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) October 29, 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)
Third Quarter 2003 Results
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Unocal Corporation's net earnings were $152 million, or 58 cents per share
(diluted), in the third quarter of 2003 compared with $99 million, or 41 cents
per share (diluted), in the third quarter of 2002.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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Millions of dollars 2003 2002 2003 2002
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Earnings from continuing operations $ 152 $ 99 $ 538 $ 234
Earnings from discontinued operations - - 8 1
Cumulative effects of accounting changes - - (83) -
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Net earnings $ 152 $ 99 $ 463 $ 235
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Continuing Operations
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Third Quarter Results: Earnings from continuing operations increased by $53
million in the third 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 $100
million. The Company's worldwide average realized natural gas price, with no
impact from hedging activities in the current quarter, was $3.60 per Mcf. This
was an increase of 81 cents per Mcf, or 29 percent, from the $2.79 per Mcf
realized during the same period a year ago, which included a gain of one cent
per Mcf from hedging activities. In the current quarter, the Company's worldwide
average realized liquids price was $27.28 per Bbl, which was an increase of
$2.47 per Bbl, or 10 percent, from the same period a year ago. The Company's
hedging program lowered the average realized liquids price by 6 cents per Bbl in
the current quarter while the third quarter of the prior year included a loss of
one cent per Bbl from hedging activities. The current quarter also included
gains on asset sales of approximately $30 million after-tax, the majority of
which was related to the sale of the Company's shares in Tom Brown, Inc.
("TBI"). Exploration expenses, including dry hole costs, were approximately $25
million lower in the third quarter of 2003 compared to the same period a year
ago primarily as a result of lower dry hole costs in North America and lower
amortization of exploratory leasehold costs worldwide. The geothermal and power
operations segment added $14 million in earnings improvement in the current
quarter as compared to the same period a year ago, primarily as a result of
higher steam prices and generation in Indonesia and improved results from the
Company's equity interests in gas-fired power plants in Thailand. The third
quarter of 2002 also included an after-tax loss of $5 million in mark-to-market
accruals and realized gains/losses for non-hedge commodity derivatives recorded
by the Company's Northrock Resources Ltd. ("Northrock") subsidiary.
These positive variance factors were partially offset by approximately $50
million in higher after-tax impairments compared to the same period a year ago,
which was primarily related to the assets held for sale. In addition,
lower North America production reduced net earnings by approximately $10 million
in the current quarter compared with the same period a year ago. North America
liquids production averaged 80,000 Bbl/d in the current quarter, down from
92,000 Bbl/d in the same period a year ago, while natural gas production
averaged 734 MMcf/d in the current quarter, down from 867 MMcf/d in the same
period 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 during the first nine months of
2003. In addition, the Company's minerals operations contributed approximately
$10 million after-tax of lower earnings in the current quarter as compared to
the third quarter of 2002. Higher pension related expenses also reduced net
earnings by approximately $10 million in the current quarter compared to the
same period a year ago. The Company's after-tax environmental and litigation
expenses were $38 million in the current quarter of 2003, compared with $25
million in the same period a year ago, primarily reflecting higher outside
litigation support costs. The current quarter also includes an additional $6
million after-tax charge related to the Company's 2003 restructuring plan.
-1-
Nine Months Results: Earnings from continuing operations were $538 million in
the first nine months of 2003 compared to $234 million for the same period a
year ago. Higher worldwide commodity prices increased net earnings by
approximately $400 million. The Company's worldwide average realized natural gas
price, including a loss of 11 cents per Mcf from hedging activities, was $3.68
per Mcf in the first nine months of 2003. This was an increase of 96 cents per
Mcf, or 35 percent, from the $2.72 per Mcf, including a benefit of 4 cents per
Mcf from hedging activities, realized during the first nine months of 2002. In
the first nine months of 2003, the Company's worldwide average realized liquids
price was $27.36 per Bbl, which was an increase of $4.98 per Bbl, or 22 percent,
from the same period a year ago. The Company's hedging program lowered the
average realized liquids price by 19 cents per Bbl in the first nine months of
2003 while the first nine months of 2002 included a gain of one cent per Bbl
from hedging activities. International production increases also contributed
approximately $35 million in higher earnings, primarily from higher Thailand
liquids and natural gas production. The first nine months of 2003 included
after-tax gains of approximately $62 million from asset sales, including the
sale of the equity interests in Matador Petroleum Corporation ("Matador") and
TBI. The geothermal and power operations segment added $13 million in earnings
improvement in the nine months period of 2003 as compared to the same period a
year ago, primarily as a result of the amended Salak agreements in Indonesia and
improved results from the Company's equity interests in gas-fired power plants
in Thailand. The results in the first nine months of 2003 included an after-tax
gain of $4 million in mark-to-market accruals and realized gains/losses for
non-hedge commodity derivatives recorded by the Company's Northrock subsidiary,
compared with a $5 million after-tax loss in the same period a year ago.
These 2003 positive variance factors were partially offset by lower North
America production, the aforementioned higher asset impairments, higher pension
related expenses and higher dry hole costs, which reduced net earnings by
approximately $40 million, $40 million, $30 million and $10 million,
respectively, in the first nine months of 2003 compared with the same period a
year ago. North America liquids production averaged 84,000 Bbl/d in the first
nine months of 2003, down from 96,000 Bbl/d a year ago, while natural gas
production averaged 800 MMcf/d down from 910 MMcf/d for the nine months period 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. In addition, the Company's minerals
operations contributed approximately $20 million after-tax of lower earnings in
the nine months period of 2003 as compared to the same period a year ago.
After-tax environmental and litigation expenses were $83 million in the first
nine months of 2003, compared with $62 million in the same period a year ago,
primarily due to higher litigation expenses including related outside support
costs. The first nine months of 2003 included the company-wide $23 million
restructuring charge, while the same period a year ago included a $12 million
restructuring charge for the Gulf Region business unit.
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.
Revenues
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Revenues from continuing operations for the third quarter of 2003 were $1.54
billion compared with $1.3 billion for the same period a year ago. In the first
nine months of 2003, total revenues from continuing operations were $4.95
billion compared with $3.71 billion for the same period a year ago. The
increases, in both the quarter and nine months amounts, primarily reflected
higher crude oil and natural gas prices.
-2-
Financial Condition
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Cash flows from operating activities, including working capital and other
changes, were $1.65 billion in the first nine months of 2003 compared with $1.23
billion in the same period a year ago. The increase principally reflected the
effects of higher worldwide commodity prices.
Capital expenditures were $1.3 billion for the first nine months of 2003
compared with $1.25 billion in the same period a year ago.
Pre-tax proceeds from asset sales were $152 million in the third quarter,
bringing the total for the nine months of 2003 to $343 million. The Company
received $122 million from the sale of most of its equity interest shares held
in TBI and $80 million from the sale of its equity interest in Matador. The
Company also completed the sale of various properties in Canada, onshore U.S.
and the Gulf of Mexico, which netted the Company approximately $106 million in
proceeds. Other miscellaneous properties netted the Company $45 million in
proceeds. Proceeds from the sale of assets in 2003 will be used mainly to reduce
debt and other financings.
The Company's total consolidated debt, including current maturities, at
September 30, 2003, was $3.12 billion, compared with $3.0 billion at year-end
2002. Cash and cash equivalents on hand totaled $485 million at September 30,
2003, up from $168 million at the end of 2002.
In the first nine months of 2003, the Company has retired more than $400 million
in long-term debt and other financings. Pursuant to Financial Accounting
Standards Board Interpretation 46 ("Consolidation of Variable Interest
Entities"), the Company consolidated in the third quarter of 2003 the long-term
debt of an affiliate that operates geothermal steam-fired power plants in
Indonesia. At September 30, 2003, the balance sheet includes $78 million related
to this debt. In addition, the Company has drawn $154 million under the Overseas
Private Investment Corporation Financing Agreement for the first phase of
development of the West Seno project in Indonesia.
Fourth Quarter 2003 Outlook
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The Company's current net worldwide daily production estimate for the fourth
quarter of 2003 is between 430,000 and 440,000 barrels-of-oil equivalent
("BOE"). Based on current market prices, the Company's net earnings for the
fourth quarter are expected to change $8 million for every $1 change in the
Company's average worldwide realized price for crude oil and $3.5 million for
every 10-cent change in its average realized North America natural gas price,
excluding the effect of hedging activities. For the fourth quarter of 2003, the
Company has hedged 25 million MMBtu (million British thermal units) of Lower 48
natural gas production and 4 million Bbl of Lower 48 crude oil, together
representing approximately 70 percent of expected Lower 48 BOE production
volume. Fourth quarter hedges include fixed price sales for 16 million MMBtu of
natural gas at $5.99 per MMBtu and 3.1 million Bbl of crude oil at $31.14 per
Bbl. In addition, the Company has hedged 9 million MMBtu of natural gas with
pricing collars between $4.62 and $3.77 per MMBtu and 600,000 Bbl of crude oil
with collars between $32.24 and $27.41 per Bbl. The Company also forecasts
fourth quarter pre-tax dry hole costs of $50 million to $65 million.
Deepwater Gulf of Mexico Discovery
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The Company announced that it made a hydrocarbon discovery on the deepwater St.
Malo prospect on the Walker Ridge Block 678 in the Gulf of Mexico. The discovery
well encountered more than 450 net feet of oil pay. The Company expects to begin
an appraisal program in early 2004, based on the current evaluation of resource
potential.
The well was drilled to a depth of 29,066 feet in 100 days at an estimated gross
cost of $62 million. The well is located in 6,900 feet of water about 250 miles
south-southwest of New Orleans. The well was drilled from the Discoverer Spirit
drillship.
Unocal is the operator and holds a 28.75 percent working interest in the
prospect.
-3-
Cautionary Statement
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This filing contains certain forward-looking statements about Unocal's future
production rates, commodity prices, dry hole costs, business transactions,
future drilling plans 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 68 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: November 03, 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 For the Nine Months
Ended September 30, Ended September 30,
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Millions of dollars
except per share amounts 2003 2002 2003 2002
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Revenues
Sales and operating revenues $ 1,478 $ 1,299 $ 4,817 $ 3,695
Interest, dividends
and miscellaneous income (loss) (2) (3) 18 17
Gain on sales of assets 65 1 115 2
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Total revenues 1,541 1,297 4,950 3,714
Costs and other deductions
Crude oil, natural gas
and product purchases 447 401 1,629 1,124
Operating expense 346 326 965 949
Administrative and general expense 61 34 199 114
Depreciation, depletion and amortization 231 245 746 724
Asset impairments 83 6 86 27
Dry hole costs 14 40 95 81
Exploration expense 39 60 182 180
Interest expense 45 40 119 134
Property and other operating taxes 18 7 61 41
Distributions on convertible preferred
securities of subsidiary trust 8 8 24 24
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Total costs and other deductions 1,292 1,167 4,106 3,398
Earnings from equity investments 54 35 150 123
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Earnings from continuing operations
before income taxes
and minority interests 303 165 994 439
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Income taxes 147 68 448 203
Minority interests 4 (2) 8 2
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Earnings from continuing operations 152 99 538 234
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Earnings from discontinued operations - - 8 1
Cumulative effects of
accounting changes (a) - - (83) -
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Net earnings $ 152 $ 99 $ 463 $ 235
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Basic earnings per share
of common stock (b)
Continuing operations $ 0.59 $ 0.41 $ 2.08 $ 0.96
Net earnings $ 0.59 $ 0.41 $ 1.79 $ 0.96
Diluted earnings per share
of common stock (c)
Continuing operations $ 0.58 $ 0.41 $ 2.05 $ 0.96
Net earnings $ 0.58 $ 0.41 $ 1.78 $ 0.96
Cash dividends declared per share
of common stock $ 0.20 $ 0.20 $ 0.60 $ 0.60
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(a) Net of tax (benefit) $ - $ - $ (48) $ -
(b) Basic weighted average shares
outstanding (in thousands) 258,525 244,664 258,244 244,503
(c) Diluted weighted average shares
outstanding (in thousands) 272,691 245,226 272,172 245,378
-5-
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) UNOCAL CORPORATION
At September 30, At December 31,
Millions of dollars 2003 2002
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Assets
Cash and cash equivalents $ 485 $ 168
Other current assets - net 1,252 1,207
Investments and long-term receivables - net 903 1,044
Properties - net 8,492 7,879
Goodwill 129 122
Other assets 407 340
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Total assets $ 11,668 $ 10,760
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Liabilities and Stockholders' Equity
Current liabilities (a) $ 1,900 $ 1,632
Long-term debt and capital leases 2,868 3,002
Deferred income taxes 709 593
Accrued abandonment, restoration
and environmental liabilities 912 622
Other deferred credits and liabilities 915 816
Minority interests 28 275
Convertible preferred securities
of a subsidiary trust 522 522
Stockholders' equity 3,814 3,298
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Total liabilities and stockholders' equity $ 11,668 $ 10,760
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(a) Includes current portion of LTD of: 249 6
-6-
CONSOLIDATED CASH FLOWS (UNAUDITED) UNOCAL CORPORATION
For the Nine Months
Ended September 30,
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Millions of dollars 2003 2002
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Cash Flows from Operating Activities
Net earnings $ 463 $ 235
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 746 724
Asset impairments 86 27
Dry hole costs 95 81
Amortization of exploratory leasehold costs 88 74
Deferred income taxes 102 25
Gain on sales of assets (115) (2)
Gain on disposal of discontinued operations (13) (2)
Pension expense 65 17
Restructuring provisions net of payments 22 14
Cumulative effect of accounting changes 83 -
Other 5 (85)
Working capital and other changes related to operations 26 124
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Net cash provided by operating activities 1,653 1,232
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Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,296) (1,248)
Proceeds from sales of assets 343 61
Proceeds from sale of discontinued operations 11 3
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Net cash used in investing activities (942) (1,184)
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Cash Flows from Financing Activities
Long-term borrowings 154 437
Reduction of long-term debt
and capital lease obligations (156) (267)
Minority interests (257) (6)
Proceeds from issuance of common stock 15 19
Dividends paid on common stock (155) (147)
Other 5 1
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Net cash provided by (used in) financing activities (394) 37
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Net increase (decrease) in cash and cash equivalents 317 85
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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 $ 485 $ 275
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OPERATING HIGHLIGHTS UNOCAL CORPORATION
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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2003 2002 2003 2002
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North America Net Daily Production
Liquids (thousand barrels)
U.S. Lower 48 (a) (b) 42 52 45 54
Alaska 21 24 22 25
Canada 17 16 17 17
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Total liquids 80 92 84 96
Natural gas - dry basis (million cubic feet)
U.S. Lower 48 (a) (b) 595 716 650 740
Alaska 49 61 59 79
Canada 90 90 91 91
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Total natural gas 734 867 800 910
North America Average Prices (excluding hedging activities) (c)
Liquids (per barrel)
U. S. Lower 48 $ 27.92 $ 24.85 $ 28.04 $ 22.24
Alaska $ 29.39 $ 26.10 $ 29.87 $ 23.36
Canada $ 24.02 $ 22.70 $ 25.37 $ 20.29
Average $ 27.47 $ 24.79 $ 27.96 $ 22.18
Natural gas (per mcf)
U. S. Lower 48 $ 4.78 $ 2.95 $ 5.39 $ 2.78
Alaska $ 1.46 $ 1.20 $ 1.27 $ 1.48
Canada $ 4.96 $ 2.08 $ 5.24 $ 2.38
Average $ 4.57 $ 2.73 $ 5.05 $ 2.62
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North America Average Prices (including hedging activities) (c)
Liquids (per barrel)
U. S. Lower 48 $ 27.71 $ 24.84 $ 27.37 $ 22.28
Alaska $ 29.39 $ 26.10 $ 29.87 $ 23.36
Canada $ 24.02 $ 22.70 $ 25.37 $ 20.29
Average $ 27.36 $ 24.78 $ 27.59 $ 22.20
Natural gas (per mcf)
U. S. Lower 48 $ 4.82 $ 2.97 $ 5.11 $ 2.87
Alaska $ 1.46 $ 1.20 $ 1.27 $ 1.48
Canada $ 4.64 $ 2.10 $ 4.93 $ 2.44
Average $ 4.57 $ 2.75 $ 4.79 $ 2.69
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(a)Includes proportional interests in production of equity investees.
(b)Includes minority interests of :
Liquids - 8 1 8
Natural gas - 94 7 96
Barrels oil equivalent - 24 2 24
(c)Excludes gains/losses on derivative positions not accounted for as
hedges and ineffective portions of hedges.
-8-
OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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2003 2002 2003 2002
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International Net Daily Production (d)
Liquids (thousand barrels)
Far East 59 52 58 53
Other (a) 20 20 20 20
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Total liquids 79 72 78 73
Natural gas - dry basis (million cubic feet)
Far East 883 859 888 855
Other (a) 74 83 91 79
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Total natural gas 957 942 979 934
International Average Prices (d) (e)
Liquids (per barrel)
Far East $26.65 $23.99 $26.92 $21.95
Other $29.19 $26.94 $27.74 $24.62
Average $27.20 $24.84 $27.11 $22.62
Natural gas (per mcf)
Far East $2.86 $2.84 $2.79 $2.74
Other $2.93 $2.80 $2.88 $2.70
Average $2.87 $2.83 $2.80 $2.74
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Worldwide Net Daily Production (a) (b) (d)
Liquids (thousand barrels) 159 164 162 169
Natural gas - dry basis (million cubic feet) 1,691 1,809 1,779 1,844
Barrels oil equivalent (thousands) 441 466 458 476
Worldwide Average Prices (excluding hedging activities) (c)
Liquids (per barrel) $27.34 $24.82 $27.55 $22.37
Natural gas (per mcf) $3.60 $2.78 $3.79 $2.68
Worldwide Average Prices (including hedging activities) (c) (e)
Liquids (per barrel) $27.28 $24.81 $27.36 $22.38
Natural gas (per mcf) $3.60 $2.79 $3.68 $2.72
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(a)Includes proportional interests in production of equity investees.
(b)Includes minority interests of :
Liquids - 8 1 8
Natural gas - 94 7 96
Barrels oil equivalent - 24 2 24
(c)Excludes gains/losses on derivative positions not accounted for as
hedges and ineffective portions of hedges.
(d)International production is presented utilizing the economic interest method.
(e)International did not have any hedging activities.
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