Unocal 1Q earnings up 101%

Unocal Corporation (NYSE: UCL) reported preliminary net earnings for the first quarter 2004 of $269 million, or $1.00 per share (diluted), 101 percent above the $134 million, or 52 cents per share (diluted), reported in the same period a year ago.

Unocal's preliminary adjusted after-tax earnings for the first quarter 2004 were $239 million, or 89 cents per share (diluted). This compares with the Thomson/First Call median of analyst estimates (published April 26, 2004) of 80 cents per share. Unocal's adjusted after-tax earnings were $229 million, or 87 cents per share (diluted), in the first quarter 2003, and $167 million, or 63 cents per share (diluted), in the fourth quarter 2003. Adjusted after-tax earnings are net earnings excluding special items, earnings from discontinued operations and cumulative effects of accounting changes.

     CONSOLIDATED RESULTS (UNAUDITED)           1st Q       4th Q       1st Q
     Millions of dollars except per share
      amounts                                   2004        2003        2003
    Earnings from continuing operations         $269        $172        $217
    Earnings from discontinued operations         --           8          --
    Cumulative effect of accounting changes       --          --         (83)
    Net earnings                                 269         180         134
       Less:  Earnings from discontinued
        operations                                --           8          --
       Less:  Cumulative effect of
        accounting changes                        --          --         (83)
       Less:  Special items                       30           5         (12)
    Adjusted after-tax earnings                 $239        $167        $229
    Net earnings per share:
       Continuing operations                   $1.00       $0.65       $0.82
       Discontinued operations                    --        0.03          --
       Cumulative effect of accounting changes    --          --       (0.30)
    Total net earnings per share               $1.00       $0.68       $0.52
    Adjusted after-tax earnings per share      $0.89       $0.63       $0.87
     (UNAUDITED)                              $1,892      $1,589      $1,789

"We had an outstanding first quarter, recording one the highest profit levels in the company's history," said Charles R. Williamson, Unocal chairman, chief executive officer and president. "We lowered exploration expense, improved results from non-E&P segments and reduced our overall financings."

Williamson went on to say, "We continued to execute on our major development programs in the Caspian Sea, Thailand, Bangladesh and Indonesia -- programs that we believe will generate the production growth we are forecasting for 2005 and 2006."

Unocal's operations highlights for 1Q 2004

  • Drilled significant deepwater discovery in the Gulf of Mexico (Puma) and successful appraisal wells in Indonesia (Gehem and Gula).
  • Drilling of two high-impact deepwater wells -- Tobago and Mad Dog Deep -- in the Gulf of Mexico.
  • Continued ramp-up of production on the deepwater West Seno project in Indonesia, although slower than forecast.
  • Continued discussion and negotiation on terms for supplying higher volumes of natural gas in both the short and long term in Thailand.
  • Submitted development plan to sell natural gas from the Bibiyana field for Petrobangla, the state oil company, in Bangladesh.
  • Received $60 million in cash for the transfer of Sarulla geothermal interest to Indonesia's state electric utility.
  • Progressed on construction of the Phase 1 and 2 developments of the Azerbaijan International Operating Company (AIOC) project in the Caspian Sea (Unocal, 10.28% working interest); first oil at the wellhead expected at the end of 2004 or early 2005 for Phase 1.
  • Completed 60 percent of construction of the Baku-Tbilisi-Ceyhan export pipeline from the Caspian Sea (Unocal, 8.9% equity interest).
  • Reached agreement to sell certain fee mineral interests in the U.S. for approximately $190 million cash.

  • 1Q 2004 financial and operating details
    In the first quarter 2004, after-tax special items included $27 million in gains from the sale of certain E&P assets in North America and geothermal assets in Indonesia, and a $15 million litigation settlement related to a previous asset sale. Partially offsetting these gains were environmental and litigation provisions of $12 million. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table.

    Unocal's first quarter 2004 adjusted after-tax earnings (compared with 1Q 2003) reflected higher worldwide natural gas prices and lower dry hole costs. These positive factors were partially offset by lower North America natural gas and liquids production.

    In addition, the first quarter 2003 net earnings had included an after-tax charge of $83 million, or 30 cents per share (diluted), for the cumulative effect of adopting Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations."

    Worldwide hydrocarbon liquids and natural gas production for the first quarter 2004 averaged 409,000 barrels of oil equivalent (BOE) per day, compared with 471,000 BOE per day in the same period a year ago. The production decline was due to the sale of oil and gas producing assets in North America during 2003, which accounted for nearly 50,000 BOE per day, and lower contractor's cost recovery barrels from certain production-sharing contracts (PSC) in Asia (as a result of higher commodity prices and recovery of sunk costs), which reduced production by about 12,000 BOE per day.

    First-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $4.00 per thousand cubic feet (mcf), up from $3.90 during the prior year's first quarter. The company's first quarter 2004 worldwide liquids price realizations (including hedging activities) were $30.64 per barrel, up from $29.99 in the first quarter 2003. Hedging activities in the 2004 first quarter decreased worldwide liquids realizations by $1.00 per barrel, while increasing worldwide natural gas realizations by 17 cents per mcf.

    Total revenues for the 2004 first quarter were $1.89 billion, up from $1.79 billion recorded for the same period a year ago.

    Unocal's EBITDAX for the first quarter 2004 was $756 million, or $2.73 per share (diluted). This compares with $828 million, or $3.05 per share (diluted), for the same period in 2003. EBITDAX is net earnings before interest, taxes, depreciation, depletion and amortization, impairments, exploration expenses, dry hole costs, special items, earnings from discontinued operations and cumulative effects of accounting changes.

    The company's total consolidated long-term debt (including current maturities) was $3.26 billion at March 31, 2004. Cash and cash-equivalents were $760 million at March 31, 2004. The increase in debt outstanding during the first quarter reflects the deconsolidation of Unocal Capital Trust due to an accounting rule change issued by the Financial Accounting Standards Board. As a result, the $522 million obligation for the convertible preferred securities has been removed from the balance sheet and replaced by a liability of $538 million in 6-1/4 percent junior subordinated debentures of Unocal payable to the trust.

    2Q 2004 outlook

    For the second quarter 2004, Unocal is forecasting adjusted after-tax earnings of 65 to 75 cents per share (diluted). This forecast compares with the Thomson/First Call median of analyst estimates (published April 26, 2004) of 72 cents per share for the second quarter 2004. Unocal's second quarter forecast assumes average NYMEX benchmark prices of $36.50 per barrel of crude oil and $5.70 per million British thermal units (mmBtu) for North America natural gas for the period.

    Unocal's second quarter 2004 adjusted after-tax earnings are expected to change $8 million for every $1 change in its average worldwide realized price for crude oil and $3 million for every 10-cent change in its average realized North America natural gas price, excluding the effect of hedging activities. The forecast also assumes pretax dry hole costs in the second quarter of $25 to $35 million.

    The company's current estimate for second quarter 2004 production is between 410,000 and 420,000 BOE per day. Unocal's current estimate for the full-year 2004 production is about 425,000 BOE per day. The full-year 2004 outlook reflects lower contractor's cost recovery barrels from PSCs due to higher commodity prices, slower than expected production ramp-up from the West Seno field in Indonesia, and continued suspension of exploration drilling on the Gulf of Mexico deep shelf.

    The second-quarter adjusted after-tax earnings forecast excludes special items, discontinued operations, and accounting changes. Because of the inherent uncertainty related to these items, determining whether or when they will occur and quantifying their dollar impact, Unocal does not believe it is able to provide a meaningful forecast of net earnings.

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