SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) April 24, 2003
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UNOCAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-8483 95-3825062
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(Commission File Number) (I.R.S. Employer Identification No.)
2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245
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(Address of Principal Executive Offices) (Zip Code)
(310) 726-7600
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(Registrant's Telephone Number, Including Area Code)
Item 5. Other Events.
First Quarter 2003 Results
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Unocal Corporation's net earnings were $134 million, or 52 cents per share
(diluted), in the first quarter of 2003 compared with $22 million, or 9 cents
per share (diluted), in the first quarter of 2002. In the first quarter of 2003,
net earnings included an after-tax charge of $83 million, or 30 cents per share
(diluted), from the cumulative effects of accounting changes.
For the Three Months
Ended March 31,
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Millions of dollars 2003 2002
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Earnings from continuing operations $ 217 $ 22
Earnings from discontinued operations - -
Cumulative effects of accounting changes (83) -
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Net earnings $ 134 $ 22
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Continuing Operations
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First Quarter Results: Earnings from continuing operations increased by $195
million in the first quarter of 2003 compared to the same quarter a year ago,
primarily reflecting improved results from the Company's exploration and
production operations, due to higher worldwide natural gas and liquids prices.
Higher worldwide commodity prices increased net earnings by approximately $230
million. The Company's worldwide average realized natural gas price, including a
loss of 27 cents per thousand cubic feet ("Mcf") from hedging activities, was
$3.90 per Mcf for the first quarter of 2003. This was an increase of $1.44 per
Mcf, or 59 percent, from the $2.46 per Mcf, including a benefit of 9 cents per
Mcf from hedging activities, realized during the first quarter of 2002. In the
first quarter of 2003, the Company's worldwide average liquids price was $29.99
per barrel, which was an increase of $11.13 per barrel, or 59 percent, from the
same period a year ago. The Company's hedging program lowered the average
realized liquids price by 50 cents in the first quarter of 2003 while the first
quarter of 2002 included a gain of 6 cents per barrel from hedging activities.
The first quarter of 2003 included an after-tax gain of $2 million in
mark-to-market accruals and realized gains/losses for non-hedge commodity
derivatives recorded by the Company's Northrock Resources Ltd. subsidiary,
compared to an after-tax loss of $4 million in the same period a year ago.
After-tax environmental and litigation expenses were $17 million in the first
quarter of 2003, compared with $26 million in the same period a year ago.
These positive variance factors were partially offset by higher dry hole costs,
higher depreciation and depletion rates (including asset retirement obligation
accretion) and lower North America liquids production, which reduced net
earnings by approximately $25 million, $20 million and $10 million,
respectively, in the first quarter of 2003 compared with the same period a year
ago. North America liquids production averaged 88,000 barrels per day in the
first quarter of 2003, down from 99,000 barrels per day a year ago. Most of the
production decline was due to natural declines in existing fields in the Gulf of
Mexico and the divestiture of various properties in Canada, onshore U.S. and the
Gulf of Mexico.
Cumulative Effects of Accounting Changes
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In the first quarter of 2003, the Company recorded a non-cash $83 million
after-tax charge consisting of the cumulative effect of a change in accounting
principle related to the initial adoption of Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." The
Company also increased its accrued abandonment and restoration liabilities by
$268 million and increased its net properties by $138 million on the
consolidated balance sheet as a result of the adoption of SFAS No.143.
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Revenues
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Revenues from continuing operations for the first quarter of 2003 were $1.83
billion compared with $1.05 billion for the same period a year ago. The increase
primarily reflected higher natural gas and liquids prices.
Financial Condition
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Cash flows from operating activities, including working capital and other
changes, was $685 million in the first quarter of 2003 compared with $271
million in the same period a year ago. The increase principally reflected the
effects of higher worldwide commodity prices.
Capital expenditures were $429 million for the first quarter of 2003 compared
with $390 million in the same period a year ago.
The Company's total consolidated debt, including current maturities, at March
31, 2003, was $2.92 billion, compared with $3.0 billion at the end of 2002. Cash
and cash equivalents on hand totaled $356 million at March 31, 2003, up from
$168 million at the end of 2002.
Second Quarter 2003 and Full-Year 2003 Outlook
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The Company's current net worldwide daily production estimate for the second
quarter of 2003 is between 460,000 and 470,000 barrels-of-oil equivalent
("BOE"). Based on current market prices, the Company's net earnings for the
second quarter are expected to change 4 cents per share for every $1 change in
the Company's average worldwide realized price for crude oil and 2 cents per
share for every 10-cent change in its average realized North America natural
gas price, excluding the effect of hedging activities. For the second quarter
of 2003, the Company has hedged 19.7 billion Btu of Lower 48 natural gas
production with pricing collars between $4.21 and $5.06 per MMBtu, and 1.5
million barrels of Lower 48 crude oil with collars between $28.94 and $32.71
per barrel. Second quarter hedged volumes represent approximately 32 percent and
35 percent of expected Lower 48 natural gas and crude oil production volumes,
respectively. The Company also forecasts second quarter pre-tax dry hole costs
of $40 million to $50 million.
The Company currently estimates its full-year 2003 production to average between
475,000 to 490,000 BOE per day. This production forecast includes the associated
production loss of approximately 5,000 BOE per day from divestitures that the
Company has completed so far this year. These divestitures included various
properties in Canada, onshore U.S. and the Gulf of Mexico and netted the Company
$64 million in proceeds. The Company has additional property divestitures
pending or planned and additional adjustments to the production forecast range
will be made as further divestitures are completed. The production forecast
reflects the start of new oil production from the West Seno field in Indonesia,
currently scheduled to begin late in the second quarter of 2003. The Company's
total actual production for the year could also be impacted by cost recovery
volume fluctuations under the Company's various foreign Production Sharing
Contracts ("PSCs") due to changes in commodity prices, demand for natural gas in
Thailand, and production and exploration performance in the Gulf of Mexico.
Based on current market prices, the Company's net earnings for the full-year are
expected to change 14 cents per share for each $1 change in the Company's
average worldwide realized price for crude oil and 7 cents per share for every
10-cent change in its average realized North America natural gas price,
excluding the effect of hedging activities. For the remaining three quarters of
2003, the Company has hedged 43.4 billion Btus of Lower 48 natural gas
production with collars of $3.98 to $4.84 per MMBtu. This volume represents
approximately 25 percent of expected Lower 48 natural gas production.
Hedged crude oil production volumes beyond the second quarter levels, discussed
in the previous paragraph, are immaterial. The Company forecasts pre-tax dry
hole costs of $155 million to $185 million and that pre-tax pension-related
expenses will increase over 2002 by approximately $55 million to $60 million.
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Cautionary Statement
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This filing contains certain forward-looking statements about Unocal's future
production rates, commodity prices, dry hole costs, divestitures, pension costs,
future operations, drilling plans, business transactions and other matters.
These statements are not guarantees of future performance. The statements are
based upon Unocal's current expectations and beliefs and are subject to a number
of known and unknown risks and uncertainties that could cause actual results to
differ materially from those described in the forward looking statements. Actual
results could differ materially as a result of changes in commodity prices, the
levels of the Company's oil and gas production, development and exploratory
drilling results, the amounts of the Company's operating cash flow and other
capital resources available to fund its capital expenditures, government
approvals, regulatory, geological, operating and economic considerations, and
other factors disclosed on pages 56 to 64 of Unocal's 2002 Annual Report on Form
10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Date: April 28, 2003 By: /s/ JOE D. CECIL
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Joe D. Cecil
Vice President and Comptroller
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CONSOLIDATED EARNINGS (UNAUDITED) UNOCAL CORPORATION
For the Three Months
Ended March 31,
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Millions of dollars except per share amounts 2003 2002
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Revenues
Sales and operating revenues $ 1,813 $ 1,035
Interest, dividends and miscellaneous income 11 12
Gain on sales of assets 3 2
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Total revenues 1,827 1,049
Costs and other deductions
Crude oil, natural gas and product purchases 684 295
Operating expense 294 299
Administrative and general expense 51 43
Depreciation, depletion and amortization 260 224
Asset impairments - -
Dry hole costs 71 28
Exploration expense 55 59
Interest expense 38 51
Property and other operating taxes 22 16
Distributions on convertible preferred
securities of subsidiary trust 8 8
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Total costs and other deductions 1,483 1,023
Earnings from equity investments 43 37
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Earnings from continuing operations before
income taxes and minority interests 387 63
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Income taxes 168 40
Minority interests 2 1
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Earnings from continuing operations 217 22
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Earnings from discontinued operations - -
Cumulative effects of accounting changes (a) (83) -
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Net earnings $ 134 $ 22
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Basic earnings per share of common stock (b)
Continuing operations $ 0.84 $ 0.09
Net earnings $ 0.52 $ 0.09
Diluted earnings per share of common stock (c)
Continuing operations $ 0.82 $ 0.09
Net earnings $ 0.52 $ 0.09
Cash dividends declared per share of common stock $ 0.20 $ 0.20
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(a) Net of tax (benefit): $ ( 48) $ -
(b) Basic weighted average shares
outstanding (in thousands) 258,005 244,207
(c) Diluted weighted average shares
outstanding (in thousands) 271,729 245,247
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CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) UNOCAL CORPORATION
At March 31, At December 31,
Millions of dollars 2003 2002
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Assets
Cash and cash equivalents $ 356 $ 168
Other current assets - net 1,354 1,207
Investments and long-term receivables - net 1,038 1,044
Properties - net 8,114 7,879
Goodwill 125 122
Other assets 396 340
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Total assets $ 11,383 $ 10,760
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Liabilities and Stockholders' Equity
Current liabilities (a) $ 1,869 $ 1,632
Long-term debt and capital leases 2,918 3,002
Deferred income taxes 631 593
Accrued abbandonment, restoration
and environmental liabilities 880 622
Other deferred credits and liabilities 844 816
Minority interests 275 275
Convertible preferred securities
of a subsidiary trust 522 522
Stockholders' equity 3,444 3,298
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Total liabilities and stockholders' equity $ 11,383 $ 10,760
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(a) Includes current portion of LTD: 6 6
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CONDENSED CONSOLIDATED CASH FLOWS (UNAUDITED) UNOCAL CORPORATION
For the Three Months
Ended March 31,
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Millions of dollars 2003 2002
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Cash Flows from Operating Activities
Net earnings $ 134 $ 22
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 260 224
Asset impairments - -
Dry hole costs 71 28
Amortization of exploratory leasehold costs 24 22
Deferred income taxes 30 (23)
Gain on sales of assets (pre-tax) (3) (2)
Earnings applicable to minority interests 2 1
Cumulative effects of accounting changes 83 -
Other 30 (12)
Working capital and other changes related to operations 54 11
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Net cash provided by operating activities 685 271
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Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (429) (390)
Proceeds from sales of assets 66 28
Proceeds from sale of discontinued operations - 2
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Net cash used in investing activities (363) (360)
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Cash Flows from Financing Activities
Long-term borrowings 16 399
Reduction of long-term debt and
capital lease obligations (100) (123)
Minority interests (2) (2)
Proceeds from issuance of common stock 1 14
Dividends paid on common stock (52) (49)
Other 3 (2)
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Net cash provided (used) by financing activities (134) 237
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Net increase in cash and cash equivalents 188 148
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Cash and cash equivalents at beginning of year 168 190
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Cash and cash equivalents at end of period $ 356 $ 338
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OPERATING HIGHLIGHTS UNOCAL CORPORATION
For the Three Months
Ended March 31,
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2003 2002
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North America Net Daily Production
Liquids (thousand barrels)
U.S. Lower 48 (a) (b) 48 56
Alaska 22 25
Canada 18 18
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Total liquids 88 99
Natural gas - dry basis (million cubic feet)
U.S. Lower 48 (a) (b) 700 746
Alaska 61 101
Canada 97 90
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Total natural gas 858 937
North America Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel)
U.S. Lower 48 $30.53 $18.36
Alaska $33.48 $18.61
Canada $28.44 $16.52
Average $30.77 $18.06
Natural gas (per mcf)
U.S. Lower 48 $ 6.29 $ 2.23
Alaska $ 1.20 $ 1.57
Canada $ 5.64 $ 2.34
Average $ 5.83 $ 2.16
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North America Average Prices (including hedging activities) (c) (d)
Liquids (per barrel)
U.S. Lower 48 $28.97 $18.54
Alaska $33.48 $18.61
Canada $28.44 $16.52
Average $29.90 $18.17
Natural gas (per mcf)
U.S. Lower 48 $ 5.61 $ 2.47
Alaska $ 1.20 $ 1.57
Canada $ 5.33 $ 2.25
Average $ 5.25 $ 2.35
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(a) Includes proportional interests in production of equity investees.
(b) Includes minority interests of :
Liquids 1 9
Natural gas 10 98
Barrels oil equivalent 2 25
(c) Excludes Trade segment margins.
(d) Excludes gains/losses on derivative positions not accounted for as
hedges and ineffective portions of hedges.
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OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION
For the Three Months
Ended March 31,
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2003 2002
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International Net Daily Production (e)
Liquids (thousand barrels)
Far East 55 53
Other (a) 21 20
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Total liquids 76 73
Natural gas - dry basis (million cubic feet)
Far East 875 822
Other (a) 107 75
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Total natural gas 982 897
International Average Prices (f)
Liquids (per barrel)
Far East $29.69 $19.28
Other $32.21 $21.96
Average $30.11 $19.86
Natural gas (per mcf)
Far East $ 2.76 $ 2.59
Other $ 2.83 $ 2.48
Average $ 2.77 $ 2.58
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Worldwide Net Daily Production (a) (b) (e)
Liquids (thousand barrels) 164 172
Natural gas - dry basis (million cubic feet) 1,840 1,834
Barrels oil equivalent (thousands) 471 477
Worldwide Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel) $30.49 $18.80
Natural gas (per mcf) $ 4.17 $ 2.37
Worldwide Average Prices (including hedging activities) (c) (d)
Liquids (per barrel) $ 29.99 $18.86
Natural gas (per mcf) $ 3.90 $ 2.46
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(a) Includes proportional interests in production of equity investees.
(b) Includes minority interests of :
Liquids 1 9
Natural gas 10 98
Barrels oil equivalent 2 25
(c) Excludes Trade segment margins.
(d) Excludes gains/losses on derivative positions not accounted for as
hedges and ineffective portions of hedges.
(e) International production is presented utilizing the economic
interest method.
(f) International did not have any hedging activities.
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