Unocal Reports Earnings for Third Quarter 2004

Unocal Corporation (NYSE: UCL) reported preliminary net earnings for the third quarter 2004 of $330 million, or $1.23 per share (diluted), 117 percent above the $152 million, or 58 cents per share (diluted), reported in the same period a year ago. The earnings 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 third quarter 2004 were $294 million, or $1.09 per share (diluted). This compares with the Thomson/First Call mean of analyst estimates (published Oct. 25, 2004) of 96 cents per share. Unocal's adjusted after-tax earnings were $190 million, or 72 cents per share (diluted), in the third quarter 2003, and $231 million, or 86 cents per share (diluted), in the second quarter 2004. Adjusted after-tax earnings are net earnings excluding special items (discussed below) and the cumulative effect of accounting changes.




     CONSOLIDATED RESULTS (UNAUDITED)           3rd Q       2nd Q       3rd Q
     Millions of dollars except per share
      amounts                                   2004        2004        2003

     Earnings from continuing operations        $329        $282        $150
     Earnings from discontinued operations         1          59           2
     Net earnings                                330         341         152
        Less:  Special items in continuing
         operations                               35          54         (38)
        Less:  Special items in
         discontinued operations                   1          56         --
     Adjusted after-tax earnings                $294        $231        $190

     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
        Continuing operations                  $1.22       $1.04       $0.57
        Discontinued operations                 0.01        0.21        0.01
     Total net earnings per share              $1.23       $1.25       $0.58
     Adjusted after-tax earnings per share     $1.09       $0.86       $0.72
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                             $1,993      $1,980      $1,535



"We recorded another outstanding quarter, with the results driven by continued high commodity prices," said Charles R. Williamson, Unocal chairman and chief executive officer. "We continued to execute on our major development programs in the Caspian Sea, Thailand, Bangladesh and deepwater Gulf of Mexico -- programs that we believe will contribute to production growth in 2005 and 2006."

Recent operational and financial highlights
Some of Unocal's operational highlights and other developments during the third quarter include:

  • Completed the buyback of $150 million of common stock, redemption of one-half of Unocal Capital Trust's outstanding preferred convertible securities and a contribution of $100 million to Unocal's qualified U.S. pension plan
  • Ramped-up gross production at the deepwater West Seno project in Indonesia to 39,000 barrel-of-oil equivalent (BOE) per day at the end of the quarter; Unocal is operator of the production-sharing contract (PSC) with a 90% working interest
  • Signed a resolution with other investors sanctioning the Phase 3 development of the Azeri-Chirag-Deepwater Gunashli (ACG) field in the Azerbaijan sector of the Caspian Sea (Unocal, 10.28% working interest)
  • Progressed with construction on 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 in early 2005 for Phase 1
  • Approximately 85 percent of construction completed on the Baku-Tbilisi- Ceyhan export pipeline from the Caspian Sea (Unocal, 8.9% equity interest)
  • Received approximately $67 million cash from the sale of Unocal's indirect interest in its last remaining oil and natural gas assets in Brazil; possible future payments contingent on achieving certain natural gas prices and/or volume thresholds
  • Deepwater appraisal wells encountered hydrocarbons on the St. Malo prospect in the Gulf of Mexico (Unocal operator, 28.75% working interest) and on the deepwater Ranggas, Gehem and Gula prospects in Indonesia (Unocal operator of PSCs, 80% working interest)
  • Completed deepwater Gulf of Mexico Sardinia well as dry hole, but encountered significant porous sandstones (Unocal operator, 40% working interest; 3Q dry hole expense of about $1 million)
  • Completed successful delineation drilling in the South Gomin operating area in the Gulf of Thailand; first gas production expected in 2006 (Unocal operator, 71.25% working interest)
  • Elected not to proceed with its participation in five contracts to explore for, develop, and market natural gas resources in the Xihu Trough of the East China Sea


  • 3Q 2004 financial and operating details

    In the third quarter 2004, after-tax special items included $38 million in tax benefits from prior-year audit settlements with federal and state tax authorities and a $16 million gain from the sale of some non-oil and gas properties. These were offset partially by $17 million in environmental and litigation provisions. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table included at the end of this news release.

    Unocal's third quarter 2004 adjusted after-tax earnings (compared with 3Q 2003) reflected higher worldwide crude oil and natural gas prices and lower net interest expense and litigation costs. These positive factors were partially offset by lower North America natural gas and liquids production, Xihu Trough (China) exit costs and power generation impairments.

    Worldwide hydrocarbon liquids and natural gas production for the third quarter 2004 averaged 407,000 BOE per day, compared with 441,000 BOE per day in the same period a year ago. The production decline was due primarily to the sale of oil and gas producing assets in North America, which accounted for nearly 27,000 BOE per day during 2003, Gulf of Mexico storms that reduced production by 2,400 BOE per day, natural production declines in North America, and lower contractor's cost recovery barrels from certain PSCs in Asia, as a result of higher commodity prices and recovery of sunk costs, which reduced production by about 10,000 BOE per day. Higher liquids production in Thailand and from the West Seno field in Indonesia partially offset these negative factors.

    Third-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $3.90 per thousand cubic feet (mcf), up from $3.60 during the prior year's third quarter. The company's third quarter 2004 worldwide liquids price realizations (including hedging activities) were $38.85 per barrel, up from $27.28 in the third quarter 2003. Hedging activities in the 2004 third quarter decreased worldwide liquids realizations by $1.51 per barrel and decreased worldwide natural gas realizations by 3 cents per mcf.

    Unocal's preliminary EBITDAX for the third quarter 2004 was $884 million, or $3.22 per share (diluted). This compares with $709 million, or $2.60 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, and the cumulative effect of accounting changes.

    The company's total consolidated long-term debt (including current maturities) was $3.1 billion at Sept. 30, 2004. Because of an accounting rule change, in the first quarter 2004 the $522 million obligation for the Unocal Capital Trust convertible preferred securities was removed from the balance sheet and replaced by a debt liability of $538 million in 6-1/4-percent junior subordinated debentures of Unocal payable to Unocal Capital Trust. Approximately $269 million of this debt liability was repaid or converted to common stock in the third quarter 2004 in connection with Unocal's partial redemption of the trust's convertible preferred securities.

    Unocal's cash and cash-equivalents were $780 million at Sept. 30, 2004.

    Nine-months results
    Preliminary net earnings for the first nine months of 2004 were $940 million, or $3.48 per share (diluted), compared with $463 million, or $1.78 per share (diluted), reported for the same period a year ago.

    Unocal's preliminary adjusted after-tax earnings for the nine months 2004 were $764 million, or $2.84 per share (diluted). Unocal's adjusted after-tax earnings were $610 million, or $2.32 per share (diluted), for the nine months 2003.

    
    
    
         CONSOLIDATED RESULTS (UNAUDITED)                   For the Nine Months
                                                             Ended September 30,
         Millions of dollars except per share
          amounts                                         2004              2003
         Earnings from continuing operations              $877              $529
         Earnings from discontinued operations              63                17
         Cumulative effect of accounting
          changes                                           --               (83)
         Net earnings                                      940               463
            Less:  Special items in continuing
             operations                                    119               (72)
            Less:  Special items in
             discontinued operations                        57                 8
            Less:  Cumulative effect of
             accounting changes                             --               (83)
         Adjusted after-tax earnings                      $764              $610
         DILUTED EARNINGS PER SHARE DATA
          (UNAUDITED)
         Net earnings per share:
            Continuing operations                        $3.25             $2.02
            Discontinued operations                       0.23              0.06
            Cumulative effect of accounting
             changes                                        --             (0.30)
         Total net earnings per share                    $3.48             $1.78
         Adjusted after-tax earnings per share           $2.84             $2.32
         REVENUES FROM CONTINUING OPERATIONS
          (UNAUDITED)                                   $5,858            $4,930
    


    4Q 2004 earnings outlook
    For the fourth quarter 2004, Unocal is forecasting adjusted after-tax earnings of $1.15 to $1.30 per share (diluted). This forecast compares with the Thomson/First Call mean of analyst estimates (published Oct. 25, 2004) of 99 cents per share for the fourth quarter 2004. Unocal's fourth quarter forecast assumes average NYMEX benchmark prices of $53.00 per barrel of crude oil and $7.30 per million British thermal units (mmBtu) for North America natural gas for the period.

    Unocal's fourth 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 fourth quarter of $50 to $75 million.

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

    2004 production outlook
    Unocal currently expects worldwide production for the full-year 2004 to exceed 405,000 BOE per day.

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