press release

Unocal sees lower 1999 capital spending; targets up to $200 million in annual cash expenses cuts

El Segundo, Calif., Dec. 21, 1998 - Unocal Corporation today said it expects 1999 capital spending to total between $1.0 billion and $1.1 billion, down from the estimated $1.7 billion in capital expenditures this year. The lower spending reflects Unocal's narrowed focus on the company's core oil and gas exploration and production program in response to lower commodity prices.

The 1998 capital expenditures included significant outlays, such as the Gulf of Mexico OCS leases, to build the company's strong deepwater exploration and growth portfolio. That level of spending for leases is not expected to be repeated in 1999, accounting for about one-fourth of the reduction in the overall capital spending plan.

"This capital spending plan is designed to preserve our high-potential deepwater exploration and development program in the Gulf of Mexico and Indonesia," said Roger C. Beach, Unocal chairman and chief executive officer. "We are prioritizing our capital spending in other areas based on our net present value and return on investment analysis, and some good projects on the list will have to be deferred."

Beach went on to say that Unocal's actual capital spending in 1999 depends on commodity prices during the year. "If oil and gas prices remain at current levels, our capital spending for the year could be even lower. We want to ensure that our debt ratio remains below 50 percent, and we will review the investment plan on a month-to-month basis," he said.

More than 90 percent of the planned capital spending will be for oil and gas exploration and production, with more than half of that going to projects outside the U.S.

Unocal is also reducing exploration costs and increasing efficiency. Unocal's Spirit Energy 76 unit has been able to contract for a deepwater rig at lower day rate and accelerate its deepwater drilling schedule in the Gulf of Mexico by nearly a full year. In addition, the company will apply its low-cost Saturation-Exploration (S-X) techniques, which have proven successful in Indonesia, to its deepwater prospects in the Gulf of Mexico. With the S-X process, Unocal can drill exploration wells for up to 50 percent less cost than conventional wells.

In Indonesia, the company will continue delineation of the Seno and Merah Besar fields in the deepwater Makassar Strait and move forward with development plans. Unocal will also begin exploration in the northern and southern sections of the Makassar Strait production-sharing contract (PSC) area and the Rapak PSC area.

Expense Reductions

Unocal also said that it has a goal of reducing annualized cash expenses by $150 million to $200 million from the estimated 1998 level to bolster cash flow.

"We are cutting deeper into our discretionary cash expenses to combat the continued impact of low commodity prices," Beach said. "We have already identified cuts totaling nearly $120 million. This will be a continuous process to identify and capture additional cost savings and reach our target level."

The expense cuts will come primarily from reduced administrative and general expense at the corporate level and in the business units, lower expense in Unocal's New Ventures group, and a reduction of mining activities by Unocal's Molycorp, Inc., subsidiary in New Mexico and California.

Growth Focus

Beach noted that the company will continue to focus on key high-value growth areas - Indonesia, Thailand, Gulf of Mexico, South and Southeast Asia, and the Southern Cone of Latin America - that allow Unocal to leverage its drilling expertise and ability to operate at low cost.

"The cuts in capital and cash expense will be in areas with either lower returns, heightened political risk, or unacceptable payout timelines," Beach said.

The company earlier this month announced its withdrawal from various projects and closing of offices in the East Caspian and Central Asia regions, including the CentGas consortium. "We expect that by backing out of these two regions alone, we can reduce project development expense by $20 million a year."

Unocal is one of the world's largest independent oil and gas exploration and production companies, with major resource development, power plant and pipeline projects in South and Southeast Asia, Latin America and the U.S. Gulf of Mexico region.

Forward-looking statements, including estimates of future capital expenditures, cost reductions, and exploration and production activities in this news release are based on assumptions concerning market, competitive, regulatory, geological and other considerations. Actual results could differ materially.

Updated: December 1998