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 28, 2004
------------------------
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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act
Item 2.02. Results of Operations and Financial Condition;
Item 7.01. Regulation FD Disclosure.
In accordance with General Instructions B.2 and B.6 of Form 8-K, the
information in this Form 8-K, including in Exhibits 99.1 and 99.2 hereto, shall
not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, nor shall such information be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except as shall be expressly set forth by specific reference in such a filing.
On October 28, 2004, we issued a news release announcing our preliminary
earnings for the third quarter and nine months ended September 30, 2004 and
containing other information set forth therein. A copy of the news release is
furnished with this report as Exhibit 99.1 and shall be deemed a part of and
incorporated by reference into this Item 2.02 and Item 7.01 for all purposes.
On October 28, 2004, we distributed for reference during our quarterly
earnings call held on October 28, 2004 a summary of the significant variances in
adjusted after-tax earnings by business segment between the third quarter of
2004 and the second quarter of 2004. A copy of this summary is furnished with
this report as Exhibit 99.2 and shall be deemed a part of and incorporated by
reference into this Item 2.02 and Item 7.01 for all purposes.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Press Release dated October 28, 2004.
99.2 Summary of Significant Variances dated October 28, 2004.
Signature
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: October 28, 2004 By: /s/Joe D. Cecil
----------------------- -------------------------------
Joe D. Cecil
Vice President and Comptroller
Unocal
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
[UNOCAL LOGO]
NEWS RELEASE
Contact:Barry Lane (Media)
310-726-7731
Robert Wright (Investors)
310-726-7665
Unocal announces net earnings for third quarter 2004
----------------------------------------------------
El Segundo, Calif., Oct. 28, 2004 - Unocal Corporation (NYSE: UCL) today
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
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Earnings from continuing operations $ 329 $ 282 $ 150
Earnings from discontinued operations 1 59 2
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Net earnings 330 341 152
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Less: Special items in continuing operations 35 54 (38)
Less: Special items in discontinued operations 1 56 -
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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
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Total net earnings per share $ 1.23 $ 1.25 $ 0.58
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Adjusted after-tax earnings per share $ 1.09 $ 0.86 $ 0.72
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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,
2
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 int 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 7,200 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.
For the Nine Months
CONSOLIDATED RESULTS (UNAUDITED) Ended September 30,
---------------------------
Millions of dollars except per share amounts 2004 2003
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Earnings from continuing operations $ 877 $ 529
Earnings from discontinued operations 63 17
Cumulative effect of accounting changes - (83)
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Net earnings 940 463
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Less: Special items in continuing operations 119 (72)
Less: Special items in discontinued operations 57 8
Less: Cumulative effect of accounting changes - (83)
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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
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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.
The company's updated 2004-2005 net production outlook can be found in
the Data Warehouse section of Unocal's Investor Relations web site,
www.unocal.com. This document provides additional detailed ranges of the
numerous areas of production, which describe the company's lowest and highest
production estimates in those areas. In locations where Unocal is limited by
market demand or pipeline capacity, the range is between the contract minimum
and the highest past production or the estimated capacity limits of the
producing assets. A sensitivity factor is provided to adjust future production
for the impacts of PSC adjustments due to changes in oil prices.
About Unocal Corporation
------------------------
Unocal is one of the world's leading independent natural gas and crude
oil exploration and production companies. The company's principal oil and gas
activities are in Asia and North America.
Conference call/financial database
----------------------------------
Unocal will webcast its quarterly earnings conference call today at 1
p.m. PDT (4 p.m. EDT) over the Internet. To listen to the live webcast, go to
the Investor Relations section of the Unocal web site, www.unocal.com. Replays
of the conference call, including questions and answers, will be available.
Additional financial tables for the third quarter 2004 and the comparable
prior periods are available in the company's "Quarterly Fact Book," which is
posted in the Data Warehouse in the Investor Relations section of the company's
web site. The Quarterly Fact Book is also available upon request from Unocal
Investor Relations.
* * * * *
Forward-Looking Statements; Preliminary 2004 Third Quarter Results This news
release contains forward-looking statements about matters such as drilling and
development plans and operations; dry hole costs; production rates, timing and
growth; commodity prices; contingent payments pursuant to completed
transactions; and adjusted after-tax earnings. Although these statements are
based upon Unocal's current expectations and beliefs, they are subject to known
and unknown risks and uncertainties that could cause actual results and outcomes
to differ materially from those described in, or implied by, the forward-looking
statements, including volatility in commodity prices; the company's ability to
find or acquire commercially productive oil and gas reservoirs and to develop
and produce deepwater fields and other complex projects in a timely and
cost-effective manner; local demand, infrastructure and the distance to markets
for the company's hydrocarbon production; the accuracy of the company's
estimates and judgments regarding hydrocarbon resources and formations; decline
rates of producing properties; adverse geological and other operational factors;
the extent of the company's operating cash flow and other capital resources
available to fund its capital expenditures; international and domestic
regulatory, political, and economic considerations; negotiations with, and
performance by, foreign government entities, joint venture partners, independent
contractors, equipment suppliers, operators of properties in which the company
has an interest, and other third parties; competition within the company's
highly competitive industry; and other factors discussed in Unocal's 2003 Annual
Report on Form 10-K, as amended, and subsequent reports filed by Unocal with the
U.S. Securities and Exchange Commission (SEC).
Copies of the company's SEC filings are available from the company by calling
800-252-2233 or from the SEC by calling 800-SEC-0330. The reports are also
available on the Unocal web site, www.unocal.com. Unocal undertakes no
obligation to update the forward-looking statements in this news release to
reflect future events or circumstances. All such statements are expressly
qualified by this cautionary statement.
In addition, disclosures in this news release, including in the attached tables,
regarding Unocal's third quarter 2004 financial results are preliminary. These
disclosures are subject to change in connection with Unocal's preparation and
filing of its Form 10-Q for the third quarter 2004.
Supplemental Non-GAAP Financial Measures
----------------------------------------
The news release includes certain "non-GAAP financial measures" as defined under
SEC regulations. Specifically, Unocal has referred to (1) adjusted after-tax
earnings and (2) EBITDAX. Adjusted after-tax earnings are defined as net
earnings excluding special items and cumulative effects of accounting changes.
EBITDAX is defined as net earnings before interest, taxes, depreciation,
depletion and amortization, asset impairments, exploration expenses, dry hole
costs, special items and cumulative effects of accounting changes.
Special items represent certain significant matters which positively or
negatively impact net earnings and that management determines to be not
representative of the company's ongoing operations. Examples include: gain/loss
from major asset sales; environmental remediation costs related primarily to
inactive, closed or previously owned company facilities and third party sites;
costs or settlements associated with major restructuring plans; litigation
settlement costs primarily associated with former company operations or
closed/inactive facilities; significant impairments due to changes in commodity
prices; material damage to company facilities or operations due to fire,
explosion, earthquakes, storms or other "acts of god" not covered by insurance;
certain costs associated with major acquisitions including litigation and
significant trading derivatives; and insurance recoveries associated with former
company operations or for costs incurred in prior years.
Unocal's management believes that adjusted after-tax earnings is a useful
supplemental financial measure to investors and analysts because it facilitates
a focus on the company's ongoing operations and allows for convenient
comparisons to the company's prior reporting periods. Adjusted after-tax
earnings is also used as a factor in calculating various performance measures in
connection with payments under the company's annual bonus plan, and it is used
by management as a factor in reviewing business unit performance. Unocal's
management believes that EBITDAX is helpful to investors and analysts because it
facilitates a comparison of companies like Unocal that use the "successful
efforts" accounting method with other companies in the exploration and
production industry that utilize the "full-cost" method of accounting.
Adjusted after-tax earnings and EBITDAX are not substitutes for net earnings
determined in accordance with GAAP as a measure of profitability or other GAAP
financial measures. Special items excluded from these non-GAAP measures do in
fact positively or negatively impact net earnings. Other companies may define
special items differently, and the Thomson/First Call mean of analyst estimates
may not use a similar definition. Hence, these measures may not be comparable
with similarly titled amounts reported by other companies or analyst estimates
reported by Thomson/First Call.
A quantitative historical reconciliation of adjusted after-tax earnings and
EBITDAX to GAAP net earnings is found in this news release, including certain of
the tables accompanying the text.
* * * * *
CONSOLIDATED EARNINGS (UNAUDITED) UNOCAL CORPORATION
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------------------------------
Millions of dollars except per share amounts 2004 2003 2004 2003
--------------------------------------------------------------------------------------------------------------
Revenues
Sales and operating revenues $ 1,961 $ 1,472 $ 5,712 $ 4,797
Interest, dividends and miscellaneous income 6 (2) 36 18
Gain on sales of assets 26 65 110 115
--------------------------------------------------------------------------------------------------------------
Total revenues 1,993 1,535 5,858 4,930
Costs and other deductions
Crude oil, natural gas and product purchases 772 447 2,288 1,629
Operating expense 316 344 978 962
Administrative and general expense 35 61 144 199
Depreciation, depletion and amortization 248 231 720 744
Impairments 28 83 42 86
Dry hole costs 12 14 77 95
Exploration expense 51 39 149 182
Interest expense 40 45 127 119
Property and other operating taxes 19 18 61 61
Distributions on convertible preferred
securities of subsidiary trust - 8 - 24
--------------------------------------------------------------------------------------------------------------
Total costs and other deductions 1,521 1,290 4,586 4,101
Earnings from equity investments 31 54 106 150
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Earnings from continuing operations before
income taxes and minority interests 503 299 1,378 979
--------------------------------------------------------------------------------------------------------------
Income taxes 172 145 495 442
Minority interests 2 4 6 8
--------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 329 150 877 529
Earnings from discontinued operations (a) 1 2 63 17
Cumulative effect of accounting changes (b) - - - (83)
--------------------------------------------------------------------------------------------------------------
Net earnings $ 330 $ 152 $ 940 $ 463
==============================================================================================================
Basic earnings per share of common stock (c)
Continuing operations $ 1.25 $ 0.58 $ 3.34 $ 2.05
Discontinued operations 0.01 0.01 0.24 0.06
Cumulative effect of accounting changes - - - (0.32)
--------------------------------------------------------------------------------------------------------------
Net earnings $ 1.26 $ 0.59 $ 3.58 $ 1.79
==============================================================================================================
Diluted earnings per share of common stock (d)
Continuing operations $ 1.22 $ 0.57 $ 3.25 $ 2.02
Discontinued operations 0.01 0.01 0.23 0.06
Cumulative effect of accounting changes - - - (0.30)
--------------------------------------------------------------------------------------------------------------
Net earnings $ 1.23 $ 0.58 $ 3.48 $ 1.78
==============================================================================================================
Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.60 $ 0.60
--------------------------------------------------------------------------------------------------------------
(a) Net of tax (benefit) $ 1 $ 2 $ 33 $ 11
(b) Net of tax (benefit) $ - $ - $ - $ (48)
(c) Basic weighted average shares outstanding (in thousands) 262,628 258,525 262,839 258,244
(d) Diluted weighted average shares outstanding (in thousands)274,287 272,691 276,292 272,771
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) UNOCAL CORPORATION
At September 30, At December 31,
Millions of dollars 2004 2003
--------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 780 $ 404
Other current assets - net 1,699 1,587
Investments and long-term receivables - net 827 892
Properties - net 8,639 8,324
Goodwill 133 131
Other assets 442 460
--------------------------------------------------------------------------------------------------------------
Total assets $ 12,520 $ 11,798
==============================================================================================================
Liabilities and Stockholders' Equity
Current liabilities (a) $ 2,163 $ 2,085
Long-term debt and capital leases 2,842 2,635
Deferred income taxes 737 704
Accrued abandonment, restoration and environmental liabilities 891 844
Other deferred credits and liabilities 1,016 960
Minority interests 37 39
Convertible preferred securities of a subsidiary trust - 522
Stockholders' equity 4,834 4,009
--------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 12,520 $ 11,798
==============================================================================================================
(a) Includes current portion of Long-term debt and capital leases of: 235 248
CONSOLIDATED CASH FLOWS (UNAUDITED) UNOCAL CORPORATION
For the Nine Months
Ended September 30,
------------------------------
Millions of dollars 2004 2003
--------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net earnings $ 940 $ 463
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 720 746
Impairments 42 86
Dry hole costs 77 95
Amortization of exploratory leasehold costs 47 88
Deferred income taxes 13 102
Gain on sales of assets (110) (115)
Gain on disposal of discontinued operations (86) (13)
Pension expense net of contributions (35) 65
Restructuring provisions net of payments (18) 22
Cumulative effect of accounting changes - 83
Other (13) 5
Working capital and other changes related to operations
Accounts and notes receivable 41 (15)
Inventories (57) (35)
Accounts payable 54 20
Taxes payable 29 55
Other 48 1
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,692 1,653
--------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,243) (1,296)
Proceeds from sales of assets 278 343
Proceeds from sales of discontinued operations 123 11
Return of capital from affiliate company 48 -
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (794) (942)
--------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Long-term borrowings 137 154
Reduction of long-term debt and capital lease obligations (247) (156)
Minority interests (2) (257)
Repurchases of common stock (170) -
Repurchases of preferred securities (253) -
Proceeds from issuance of common stock 149 15
Dividends paid on common stock (158) (155)
Loans to key employees 24 -
Other (2) 5
--------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (522) (394)
--------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 376 317
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 404 168
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 780 $ 485
==============================================================================================================
NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
BY BUSINESS SEGMENT (UNAUDITED)
3rd Q 2004 2nd Q 2004
----------------------------------------------
Adjusted Adjusted
Net After-Tax Net After-Tax
Millions of dollars Earnings Earnings (a) Earnings Earnings (a)
-------------------------------------------------------------------------------------------------------------------
Exploration and Production
North America
U.S. $ 97 $ 99 $ 108 $ 86
Canada 15 15 16 16
----------------------------------------------
Total North America 112 114 124 102
International
Asia 189 189 137 137
Other 31 31 29 29
----------------------------------------------
Total International 220 220 166 166
----------------------------------------------
Total Exploration and Production 332 334 290 268
----------------------------------------------
Midstream and Marketing 12 12 18 18
Geothermal 3 3 57 11
Corporate and Other
Administrative and General (19) (19) (21) (21)
Interest Expense - Net (26) (26) (33) (33)
Environmental and Litigation (20) (3) (11) (3)
Other 47 (7) (18) (12)
-------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 329 294 282 228
After-tax earnings from discontinued operations 1 - 59 3
-------------------------------------------------------------------------------------------------------------------
After-tax earnings $ 330 $ 294 $ 341 $ 231
===================================================================================================================
(a) For a reconciliation to net earnings, see the Adjusted After-Tax Earnings Reconciliation table.
NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
BY BUSINESS SEGMENT (UNAUDITED)
3rd Q 2004 3rd Q 2003
----------------------------------------------
Adjusted Adjusted
Net After-Tax Net After-Tax
Millions of dollars Earnings Earnings (a) Earnings Earnings (a)
-------------------------------------------------------------------------------------------------------------------
Exploration and Production
North America
U.S. $ 97 $ 99 $ 87 $ 95
Canada 15 15 15 15
----------------------------------------------
Total North America 112 114 102 110
International
Asia 189 189 113 113
Other 31 31 23 23
----------------------------------------------
Total International 220 220 136 136
----------------------------------------------
Total Exploration and Production 332 334 238 246
----------------------------------------------
Midstream and Marketing 12 12 19 20
Geothermal 3 3 19 19
Corporate and Other
Administrative and General (19) (19) (21) (21)
Interest Expense - Net (26) (26) (32) (32)
Environmental and Litigation (20) (3) (33) (15)
Other 47 (7) (40) (29)
-------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 329 294 150 188
After-tax earnings from discontinued operations 1 - 2 2
-------------------------------------------------------------------------------------------------------------------
After-tax earnings $ 330 $ 294 $ 152 $ 190
===================================================================================================================
(a) For a reconciliation to net earnings, see the Adjusted After-Tax Earnings Reconciliation table.
NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
BY BUSINESS SEGMENT (UNAUDITED)
For the Nine Months Ended September 30,
--------------------------------------------
2004 2004 2003 2003
--------------------------------------------
Adjusted Adjusted
Net After-Tax Net After-Tax
Millions of dollars Earnings Earnings (a) Earnings Earnings (a)
------------------------------------------------------------------------------------------------------------------
Exploration and Production
North America
U.S. $ 318 $ 277 $ 310 $ 299
Canada 43 43 47 43
--------------------------------------------
Total North America 361 320 357 342
International
Asia 484 484 371 371
Other 77 77 52 52
--------------------------------------------
Total International 561 561 423 423
--------------------------------------------
Total Exploration and Production 922 881 780 765
--------------------------------------------
Midstream and Marketing 53 53 49 50
Geothermal 97 30 38 38
Corporate and Other
Administrative and General (67) (67) (66) (66)
Interest Expense - Net (91) (91) (91) (91)
Environmental and Litigation (47) (11) (78) (20)
Other 10 (37) (103) (75)
------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 877 758 529 601
After-tax earnings from discontinued operations 63 6 17 9
Cumulative effect of accounting changes - - (83) -
------------------------------------------------------------------------------------------------------------------
After-tax earnings $ 940 $ 764 $ 463 $ 610
==================================================================================================================
(a) For a reconciliation to net earnings, see the Adjusted After-Tax Earnings Reconciliation table.
OPERATING HIGHLIGHTS
For the For the
Three Months Nine Months
Ended September 30,Ended September 30,
--------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------
North America Net Daily Production
Liquids (thousand barrels)
U.S. (a) 51 63 54 67
Canada 16 17 16 17
-----------------------------------------------------------------------------------
Total liquids 67 80 70 84
Natural gas - dry basis (million cubic feet)
U.S. (a) 486 644 503 709
Canada 83 90 83 91
-----------------------------------------------------------------------------------
Total natural gas 569 734 586 800
North America Average Prices (excluding hedging activities) (b)
Liquids (per barrel)
U. S. $ 40.37 $ 28.41 $ 35.77 $ 28.64
Canada $ 35.43 $ 24.02 $ 31.22 $ 25.37
Average $ 39.23 $ 27.47 $ 34.75 $ 27.96
Natural gas (per mcf)
U. S. $ 5.13 $ 4.52 $ 5.12 $ 5.03
Canada $ 5.23 $ 4.96 $ 5.32 $ 5.24
Average $ 5.14 $ 4.57 $ 5.15 $ 5.05
-----------------------------------------------------------------------------------
North America Average Prices (including hedging activities) (b)
Liquids (per barrel)
U. S. $ 35.97 $ 28.27 $ 31.63 $ 28.18
Canada $ 35.43 $ 24.02 $ 31.22 $ 25.37
Average $ 35.85 $ 27.36 $ 31.54 $ 27.59
Natural gas (per mcf)
U. S. $ 5.06 $ 4.56 $ 5.19 $ 4.78
Canada $ 5.01 $ 4.64 $ 5.04 $ 4.93
Average $ 5.05 $ 4.57 $ 5.17 $ 4.79
-----------------------------------------------------------------------------------
(a) Includes proportional interests in production of equity investees.
(b) Excludes gains/losses on derivative positions not accounted for as hedges
and ineffective portions of hedges.
OPERATING HIGHLIGHTS (CONTINUED)
For the For the
Three Months Nine Months
Ended September 30,Ended September 30,
--------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------
International Net Daily Production (c)
Liquids (thousand barrels)
Asia 70 59 66 58
Other (a 18 20 19 20
-----------------------------------------------------------------------------------
Total liquids 88 79 85 78
Natural gas - dry basis (million cubic feet)
Asia 927 934 888 956
Other (a) 15 23 24 23
-----------------------------------------------------------------------------------
Total natural gas 942 957 912 979
International Average Prices (d)
Liquids (per barrel)
Asia $ 41.04 $ 26.64 $ 35.58 $ 26.92
Other $ 42.33 $ 29.25 $ 36.63 $ 27.76
Average $ 41.27 $ 27.20 $ 35.80 $ 27.11
Natural gas (per mcf)
Asia $ 3.19 $ 2.86 $ 3.09 $ 2.79
Other $ 4.21 $ 4.57 $ 4.18 $ 4.45
Average $ 3.20 $ 2.87 $ 3.10 $ 2.80
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Worldwide Net Daily Production (a) (c)
Liquids (thousand barrels) 155 159 155 162
Natural gas - dry basis (million cubic feet) 1,511 1,691 1,498 1,779
Barrels oil equivalent (thousands) 407 441 405 458
Worldwide Average Prices (excluding hedging activities) (b)
Liquids (per barrel) $ 40.36 $ 27.34 $ 35.32 $ 27.55
Natural gas (per mcf) $ 3.93 $ 3.60 $ 3.91 $ 3.79
Worldwide Average Prices (including hedging activities) (b)
Liquids (per barrel) $ 38.85 $ 27.28 $ 33.85 $ 27.36
Natural gas (per mcf) $ 3.90 $ 3.60 $ 3.92 $ 3.68
-----------------------------------------------------------------------------------
(a) Includes proportional interests in production of equity investees.
(b) Excludes gains/losses on derivative positions not accounted for as hedges
and ineffective portions of hedges.
(c) International production is presented utilizing the economic interest method.
(d) International did not have any hedging activities.
ADJUSTED AFTER-TAX EARNINGS RECONCILIATION (UNAUDITED) 3rd Q 2nd Q 3rd Q
-------------------------------
Millions of dollars except per share amounts 2004 2004 2003
-------------------------------------------------------------------------------------------------------------------
Net earnings $ 330 $ 341 $ 152
-------------------------------------------------------------------------------------------------------------------
Less: Special items from continuing operations
E&P - North America - U.S.
Asset sales (2) 22 23
Impairment - - (31)
Midstream & Marketing
Impairment - - (1)
Geothermal
PGI settlement - 46 -
Corporate and Other
Asset sales 16 - -
Environmental and litigation provisions (17) (13) (23)
Net tax adjustments for settlements / assessments 38 27 -
Restructuring provisions - 1 (6)
Provision related to Agrium arbitration settlement . (29) -
Less: Special items from discontinued operations
Gain on asset disposals 1 56 -
-------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings $ 294 $ 231 $ 190
===================================================================================================================
Adjusted after-tax earnings per share (diluted) $ 1.09 $ 0.86 $ 0.72
===================================================================================================================
ADJUSTED AFTER-TAX EARNINGS (UNAUDITED) For the Nine Months
Ended September 30,
--------------------------
Millions of dollars except per share amounts 2004 2003
---------------------------------------------------------------------------------------------------------------
Net earnings $ 940 $ 463
---------------------------------------------------------------------------------------------------------------
Less: Special items from continuing operations
E&P - North America - U.S.
Asset sales 26 43
Impairment - (31)
Litigation provisions / settlements 15 (1)
E&P - North America - Canada
Derivatives -- non-hedging - 4
Midstream & Marketing
Impairment - (1)
Geothermal
Asset sales 21 -
PGI settlement 46 -
Corporate and Other
Asset sales 16 -
Environmental and litigation provisions (42) (63)
Net tax adjustments for settlements / assessments 65 -
Restructuring provisions 1 (23)
Provision related to Agrium arbitration settlement (29) -
Less: Special items from discontinued operations
Gain on asset disposals 57 8
Less: Cumulative effect of accounting changes - (83)
---------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings $ 764 $ 610
===============================================================================================================
Adjusted after-tax earnings per share (diluted) $ 2.84 $ 2.32
===============================================================================================================
EBITDAX RECONCILIATION (UNAUDITED) For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-----------------------------------------------------
Millions of dollars except per share amounts 2004 2003 2004 2003
-------------------------------------------------------------------------------------------------------------------
Net Earnings $ 330 $ 152 $ 940 $ 463
Less:
Special items from continuing operations 35 (38) 119 (72)
Special items from discontinued operations 1 - 57 8
Cumulative effect of accounting changes - - - (83)
-------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings 294 190 764 610
Add-backs to adjusted after-tax earnings:
Depreciation, depletion and amortization (a) 248 231 720 746
Impairments 28 31 42 34
Dry hole costs 12 14 77 95
Exploration expenses (including amortization of
undeveloped leasehold costs) 51 39 149 182
Current income taxes 145 62 412 300
Deferred income taxes 66 97 111 171
Interest expense (b) 40 45 127 119
-------------------------------------------------------------------------------------------------------------------
EBITDAX $ 8$4 70$ 2,40$ 2,257
===================================================================================================================
EBITDAX per share (diluted) $ 3.22 $ 2.60 $ 8.69 $ 8.29
(a) Includes DD&A from discontinued operations of: - - - 2
(b) Net of capitalized interest of: 18 11 44 46
#####