analysts because it facilitates a focus on the company's ongoing operations and allows for convenient comparisons to the company's prior reporting periods. Adjusted after-tax earnings is also used as a factor in calculating various performance measures in connection with payments under the company's annual bonus plan, and it is used by management as a factor in reviewing business unit performance. Unocal's management believes that EBITDAX is helpful to investors and analysts because it facilitates a comparison of companies like Unocal that use the "successful efforts" accounting method with other companies in the exploration and production industry that utilize the "full-cost" method of accounting.
Adjusted after-tax earnings and EBITDAX are not substitutes for net earnings determined in accordance with GAAP as a measure of profitability or other GAAP financial measures. Special items excluded from these non-GAAP measures do in fact positively or negatively impact net earnings. Other companies may define special items differently, and the Thomson/First Call mean of analyst estimates may not use a similar definition. Hence, these measures may not be comparable with similarly titled amounts reported by other companies or analyst estimates reported by Thomson/First Call.
A quantitative historical reconciliation of adjusted after-tax earnings and EBITDAX to GAAP net earnings is found in this news release, including certain of the tables accompanying the text.
CONSOLIDATED EARNINGS (UNAUDITED) For the Three Months Ended March 31, Millions of dollars except per share amounts 2005 2004 Revenues Sales and operating revenues (a) $2,157 $1,821 Interest, dividends and miscellaneous income 9 11 Gain on sales of assets 20 44 Total revenues 2,186 1,876 Costs and other deductions Crude oil, natural gas and product purchases (a) 754 744 Operating expense 307 281 Administrative and general expense 78 63 Depreciation, depletion and amortization 276 232 Impairments -- 5 Dry hole costs 20 25 Exploration expense 38 50 Interest expense 33 41 Property and other operating taxes 21 20 Total costs and other deductions 1,527 1,461 Earnings from equity investments 39 37 Earnings from continuing operations before income taxes and minority interests 698 452 Income taxes 247 180 Minority interests 2 5 Earnings from continuing operations 449 267 Earnings from discontinued operations (b) 5 2 Net earnings $454 $269 Basic earnings per share of common stock (c) Continuing operations $1.66 $1.02 Discontinued operations 0.02 0.01 Net earnings $1.68 $1.03 Diluted earnings per share of common stock (d) Continuing operations $1.64 $0.99 Discontinued operations 0.02 0.01 Net earnings $1.66 $1.00 Cash dividends declared per share of common stock $0.20 $0.20 (a) Includes crude oil buy/sell transactions settled in cash of: $163 $252 (b) Net of tax (benefit) $4 $1 (c) Basic weighted average shares outstanding (in thousands) 270,445 261,974 (d) Diluted weighted average shares outstanding (in thousands) 273,270 276,889 CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) At March 31, At December 31, Millions of dollars 2005 2004 Assets Cash and cash equivalents $1,683 $1,160 Other current assets - net 1,714 1,770 Investments and long-term receivables - net 717 777 Properties - net 8,916 8,819 Goodwill 135 136 Other assets 525 439 Total assets $13,690 $13,101 Liabilities and Stockholders' Equity Current liabilities (a) $2,655 $2,581 Long-term debt and capital leases 2,302 2,571 Deferred income taxes 849 839 Accrued abandonment, restoration and environmental liabilities 900 897 Other deferred credits and liabilities 1,078 969 Minority interests 28 27 Stockholders' equity 5,878 5,217 Total liabilities and stockholders' equity $13,690 $13,101 (a) Includes current portion of Long-term debt and capital leases of: 428 491 CONSOLIDATED CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, Millions of dollars 2005 2004 Cash Flows from Operating Activities Net earnings $454 $269 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation, depletion and amortization 276 232 Impairments -- 5 Dry hole costs 20 25 Amortization of exploratory leasehold costs 14 16 Deferred income taxes 43 28 Gain on sales of assets (20) (44) Gain on disposal of discontinued operations (4) -- Pension expense net of contributions 24 23 Other (4) (13) Working capital and other changes related to operations 105 209 Net cash provided by operating activities 908 750 Cash Flows from Investing Activities Capital expenditures (includes dry hole costs) (419) (360) Proceeds from sales of assets 96 72 Return of capital from affiliate company -- 52 Net cash used in investing activities (323) (236) Cash Flows from Financing Activities Long-term borrowings -- 40 Reduction of long-term debt and capital lease obligations (102) (197) Minority interests (2) -- Repurchases of common stock -- (20) Proceeds from issuance of common stock 95 51 Dividends paid on common stock (53) (52) Loans to key employees -- 20 Net cash used in financing activities (62) (158) Net increase in cash and cash equivalents 523 356 Cash and cash equivalents at beginning of year 1,160 404 Cash and cash equivalents at end of period $1,683 $760 NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS BY BUSINESS SEGMENT 1st Q 2005 4th Q 2004 (UNAUDITED) Adjusted Adjusted Net After-Tax Net After-Tax Millions of dollars Earnings Earnings (a) Earnings Earnings (a) Exploration and Production North America U.S. $154 $154 $77 $77 Canada 18 18 14 14 Total North America 172 172 91 91 International Asia 251 229 187 187 Other 48 48 31 31 Total International 299 277 218 218 Total Exploration and Production 471 449 309 309 Midstream and Marketing 35 35 26 26 Geothermal 17 17 22 22 Corporate and Other Administrative and General (29) (29) (28) (28) Interest Expense - Net (15) (15) (20) (20) Environmental and Litigation (12) (2) (47) (5) Other (18) (17) 6 9 After-tax earnings from continuing operations 449 438 268 313 After-tax earnings from discontinued operations 5 3 -- -- After-tax earnings $454 $441 $268 $313 (a) For a reconciliation to net earnings, see the Adjusted After-Tax Earnings Reconciliation table. NET EARNINGS AND ADJUSTED AFTER-TAX BY BUSINESS SEGMENT 1st Q 2005 1st Q 2004 (UNAUDITED) Adjusted Adjusted Net After-Tax Net After-Tax Millions of dollars Earnings Earnings (a) Earnings Earnings (a) Exploration and Production North America U.S. $154 $154 $113 $92 Canada 18 18 12 12 Total North America 172 172 125 104 International Asia 251 229 158 158 Other 48 48 17 17 Total International 299 277 175 175 Total Exploration and Production 471 449 300 279 Midstream and Marketing 35 35 23 23 Geothermal 17 17 37 16 Corporate and Other Administrative and General (29) (29) (27) (27) Interest Expense - Net (15) (15) (32) (32) Environmental and Litigation (12) (2) (16) (5) Other (18) (17) (18) (17) After-tax earnings from continuing operations 449 438 267 237 After-tax earnings from discontinued operations 5 3 2 2 After-tax earnings $454 $441 $269 $239 (a) For a reconciliation to net earnings, see the Adjusted After-Tax Earnings Reconciliation table. OPERATING HIGHLIGHTS For the Three Months Ended March 31, 2005 2004 North America Net Daily Production Liquids (thousand barrels) U.S. 57 55 Canada 16 17 Total liquids 73 72 Natural gas - dry basis (million cubic feet) U.S. 456 515 Canada 83 84 Total natural gas 539 599 North America Average Prices (excluding hedging activities) (a) Liquids (per barrel) U.S. $44.72 $32.66 Canada $38.31 $28.51 Average $43.35 $31.71 Natural gas (per mcf) U.S. $5.26 $5.04 Canada $5.69 $5.38 Average $5.32 $5.09 North America Average Prices (including hedging activities) (a) Liquids (per barrel) U.S. $44.46 $29.87 Canada $38.31 $28.51 Average $43.15 $29.56 Natural gas (per mcf) U.S. $5.93 $5.57 Canada $5.69 $5.08 Average $5.90 $5.50 (a) Excludes gains/losses on derivative positions not accounted for as hedges and ineffective portions of hedges. OPERATING HIGHLIGHTS (Continued) For the Three Months Ended March 31, 2005 2004 International Net Daily Production (a) Liquids (thousand barrels) Asia 76 66 Other (b) 20 20 Total liquids 96 86 Natural gas - dry basis (million cubic feet) Asia 1,011 884 Other (b) 10 25 Total natural gas 1,021 909 International Average Prices (c) Liquids (per barrel) Asia $45.50 $31.44 Other $47.57 $32.12 Average $45.93 $31.57 Natural gas (per mcf) Asia $3.40 $2.97 Other $5.26 $4.29 Average $3.41 $2.98 Worldwide Net Daily Production (b) Liquids (thousand barrels) 169 158 Natural gas - dry basis (million cubic feet) 1,560 1,508 Barrels oil equivalent (thousands) 429 409 Worldwide Average Prices (excluding hedging activities) (d) Liquids (per barrel) $44.80 $31.64 Natural gas (per mcf) $4.08 $3.83 Worldwide Average Prices (including hedging activities) (d) Liquids (per barrel) $44.72 $30.64 Natural gas (per mcf) $4.28 $4.00 (a) International production is presented utilizing the economic interest method. (b) Includes proportional interests in production of equity investees of: Liquids -- 1 Natural gas -- 15 Barrels oil equivalent -- 4 (c) International did not have any hedging activities. (d) Excludes gains/losses on derivative positions not accounted for as hedges and ineffective portions of hedges. ADJUSTED AFTER-TAX EARNINGS RECONCILIATION (UNAUDITED) 1st Q 4th Q 1st Q Millions of dollars except per share amounts 2005 2004 2004 Net earnings $454 $268 $269 Less: Special items from continuing operations E&P - North America - U.S. Asset sales -- -- 6 Litigation settlement -- -- 15 E&P - International - Asia Asset sales 22 -- -- Geothermal Asset sales -- -- 21 Corporate and Other Asset sales -- 17 -- Environmental and litigation provisions (11) (43) (12) Net tax adjustments for settlements / assessments -- 15 -- Restructuring provisions -- 1 -- Oil Insurance Limited retrospective liability increase -- (21) -- Agrium settlement -- (14) -- Less: Special items from discontinued operations Gain on asset disposals 2 -- -- Adjusted after-tax earnings $441 $313 $239 Adjusted after-tax earnings per share (diluted) $1.62 $1.17 $0.89 EBITDAX RECONCILIATION (UNAUDITED) For the Three Months Ended March 31, Millions of dollars except per share amounts 2005 2004 Net Earnings $454 $269 Less: Special items from continuing operations 11 30 Special items from discontinued operations 2 -- Adjusted after-tax earnings 441 239 Add-backs to adjusted after-tax earnings: Depreciation, depletion and amortization 276 232 Impairments -- 5 Dry hole costs 20 25 Exploration expenses (including amortization of undeveloped leasehold costs) 38 50 Current income taxes 223 141 Deferred income taxes 48 23 Interest expense (a) 33 41 EBITDAX $1,079 $756 EBITDAX per share (diluted) $3.95 $2.73 (a) Net of capitalized interest of: 15 16
Updated: April 2005