UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245
(Address of principal executive offices)
(Zip Code)
(310) 726-7600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Number of shares of Common Stock,$1 par value, outstanding as of July 31, 2001:
243,583,207
TABLE OF CONTENTS
PART I PAGE
Item 1. Financial Statements
Consolidated Earnings............................................ 1
Consolidated Balance Sheet........................................ 2
Consolidated Cash Flows........................................... 3
Notes to Financial Statements..................................... 4
Operating Highlights ............................................... 23
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 24
Item 3 Quantative and Qualitative Disclosures about Market Risk............ 35
PART II
Item 1 Legal Proceedings................................................... 37
Item 4 Submission of Matters to a Vote of Security Holders................. 37
Item 6 Exhibits and Reports on Form 8-K.................................... 38
SIGNATURES.................................................................. 39
EXHIBIT INDEX............................................................... 40
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-----------------------------------------------
Millions of dollars except per share amounts 2001 2000 2001 2000
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Revenues
Sales and operating revenues $ 1,684 $ 2,025 $ 3,890 $ 3,866
Interest, dividends and miscellaneous income 11 126 19 143
Gain on sales of assets 1 65 1 63
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Total revenues 1,696 2,216 3,910 4,072
Costs and other deductions
Crude oil, natural gas and product purchases 537 1,144 1,524 2,195
Operating expense 329 288 659 524
Selling, administrative and general expense 27 37 71 85
Depreciation, depletion and amortization 268 224 513 430
Dry hole costs 47 37 87 51
Exploration expense 32 37 66 86
Interest expense 48 53 97 106
Property and other operating taxes 20 17 41 30
Distributions on convertible preferred securities of subsidiary trust 8 8 16 16
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Total costs and other deductions 1,316 1,845 3,074 3,523
Earnings from equity investments 49 32 91 57
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Earnings from continuing operations before
income taxes and minority interests 429 403 927 606
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Income taxes 180 159 370 242
Minority interests 14 (6) 30 (10)
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Earnings from continuing operations 235 250 527 374
Discontinued operations
Gain on disposal (net of tax) 12 14 16 23
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Earnings from discontinued operations 12 14 16 23
Cumulative effect of accounting change (net of tax) - - (1) -
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Net earnings $ 247 $ 264 $ 542 $ 397
=======================================================================================================================
Basic earnings per share of common stock (a)
Continuing operations $ 0.98 $ 1.03 $ 2.17 $ 1.54
Discontinued operations 0.04 0.05 0.06 0.09
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Net earnings $ 1.02 $ 1.08 $ 2.23 $ 1.63
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Diluted earnings per share of common stock (b)
Continuing operations $ 0.95 $ 1.00 $ 2.11 $ 1.51
Discontinued operations 0.04 0.05 0.06 0.09
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Net earnings $ 0.99 $ 1.05 $ 2.17 $ 1.60
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Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.40 $ 0.40
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(a) Basic weighted average shares outstanding (in thousands) 243,508 242,875 243,339 242,789
(b) Diluted weighted average shares outstanding (in thousands) 256,899 256,245 256,655 255,758
See Notes to Consolidated Financial Statements.
-1-
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
June 30, December 31,
-----------------------------------------
Millions of dollars 2001 (a) 2000
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Assets
Current assets
Cash and cash equivalents $ 540 $ 235
Accounts and notes receivable 998 1,299
Inventories 76 88
Deferred income taxes 177 155
Other current assets 21 25
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Total current assets 1,812 1,802
Investments and long-term receivables 1,444 1,379
Properties - net (b) 7,179 6,433
Deferred income taxes 116 231
Other assets 167 165
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Total assets $ 10,718 $ 10,010
=====================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 796 $ 1,022
Taxes payable 236 282
Interest payable 55 55
Current portion of environmental liabilities 144 124
Current portion of long-term debt and capital leases 189 114
Other current liabilities 250 248
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Total current liabilities 1,670 1,845
Long-term debt and capital leases 2,770 2,392
Deferred income taxes 611 618
Accrued abandonment, restoration and environmental liabilities 563 554
Other deferred credits and liabilities 994 968
Minority interests 433 392
Company-obligated mandatorily redeemable convertible preferred securities
of a subsidiary trust holding solely parent debentures 522 522
Common stock ($1 par value, shares authorized: 750,000,000 (c)) 254 254
Capital in excess of par value 538 522
Unearned portion of restricted stock issued (22) (21)
Retained earnings 2,913 2,468
Accumulated other comprehensive income (loss) (76) (53)
Notes receivable - key employees (41) (40)
Treasury stock - at cost (d) (411) (411)
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Total stockholders' equity 3,155 2,719
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Total liabilities and stockholders' equity $ 10,718 $ 10,010
=====================================================================================================================
(a) Unaudited
(b) Net of accumulated depreciation, depletion and amortization of: $ 11,215 $ 10,745
(c) Number of shares outstanding (in thousands) 243,586 243,045
(d) Number of shares (in thousands) 10,623 10,623
See Notes to the Consolidated Financial Statements.
-2-
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(UNAUDITED)
For the Six Months
Ended June 30,
---------------------------------
Millions of dollars 2001 2000
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Cash Flows from Operating Activities
Net earnings $ 542 $ 397
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization 513 430
Dry hole costs 87 51
Deferred income taxes 82 48
Gain on sales of assets (pre-tax) (1) (64)
Gain on disposal of discontinued operations (pre-tax) (25) -
Earnings applicable to minority interests 30 (10)
Other 62 44
Working capital and other changes related to operations
Accounts and notes receivable 312 (20)
Inventories 12 31
Accounts payable (265) (103)
Taxes payable (46) 20
Other (59) (56)
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Net cash provided by operating activities 1,244 768
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Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (824) (558)
Major acquisitions (417) (161)
Proceeds from sales of assets 23 67
Proceeds from sale of discontinued operations 7 25
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Net cash used in investing activities (1,211) (627)
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Cash Flows from Financing Activities
Long-term borrowings 467 58
Reduction of long-term debt and capital lease obligations (101) (231)
Minority interests (10) (14)
Proceeds from issuance of common stock 13 2
Dividends paid on common stock (97) (97)
Loans to key employees - (32)
Other - (1)
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Net cash provided by (used in) financing activities 272 (315)
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Increase (decrease) in cash and cash equivalents 305 (174)
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Cash and cash equivalents at beginning of year 235 332
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Cash and cash equivalents at end of period $ 540 $ 158
==========================================================================================================================
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) $ 98 $ 113
Income taxes (net of refunds) $ 326 $ 182
See Notes to the Consolidated Financial Statements.
-3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The consolidated financial statements included in this report are unaudited and,
in the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations. All adjustments
are of a normal recurring nature. Such financial statements are presented in
accordance with the Securities and Exchange Commission's disclosure requirements
for Form 10-Q.
These interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related notes filed with the
Commission in Unocal Corporation's 2000 Annual Report on Form 10-K.
For the purpose of this report, Unocal Corporation (Unocal) and its consolidated
subsidiaries, including Union Oil Company of California (Union Oil), are
referred to as the "Company".
The consolidated financial statements of the Company include the accounts of
subsidiaries in which a controlling interest is held. Investments in entities
without a controlling interest are accounted for by the equity method. Under the
equity method, the investments are stated at cost plus the Company's equity in
undistributed earnings and losses after acquisition. Income taxes estimated to
be payable when earnings are distributed are included in deferred income taxes.
Results for the six months ended June 30, 2001, are not necessarily indicative
of future financial results.
Segment data and certain other items in the prior year financial statements have
been reclassified to conform to the 2001 presentation:
|X| The Pipelines business has been combined with certain activities of the
Company's gas storage businesses in Canada, which were previously reported
in the Exploration and Production segment, into a new segment called
Midstream.
|X| The Carbon and Minerals businesses are no longer disclosed as a separate
segment and are now reported in the Corporate and Other heading.
(2) Accounting Changes
ADOPTION OF NEW ACCOUNTING STANDARDS - Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) and Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" (SFAS 138). These standards require
that all derivative instruments be recorded on the balance sheet at their fair
values. Changes in the fair values of derivative instruments are reported in
current-period earnings unless they are designated and qualify as effective
hedges.
In accordance with the transition provisions of SFAS 133, the Company recorded a
one-time after-tax charge of approximately $1 million during the first quarter
of 2001 in its consolidated earnings statement, representing the cumulative
effect of the accounting change, and an after-tax unrealized loss of
approximately $59 million to accumulated other comprehensive loss in its
consolidated balance sheet, of which $28 million is expected to be reclassified
to earnings during the current year. The transition amounts represented
accumulated changes in the fair values of derivative instruments that were
previously off balance sheet and used to hedge certain future commodity sales
(e.g. commodity swaps, options). Accumulated losses in fair value of these
derivative instruments will be substantially offset by corresponding gains on
the hedged commodity sales when those sales occur. Amounts pertaining to the
derivative contracts of acquired companies that were previously capitalized
under purchase accounting rules were not impacted.
-4-
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The objectives of
the Company's risk management policies include reducing the overall volatility
of the Company's cash flows, preserving revenues and pursuing outright pricing
positions in hydrocarbon derivative financial instruments. As part of its
overall risk management strategy, the Company enters into various derivative
instrument contracts to offset portions of its exposures to changes in interest
rates, changes in foreign currency exchange rates, and fluctuations in crude oil
and natural gas prices.
At the inception of a derivative contract, the Company may choose to designate
and document a derivative as a hedge of a certain exposure. In general, the
Company enters into derivative instruments to hedge two types of exposures:
cash flow exposures and fair value exposures. Hedges of cash flow exposures are
generally undertaken to reduce cash flow volatility associated with forecasted
transactions. They may also be used to reduce volatility associated with cash
flows to be paid related to recognized liabilities. Hedges of fair value
exposures are undertaken to hedge recognized assets or liabilities or
unrecognized firm commitments against changes in fair value.
On the date that a hedge is established, the Company designates and documents
the derivative as either a cash flow hedge or a fair value hedge. Changes in the
values of derivatives not designated and documented as hedges are recorded in
current-period earnings. Changes in the values of derivatives that qualify for,
and are designated and effective as cash flow hedges are deferred and recorded
as components of accumulated other comprehensive income until the hedged
transactions occur and are recognized in earnings. The ineffective portions of
cash flow hedge derivatives' changes in values are recognized immediately in
earnings as components of sales revenues. During the second quarter of 2001, the
Company changed its methodology for calculating the effectiveness of options
purchased as cash flow hedges to conform with the April 2001 interpretation of
SFAS 133 by the Financial Accounting Standards Board's "Derivatives
Implementation Group". Most gains and losses associated with the time value
of cash flow hedging options will be included in the effectiveness calculations
and, generally, deferred as components of other comprehensive income until the
hedged transactions are recognized in earnings. Previously, these gains and
losses had been excluded from the measurement of hedge effectiveness and
recognized in sales revenues. Changes in the values of derivatives that qualify
for, and are designated and effective as, fair value hedges are recognized in
current-period earnings as components of the line items reflecting the
underlying hedged transactions. Changes in the fair values of the underlying
hedged items (e.g.recognized assets, liabilities or unrecognized firm
commitments) are also recognized in current-period earnings and offset the
changes in the values of the corresponding hedging derivatives. Any resulting
fair value hedge ineffectiveness is recognized in current-period earnings as
the difference between the offsetting changes in values of the derivative and
the underlying hedged item.
The Company documents its risk management objectives, its strategies for
undertaking various hedge transactions and the relationships between hedging
instruments and hedged items. Derivatives designated as cash flow hedges are
linked to forecasted transactions. Derivatives identified as fair value hedges
are linked to specific assets, liabilities or firm commitments. At hedge
inceptions and on an on-going basis, the Company assesses whether changes in the
values of derivatives used in hedging activities are highly effective in
offsetting changes in the values of the hedged items. The Company discontinues
hedge accounting prospectively when either (1) it determines that a derivative
is not highly effective as a hedge, (2) the derivative is sold, exercised or
otherwise terminated, (3) management elects to remove the derivative's hedge
designation, (4) the hedged transaction is no longer expected to occur, or (5) a
hedged item no longer meets the definition of a firm commitment. When a hedged
forecasted transaction is no longer expected to occur, the derivative continues
to be carried on the balance sheet at its fair value and all gains and losses
that were previously deferred in accumulated other comprehensive income are
recognized immediately in earnings. When a hedged item no longer meets the
definition of a firm commitment, the derivative continues to be carried on the
balance sheet at its fair value and any asset or liability that was recorded on
the balance sheet for the change in value of the hedged firm commitment are
removed from the balance sheet and recognized immediately in current-period
earnings. In all other situations where hedge accounting is discontinued, the
derivatives continue to be carried on the balance sheet at their fair values and
any prospective changes in their fair values are recognized in current-period
earnings. Deferred gains and losses already recorded in accumulated other
comprehensive income remain until the forecasted transactions occur, at which
time those gains and losses are recognized in earnings.
-5-
(3) Major Acquisitions
In May 2001, the Company's Pure Resources, Inc. (Pure), subsidiary completed its
cash acquisition of all the outstanding shares of common stock of Hallwood
Energy Corporation (Hallwood) for $12.50 per share and all the outstanding
shares of Series A Cumulative Preferred Stock of Hallwood at a price of $10.84
per share. The total transaction was valued at approximately $271 million,
including assumed debt of $87 million, which was subsequently refinanced in May
2001 (see note 11), and other obligations. The acquisition was accounted for as
a purchase and was funded through the combination of a new line of credit and
borrowings under Pure's existing revolving credit facilities. This acquisition
added to Pure's positions in its business areas of the San Juan and Permian
Basins and the Gulf Coast region.
In January 2001, Pure acquired oil and gas properties, certain general and
limited oil and gas partnership interests and fee mineral and royalty interests
from International Paper Company. The total cost of the acquisition was
approximately $267 million in cash. Included in the transaction were total
proved reserves of approximately 25 million barrels of oil equivalent and
ownership in 6 million gross fee mineral acres (3.2 million net) along with
participation in several offshore exploration programs. The transaction was
funded from Pure's credit facilities (see note 11). This acquisition expanded
Pure's business areas into the Gulf Coast region and offshore in the Gulf of
Mexico.
(4) Restructuring Costs
Activities related to the restructuring plan adopted in the first quarter of
2000 are completed. The amount of unpaid benefits remaining on the consolidated
balance sheet at June 30, 2001 is immaterial and is scheduled to be paid
over the next few months.
(5) Other Financial Information
During the second quarters of 2001 and 2000, approximately 25 percent and 53
percent, respectively, of total sales and operating revenues were attributable
to the resale of crude oil, natural gas and natural gas liquids purchased from
others in connection with the Company's trading and marketing activities. For
the six months ended June 30, 2001 and 2000, these percentages were
approximately 32 percent and 53 percent, respectively. Related purchase costs
are classified as expense in the crude oil, natural gas and product purchases
category on the consolidated earnings statement. The lower resale activity in
both the second quarter and six months periods of 2001 as compared to the same
periods a year ago reflect decreases primarily related to the marketing and
trading of crude oil and condensate.
Capitalized interest totaled $6 million and $3 million for the second quarters
of 2001 and 2000, respectively, and $11 million and $5 million for the six
months ended 2001 and 2000, respectively.
(6) Income Taxes
Income taxes on earnings from continuing operations for the second quarter and
first six months of 2001 were $180 million and $370 million, respectively,
compared with $159 million and $242 million for the comparable periods of 2000.
The effective income tax rates for the second quarter and first six months of
2001 were 43 percent and 41 percent, respectively, compared with 39 percent and
39 percent for the comparable periods of 2000. The higher income tax rates in
2001 reflected the effects of changes in the mix of foreign versus domestic
earnings, currency-related adjustments in Thailand and adjustments related to
prior year U.S. income tax matters.
-6-
(7) Discontinued Operations
In 2001, the Company recorded its initial pre-tax gain of $25 million ($16
million after-tax) related to a participation agreement tied to its former West
Coast refining, marketing and transportation assets, which were sold in 1997.
The participation agreement covers price differences between California Air
Resources Board Phase 2 gasoline and conventional gasoline. The maximum
potential payments under this participation agreement are capped at $100 million
and extend to 2003.
The 2000 results reflect the Company's former agricultural products business,
which was sold later in that year.
(8) Earnings Per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for earnings from
continuing operations for the second quarters and the six months ended June 30,
2001 and 2000:
Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2001
Earnings from continuing operations $ 235 243.5
Basic EPS $ 0.98
=============
Effect of dilutive securities
Options and common stock equivalents 1.1
--------------------------------
235 244.6 $ 0.96
Distributions on subsidiary trust preferred securities (after-tax) 7 12.3
--------------------------------
Diluted EPS $ 242 256.9 $ 0.95
=============
Three months ended June 30, 2000
Earnings from continuing operations $ 250 242.9
Basic EPS $ 1.03
=============
Effect of dilutive securities
Options and common stock equivalents 1.1
--------------------------------
250 244.0 $ 1.02
Distributions on subsidiary trust preferred securities (after-tax) 7 12.3
--------------------------------
Diluted EPS $ 257 256.3 $ 1.00
=============
Six months ended June 30, 2001
Earnings from continuing operations $ 527 243.3
Basic EPS $ 2.17
=============
Effect of dilutive securities
Options and common stock equivalents 1.1
--------------------------------
527 244.4 $ 2.16
Distributions on subsidiary trust preferred securities (after-tax) 13 12.3
--------------------------------
Diluted EPS $ 540 256.7 $ 2.11
=============
Six months ended June 30, 2000
Earnings from continuing operations $ 374 242.8
Basic EPS $ 1.54
=============
Effect of dilutive securities
Options and common stock equivalents 0.7
--------------------------------
374 243.5 $ 1.54
Distributions on subsidiary trust preferred securities (after-tax) 13 12.3
--------------------------------
Diluted EPS $ 387 255.8 $ 1.51
=============
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-7-
Not included in the computation of diluted EPS at June 30, 2001, were options to
purchase approximately 5.0 million shares of common stock. These options were
not included in the computation as the exercise prices were greater than the
year-to-date average market price of the common shares. The exercise prices of
these options ranged from $36.16 to $45.25 per share. These options will expire
periodically through 2011. The diluted EPS computation at June 30, 2000 did not
include options outstanding to purchase approximately 7.3 million shares of
common stock because their exercise prices were greater than the year-to-date
average market price of $31.58 for the common shares. The exercise prices of
these options ranged from $32.16 to $51.01 per share.
(9) Comprehensive Income
The Company's comprehensive income was:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------------------------
Millions of dollars 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------------
Net earnings $247 $264 $542 $397
Cumulative effect of change in accounting principle
SFAS 133 adoption (a) - - (59) -
Change in unrealized loss on hedging instruments (b) 41 - 31 -
Reclassification adjustment for settled hedging contracts (c) 2 - 19 -
Change in foreign currency translation adjustments 15 (8) (16) (7)
------------------------------------------------------------------------------------------------------------------
Comprehensive income $305 $256 $517 $390
==================================================================================================================
(a) Net of tax effect of: - - 36 -
(b) Net of tax effect of: (24) - (19) -
(c) Net of tax effect of: (1) - (11) -
(10) Restricted Cash
Of the total amounts of Cash and Cash Equivalents reported at June 30, 2001,
cash in the amount of $28 million was restricted as to usage or withdrawal,
compared to $33 million that was restricted as of December 31, 2000. Under the
terms of the Company's limited-recourse project financing for its share of the
Azerbaijan International Operating Company Early Oil Project, the Company's
share of principal and interest payments to the lenders are payable only out of
the proceeds from the Company's sale of crude oil from the project. In keeping
with the terms of the financing agreements, $4 million at June 30, 2001, of the
Company's oil sales proceeds (cash) were reserved for debt principal and
interest obligations falling due within the next 180 days. In addition, at June
30, 2001, the Company had reserved $24 million in cash, which was placed in
December 2000 with a trustee to ultimately be used in settlement of claims
arising out of the valuation of the royalty owner's portion of crude oil
produced from certain federal leases. Per the terms of the trust agreement the
trustee invests the cash in acceptable investments and will deliver to the
Company any cash balances remaining in the trust after final settlement of the
claims. The Company anticipates final settlement and disbursement of all funds
during the second half of 2001.
(11) Long Term Debt and Credit Agreements
During the first six months of 2001, the Company's consolidated debt, including
the current portion, increased by $453 million. This was substantially due to an
increase of $467 million in long term debt by the Company's Pure subsidiary to
fund two of its acquisitions (see note 3). In June 2001, Pure issued in a
private placement $350 million in unsecured senior notes, which bear interest at
7.125 percent and mature in 10 years. The holders of the senior notes hold
registration rights which require Pure to register the notes by the end of 2001.
Pure used the proceeds to repay a portion of its senior credit facilities and to
repay interim financing associated with the Hallwood acquisition (see note 3).
-8-
The remainder of the increase in Pure's debt consisted of borrowings under two
separate $250 million unsecured credit facilities. At June 30, 2001, $168
million was outstanding under the five year revolving credit facility due
September 29, 2005. In addition, $20 million was outstanding under the 364 day
revolving credit facility, which converts in September 2001 to a term loan due
September 29, 2002.
(12) Accrued Abandonment, Restoration and Environmental Liabilities
At June 30, 2001, the Company had accrued $475 million for the estimated future
costs to abandon and remove wells and production facilities. The total costs for
these abandonments are predominantly accrued for on a unit-of-production basis
and are estimated to be approximately $640 million. This estimate was derived in
large part from abandonment cost studies performed by independent third party
firms and is used to calculate the amount to be amortized. The Company's reserve
for environmental remediation obligations at June 30, 2001 totaled $232 million,
of which $144 million was included in current liabilities.
(13) Commitments and Contingencies
The Company has certain contingent liabilities with respect to material existing
or potential claims, lawsuits and other proceedings, including those involving
environmental, tax and other matters, certain of which are discussed more
specifically below. The Company accrues liabilities when it is probable that
future costs will be incurred and such costs can be reasonably estimated. Such
accruals are based on developments to date, the Company's estimates of the
outcomes of these matters and its experience in contesting, litigating and
settling other matters. As the scope of the liabilities becomes better defined,
there will be changes in the estimates of future costs, which could have a
material effect on the Company's future results of operations and financial
condition or liquidity.
Environmental matters - The Company is subject to loss contingencies pursuant to
federal, state and local environmental laws and regulations. These include
existing and possible future obligations to investigate the effects of the
release or disposal of certain petroleum, chemical and mineral substances at
various sites; to remediate or restore these sites; to compensate others for
damage to property and natural resources, for remediation and restoration costs
and for personal injuries; and to pay civil penalties and, in some cases,
criminal penalties and punitive damages. These obligations relate to sites owned
by the Company or others and are associated with past and present operations,
including sites at which the Company has been identified as a potentially
responsible party (PRP) under the federal Superfund laws and comparable state
laws.
Liabilities are accrued when it is probable that future costs will be incurred
and such costs can be reasonably estimated. However, in many cases,
investigations are not yet at a stage where the Company is able to determine
whether it is liable or, even if liability is determined to be probable, to
quantify the liability or estimate a range of possible exposure. In such cases,
the amounts of the Company's liabilities are indeterminate due to the
potentially large number of claimants for any given site or exposure, the
unknown magnitude of possible contamination, the imprecise and conflicting
engineering evaluations and estimates of proper clean-up methods and costs, the
unknown timing and extent of the corrective actions that may be required, the
uncertainty attendant to the possible award of punitive damages, the recent
judicial recognition of new causes of action, the present state of the law,
which often imposes joint and several and retroactive liabilities on PRPs, the
fact that the Company is usually just one of a number of companies identified as
a PRP, or other reasons.
As disclosed in note 12, at June 30, 2001, the Company had accrued $232 million
for estimated future environmental assessment and remediation costs at various
sites where liabilities for such costs are probable. At those sites where
investigations or feasibility studies have advanced to the stage of analyzing
feasible alternative remedies and/or ranges of costs, the Company estimates that
it could incur possible additional remediation costs aggregating approximately
$230 million.
-9-
Tax matters - The Company believes it has adequately provided in its accounts
for tax items and issues not yet resolved. Several prior material tax issues are
unresolved. Resolution of these tax issues impact not only the year in which the
items arose, but also the company's tax situation in other tax years. With
respect to 1979-1984 taxable years, all issues raised for these years have now
been settled, with the exception of the effect of the carryback of a 1993 net
operating loss (NOL) to tax year 1984 and resultant credit adjustments. The
1985-1990 taxable years are before the Appeals Division of the Internal Revenue
Service (IRS). All issues raised with respect to those years have now been
settled, with the exception of the effect of the 1993 NOL carryback and
resultant adjustments. The settlements were subject to review by the Joint
Committee on Taxation of the U.S. Congress. The Joint Committee has reviewed the
settled issues with respect to 1979-1990 taxable years and no additional issues
have been raised. While all tax issues for the 1979-1990 taxable years have been
agreed and reviewed by the Joint Committee, these taxable years will remain open
due to the 1993 NOL carryback. The 1993 NOL results from certain specified
liability losses which occurred during 1993 and which resulted in a tax refund
of $73 million. Consequently, these tax years will remain open until the
specified liability loss, which gave rise to the 1993 NOL, is finally determined
by the IRS and is either agreed to with the IRS or otherwise concluded in the
Tax Court proceeding. In 1999, the United States Tax Court granted Unocal's
motion to amend the pleadings in its Tax Court cases to place the 1993 NOL
carryback in issue. The 1991-1992 taxable years are now before the Appeals
Division of the IRS. The 1993-1997 taxable years are under examination by the
IRS.
Pure Resources, Inc. Employment and Severance Agreements - Under circumstances
specified in the employment and/or severance agreements entered into between the
Company's Pure subsidiary and its officers, each covered officer will have the
right to require Pure to purchase its common shares currently held or
subsequently obtained by the exercise of any option held by the officer at a
calculated "net asset value" per share. The net asset value per share is
calculated by reference to each common share's pro rata amount of the present
value of Pure's proved reserves discounted at 10 percent, times 110 percent,
less funded debt, as defined. At June 30, 2001, Pure estimated that the amount
which it would have to repurchase under these agreements was approximately $144
million, which is reflected in other deferred credits and liabilities on the
consolidated balance sheet. The repurchase amount will fluctuate with the market
value of Pure's common stock and/or changes in the net asset value per share.
Other matters - The Company has a five-year lease agreement relating to its
Discoverer Spirit deepwater drill ship. The future remaining minimum lease
payment obligation was approximately $323 million at June 30, 2001. The
drillship has a minimum daily rate of approximately $210,000.
The Company's Molycorp subsidiary, working cooperatively and collaboratively
with the New Mexico Environmental Department and other state agencies, has
secured permits covering discharges from its Questa, New Mexico, molybdenum
mine. This process involved the posting by Molycorp of two performance bonds
totaling $152 million that are intended to provide financial assurance of
completion of preliminary closure plans (only required upon cessation of
operations) and other obligations required under the terms of the permits. The
amount of the performance bonds were based on estimations provided by the state
of New Mexico agencies. Unocal has indemnified the insurance company that issued
the bonds with respect to all amounts that may be drawn against them.
The Company also has certain other contingent liabilities with respect to
litigation, claims, and contractual agreements arising in the ordinary course of
business. Although these contingencies could result in expenses or judgments
that could be material to the Company's results of operations for a given
reporting period, on the basis of management's best assessment of the ultimate
amount and timing of these events, such expenses or judgments are not expected
to have a material adverse effect on the Company's consolidated financial
condition or liquidity.
-10-
(14) Financial Instruments and Commodity Hedging
Fair values of debt and other long-term instruments - The estimated fair value
of the Company's long-term debt at June 30, 2001, including the current portion,
was approximately $3.060 billion. Fair values were based on the discounted
amounts of future cash outflows using the rates offered to the Company for debt
with similar remaining maturities.
The estimated fair value of the mandatorily redeemable convertible preferred
securities of the Company's subsidiary trust was $505 million at June 30, 2001.
The fair value was based on the trading prices of the preferred securities on
June 29, 2001, as reported to the Company.
Commodity hedging activities - During the second quarter of 2001, the Company
recognized $5 millon in after-tax losses for the ineffectiveness of both cash
flow and fair value hedges. At June 30, 2001, the Company's various subsidiaries
had approximately $10 million after-tax deferred in accumulated other
comprehensive income related to cash flow hedges for future commodity sales for
the period beginning July 2001 through October 2004. Of this amount,
approximately $7 million in after-tax gains are expected to be reclassified to
earnings during the next twelve months.
-11-
(15) Supplemental Condensed Consolidating Financial Information
Unocal guarantees all the publicly held securities issued by its 100
percent-owned subsidiaries Unocal Capital Trust and Union Oil. Such guarantees
are full and unconditional and no other subsidiaries of Unocal or Union Oil
guarantee these securities.
The following tables present condensed consolidating financial information for
(a) Unocal (Parent), (b) the Trust, (c) Union Oil (Parent) and (d) on a combined
basis, the subsidiaries of Union Oil. Virtually all of the Company's operations
are conducted by Union Oil and its subsidiaries.
CONDENSED CONSOLIDATED EARNINGS STATEMENT
For the three months ended June 30, 2001
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Revenues
Sales and operating revenues $ - $ - $ 487 $ 1,604 $ (407) $ 1,684
Interest, dividends and miscellaneous income - 9 4 8 (10) 11
Gain on sales of assets - - 1 - - 1
-----------------------------------------------------------------------------------------------------------------------------
Total revenues - 9 492 1,612 (417) 1,696
Costs and other deductions
Purchases, operating and other expenses 1 - 260 1,101 (417) 945
Depreciation, depletion and amortization - - 103 165 - 268
Dry hole costs - - 24 23 - 47
Interest expense 9 1 40 8 (10) 48
Distributions on convertible preferred securities - 8 - - - 8
-----------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 10 9 427 1,297 (427) 1,316
Equity in earnings of subsidiaries 252 - 202 - (454) -
Earnings from equity investments - - 10 39 - 49
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and minority interests 242 - 277 354 (444) 429
-----------------------------------------------------------------------------------------------------------------------------
Income taxes (4) - 37 147 - 180
Minority interests - - - 5 9 14
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 246 - 240 202 (453) 235
Earnings from discontinued operations - - 12 - - 12
Cumulative effect of accounting change - - - - - -
-----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 246 $ - $ 252 $ 202 $ (453) $ 247
=============================================================================================================================
-12-
CONDENSED CONSOLIDATED EARNINGS STATEMENT
For the three months ended June 30, 2000
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Revenues
Sales and operating revenues $ - $ - $ 554 $ 1,836 $ (365) $ 2,025
Interest, dividends and miscellaneous income - 9 129 (3) (9) 126
Gain on sales of assets - - 66 (1) - 65
-----------------------------------------------------------------------------------------------------------------------------
Total revenues - 9 749 1,832 (374) 2,216
Costs and other deductions
Purchases, operating and other expenses - - 409 1,479 (365) 1,523
Depreciation, depletion and amortization - - 93 131 - 224
Dry hole costs - - 7 30 - 37
Interest expense 9 1 53 (1) (9) 53
Distributions on convertible preferred securities - 8 - - - 8
-----------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 9 9 562 1,639 (374) 1,845
Equity in earnings of subsidiaries 267 - 157 - (424) -
Earnings from equity investments - - 9 20 3 32
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and minority interests 258 - 353 213 (421) 403
-----------------------------------------------------------------------------------------------------------------------------
Income taxes (3) - 85 77 - 159
Minority interests - - 1 (7) - (6)
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 261 - 267 143 (421) 250
Earnings from discontinued operations - - - 14 - 14
-----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 261 $ - $ 267 $ 157 $ (421) $ 264
=============================================================================================================================
-13-
CONDENSED CONSOLIDATED EARNINGS STATEMENT
For the six months ended June 30, 2001
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Revenues
Sales and operating revenues $ - $ - $ 1,180 $ 3,686 $ (976) $ 3,890
Interest, dividends and miscellaneous income 5 17 3 13 (19) 19
Gain on sales of assets - - 1 - - 1
-----------------------------------------------------------------------------------------------------------------------------
Total revenues 5 17 1,184 3,699 (995) 3,910
Costs and other deductions
Purchases, operating and other expenses 2 - 645 2,711 (997) 2,361
Depreciation, depletion and amortization - - 199 314 - 513
Dry hole costs - - 34 53 - 87
Interest expense 17 1 85 13 (19) 97
Distributions on convertible preferred securities - 16 - - - 16
-----------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 19 17 963 3,091 (1,016) 3,074
Equity in earnings of subsidiaries 551 - 413 - (964) -
Earnings from equity investments - - 8 83 - 91
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and minority interests 537 - 642 691 (943) 927
-----------------------------------------------------------------------------------------------------------------------------
Income taxes (5) - 106 269 - 370
Minority interests - - - 9 21 30
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 542 - 536 413 (964) 527
Earnings from discontinued operations - - 16 - - 16
Cumulative effect of accounting change - - (1) - - (1)
-----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 542 $ - $ 551 $ 413 $ (964) $ 542
=============================================================================================================================
-14-
CONDENSED CONSOLIDATED EARNINGS STATEMENT
For the six months ended June 30, 2000
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Revenues
Sales and operating revenues $ - $ - $ 1,010 $ 3,539 $ (683) $ 3,866
Interest, dividends and miscellaneous income 10 17 126 9 (19) 143
Gain on sales of assets - - 63 - - 63
-----------------------------------------------------------------------------------------------------------------------------
Total revenues 10 17 1,199 3,548 (702) 4,072
Costs and other deductions
Purchases, operating and other expenses 1 - 722 2,881 (684) 2,920
Depreciation, depletion and amortization - - 179 251 - 430
Dry hole costs - - 13 38 - 51
Interest expense 17 1 105 2 (19) 106
Distributions on convertible preferred securities - 16 - - - 16
-----------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 18 17 1,019 3,172 (703) 3,523
Equity in earnings of subsidiaries 401 - 292 - (693) -
Earnings from equity investments - - 21 36 - 57
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and minority interests 393 - 493 412 (692) 606
-----------------------------------------------------------------------------------------------------------------------------
Income taxes (3) - 92 153 - 242
Minority interests - - - (10) - (10)
-----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 396 - 401 269 (692) 374
Earnings from discontinued operations - - - 23 - 23
-----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 396 $ - $ 401 $ 292 $ (692) $ 397
=============================================================================================================================
-15-
CONDENSED CONSOLIDATED BALANCE SHEET
Period ended June 30, 2001
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ - $ - $ 306 $ 234 $ - $ 540
Accounts and notes receivable - - 135 863 - 998
Inventories - - 8 68 - 76
Other current assets - - 156 42 - 198
-----------------------------------------------------------------------------------------------------------------------------
Total current assets - - 605 1,207 - 1,812
Investments and long-term receivables 4,068 - 4,086 955 (7,665) 1,444
Properties - net - - 2,083 5,096 - 7,179
Other assets 54 541 391 1,649 (2,352) 283
-----------------------------------------------------------------------------------------------------------------------------
Total assets $4,122 $ 541 $ 7,165 $ 8,907 $ (10,017) $ 10,718
=============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ - $ - $ 240 $ 556 $ - $ 796
Current portion of long-term debt and capital leases - - 180 9 - 189
Other current liabilities 46 3 230 406 - 685
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 46 3 650 971 - 1,670
Long-term debt and capital leases - - 2,101 669 - 2,770
Deferred income taxes - - (13) 624 - 611
Accrued abandonment, restoration
and environmental liabilities - - 263 300 - 563
Other deferred credits and liabilities 541 - 416 2,398 (2,361) 994
Minority interests - - - 294 139 433
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust holding solely parent debentures - 522 - - - 522
Stockholders' equity 3,535 16 3,748 3,651 (7,795) 3,155
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,122 $ 541 $ 7,165 $ 8,907 $ (10,017) $ 10,718
=============================================================================================================================
-16-
CONDENSED CONSOLIDATED BALANCE SHEET
Year ended December 31, 2000
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 1 $ - $ 84 $ 150 $ - $ 235
Accounts and notes receivable - - 165 1,134 - 1,299
Inventories - - 13 75 - 88
Other current assets - - 127 53 - 180
-----------------------------------------------------------------------------------------------------------------------------
Total current assets 1 - 389 1,412 - 1,802
Investments and long-term receivables 3,620 - 3,765 781 (6,787) 1,379
Properties - net - - 1,988 4,445 - 6,433
Other assets 56 541 646 1,153 (2,000) 396
-----------------------------------------------------------------------------------------------------------------------------
Total assets $3,677 $ 541 $ 6,788 $ 7,791 $ (8,787) $ 10,010
=============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ - $ - $ 283 $ 739 $ - $ 1,022
Current portion of long-term debt and capital leases - - 105 9 - 114
Other current liabilities 42 3 233 431 - 709
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 42 3 621 1,179 - 1,845
Long-term debt and capital leases - - 2,181 211 - 2,392
Deferred income taxes - - (10) 628 - 618
Accrued abandonment, restoration
and environmental liabilities - - 254 300 - 554
Other deferred credits and liabilities 541 - 467 1,952 (1,992) 968
Minority interests - - - 287 105 392
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust holding solely parent debentures - 522 - - - 522
Stockholders' equity 3,094 16 3,275 3,234 (6,900) 2,719
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,677 $ 541 $ 6,788 $ 7,791 $ (8,787) $ 10,010
=============================================================================================================================
-17-
CONDENSED CONSOLIDATED CASH FLOWS
Period ended June 30, 2001
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities $ 83 $ - $ 572 $ 589 $ - $1,244
Cash Flows from Investing Activities
Capital expenditures and acquisitions
(includes dry hole costs) - - (373) (868) - (1,241)
Proceeds from sales of assets
and discontinued operations - - 28 2 - 30
-----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities - - (345) (866) - (1,211)
-----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Change in long-term debt and capital leases - - (5) 371 - 366
Dividends paid on common stock (97) - - - - (97)
Minority interests - - - (10) - (10)
Other 13 - - - - 13
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (84) - (5) 361 - 272
-----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1) - 222 84 - 305
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 1 - 84 150 - 235
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ - $ - $ 306 $ 234 $ - $ 540
=============================================================================================================================
CONDENSED CONSOLIDATED CASH FLOWS
Period ended June 30, 2000
Unocal Non-
Unocal Capital Union Oil Guarantor
Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities $103 $ - $ 161 $ 504 $ - $ 768
Cash Flows from Investing Activities
Capital expenditures and acquisitions
(includes dry hole costs) - - (227) (492) - (719)
Proceeds from sales of assets
and discontinued operations 25 - 68 (1) - 92
-----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 25 - (159) (493) - (627)
-----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Change in long-term debt and capital leases - - (159) (14) - (173)
Dividends paid on common stock (97) - - - - (97)
Minority interests - - - (14) - (14)
Other (31) - - - - (31)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (128) - (159) (28) - (315)
-----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents - - (157) (17) - (174)
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 1 - 162 169 - 332
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1 $ - $ 5 $ 152 $ - $ 158
=============================================================================================================================
-18-
Segment Data
The Company has made changes in the reporting of its segments from the reporting
utilized in the 2000 Annual Report on Form 10-K. The Company's reportable
segments are now: Exploration and Production, Global Trade, Midstream, and
Geothermal and Power Operations. General corporate overhead, unallocated costs
and other miscellaneous operations, including real estate, carbon and minerals
and those businesses that were sold, are included under the Corporate and Other
heading. See also Management`s Discussion and Analysis in Item 2 for further
descriptions of the new segments.
--------------------------------------------------------------------
Segment Information Exploration & Production Global
For the Three Months North America International Trade
ended June 30, 2001
Millions of dollars Lower 48 Alaska Canada Far East Other
--------------------------------------------------------------------
Sales & operating revenues $ 167 $ 63 $ 97 $ 269 $ 39 $ 925
Other income (loss) (a) - - 2 (3) - 6
Inter-segment revenues 406 - - 55 26 1
--------------------------------------------------------------------
Total 573 63 99 321 65 932
Earnings from equity investments 8 - - 8 - -
Earnings (loss) from continuing operations 142 13 14 113 5 4
Earnings from discontinued operations - - - - - -
Cumulative effect of accounting change - - - - - -
--------------------------------------------------------------------
Net earnings (loss) 142 13 14 113 5 4
Assets (at June 30, 2001) 3,316 315 935 2,337 764 390
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Midstream Geothermal Corporate & Other Total
& Power Admin Net Environmental
Operations & Interest &
General Expense Litigation Other (b)
--------------------------------------------------------------------------------
Sales & operating revenues $ 39 $ 45 $ - $ - $ - $ 40 $ 1,684
Other income (loss) (a) 1 4 - 7 - (5) 12
Inter-segment revenues 2 - - - - (490) -
--------------------------------------------------------------------------------
Total 42 49 - 7 - (455) 1,696
Earnings from equity investments 19 - - - - 14 49
Earnings (loss) from continuing operations 18 2 (21) (32) (16) (7) 235
Earnings from discontinued operations - - - - - 12 12
Cumulative effect of accounting change - - - - - - -
--------------------------------------------------------------------------------
Net earnings (loss) 18 2 (21) (32) (16) 5 247
Assets (at June 30, 2001) 440 608 - - - 1,613 10,718
--------------------------------------------------------------------------------
(a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets.
(b) Includes eliminations and consolidation adjustments.
-19-
--------------------------------------------------------------------
Segment Information Exploration & Production Global
For the Three Months North America International Trade
ended June 30, 2000
Millions of dollars Lower 48 Alaska Canada Far East Other
--------------------------------------------------------------------
Sales & operating revenues $ 33 $ 59 $ 20 $ 239 $ 37 $ 1,531
Other income (loss) (a) 67 - (1) (2) 1 -
Inter-segment revenues 372 16 - 44 41 1
--------------------------------------------------------------------
Total 472 75 19 281 79 1,532
Earnings (loss) from equity investments 1 - - - - -
Earnings (loss) from continuing operations 134 24 (11) 88 19 6
Earnings from discontinued operations - - - - - -
--------------------------------------------------------------------
Net earnings (loss) 134 24 (11) 88 19 6
Assets (at December 31, 2000) 2,701 315 1,019 2,251 603 655
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Midstream Geothermal Corporate & Other Total
& Power Admin Net Environmental
Operations & Interest &
General Expense Litigation Other (b)
--------------------------------------------------------------------------------
Sales & operating revenues $ 13 $ 44 $ - $ - $ - $ 49 $ 2,025
Other income (loss) (a) - (1) - 8 - 119 191
Inter-segment revenues 3 - - - - (477) -
--------------------------------------------------------------------------------
Total 16 43 - 8 - (309) 2,216
Earnings (loss) from equity investments 17 (1) - - - 15 32
Earnings (loss) from continuing operations 15 5 (21) (37) (33) 61 250
Earnings from discontinued operations - - - - - 14 14
--------------------------------------------------------------------------------
Net earnings (loss) 15 5 (21) (37) (33) 75 264
Assets (at December 31, 2000) 416 574 - - - 1,476 10,010
--------------------------------------------------------------------------------
(a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets.
(b) Includes eliminations and consolidation adjustments.
-20-
--------------------------------------------------------------------
Segment Information Exploration & Production Global
For the Six Months North America International Trade
ended June 30, 2001
Millions of dollars Lower 48 Alaska Canada Far East Other
--------------------------------------------------------------------
Sales & operating revenues $ 328 $ 135 $ 129 $ 501 $ 74 $ 2,428
Other income (loss) (a) 1 - 1 (6) (1) (1)
Inter-segment revenues 972 - - 110 61 1
--------------------------------------------------------------------
Total 1,301 135 130 605 134 2,428
Earnings from equity investments 14 - - 19 - -
Earnings (loss) from continuing operations 383 32 11 219 27 7
Earnings from discontinued operations - - - - - -
Cumulative effect of accounting change - - - - - -
--------------------------------------------------------------------
Net earnings (loss) 383 32 11 219 27 7
Assets (at June 30, 2001) 3,316 315 935 2,337 764 390
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Midstream Geothermal Corporate & Other Total
& Power Admin Net Environmental
Operations & Interest &
General Expense Litigation Other (b)
--------------------------------------------------------------------------------
Sales & operating revenues $ 139 $ 89 $ - $ - $ - $ 67 $ 3,890
Other income (loss) (a) 2 7 - 13 - 4 20
Inter-segment revenues 4 - - - - (1,148) -
--------------------------------------------------------------------------------
Total 145 96 - 13 - (1,077) 3,910
Earnings from equity investments 28 - - - - 30 91
Earnings (loss) from continuing operations 27 3 (44) (65) (50) (23) 527
Earnings from discontinued operations - - - - - 16 16
Cumulative effect of accounting change - - - - - (1) (1)
--------------------------------------------------------------------------------
Net earnings (loss) 27 3 (44) (65) (50) (8) 542
Assets (at June 30, 2001) 440 608 - - - 1,613 10,718
--------------------------------------------------------------------------------
(a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets.
(b) Includes eliminations and consolidation adjustments.
-21-
--------------------------------------------------------------------
Segment Information Exploration & Production Global
For the Six Months North America International Trade
ended June 30, 2000
Millions of dollars Lower 48 Alaska Canada Far East Other
--------------------------------------------------------------------
Sales & operating revenues $ 57 $ 120 $ 64 $ 455 $ 66 $ 2,905
Other income (loss) (a) 65 - (1) (4) (1) -
Inter-segment revenues 673 33 - 112 55 2
--------------------------------------------------------------------
Total 795 153 63 563 120 2,907
Earnings (loss) from equity investments 3 - - - 1 -
Earnings (loss) from continuing operations 197 47 (8) 170 17 4
Earnings from discontinued operations - - - - - -
--------------------------------------------------------------------
Net earnings (loss) 197 47 (8) 170 17 4
Assets (at December 31, 2000) 2,701 315 1,019 2,251 603 655
--------------------------------------------------------------------
--------------------------------------------------------------------------------
Midstream Geothermal Corporate & Other Total
& Power Admin Net Environmental
Operations & Interest &
General Expense Litigation Other (b)
--------------------------------------------------------------------------------
Sales & operating revenues $ 26 $ 83 $ - $ - $ - $ 90 $ 3,866
Other income (loss) (a) 1 2 - 14 - 130 206
Inter-segment revenues 6 - - - - (881) -
--------------------------------------------------------------------------------
Total 33 85 - 14 - (661) 4,072
Earnings (loss) from equity investments 32 (1) - - - 22 57
Earnings (loss) from continuing operations 31 14 (43) (73) (38) 56 374
Earnings from discontinued operations - - - - - 23 23
--------------------------------------------------------------------------------
Net earnings (loss) 31 14 (43) (73) (38) 79 397
Assets (at December 31, 2000) 416 574 - - - 1,476 10,010
--------------------------------------------------------------------------------
(a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets.
(b) Includes eliminations and consolidation adjustments.
OPERATING HIGHLIGHTS
Effective with the first quarter of 2001, the Company began reporting all
production pursuant to production sharing contracts on the net-economic
interests basis, which excludes host country shares. In previous reporting,
production had included host country shares in Indonesia and the Democratic
Republic of Congo. The Company also began reporting natural gas production on a
dry basis, with natural gas liquids now included with crude oil and condensate
production volumes. The amounts in the table on the following page reflect these
restatements:
-22-
OPERATING HIGHLIGHTS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------- --------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
North America Net Daily Production
Crude oil, condensate and natural gas liquids (thousand barrels)
Lower 48 (a) 59 52 57 54
Alaska 24 27 24 27
Canada (a) 15 17 15 17
---------------------------------------------------------------------------------------------------
Total crude oil, condensate and natural gas liquids 98 96 96 98
Natural gas - dry basis (million cubic feet)
Lower 48 (a) 954 726 911 719
Alaska 93 135 115 143
Canada (a) 85 92 112 96
---------------------------------------------------------------------------------------------------
Total natural gas 1,132 953 1,138 958
North America Average Prices (b)
Crude oil, condensate and natural gas liquids (per barrel)
Lower 48 $ 24.57 $ 25.14 $ 25.47 $ 25.10
Alaska $ 22.27 $ 23.79 $ 22.55 $ 23.24
Canada $ 20.84 $ 21.48 $ 20.65 $ 20.09
Average $ 23.45 $ 24.12 $ 23.96 $ 23.70
Natural gas (per mcf)
Lower 48 $ 4.62 $ 3.41 $ 5.69 $ 2.96
Alaska $ 1.20 $ 1.20 $ 1.20 $ 1.20
Canada $ 2.48 $ 1.73 $ 3.65 $ 1.67
Average $ 4.16 $ 2.91 $ 5.01 $ 2.55
---------------------------------------------------------------------------------------------------
International Net Daily Production
Crude oil, condensate and natural gas liquids (thousand barrels)
Far East 48 47 49 47
Other 19 18 19 18
---------------------------------------------------------------------------------------------------
Total crude oil, condensate and natural gas liquids 67 65 68 65
Natural gas - dry basis (million cubic feet)
Far East 908 817 851 790
Other 69 57 63 59
---------------------------------------------------------------------------------------------------
Total natural gas 977 874 914 849
International Average Prices (b)
Crude oil, condensate and natural gas liquids (per barrel)
Far East $ 24.91 $ 24.40 $ 24.57 $ 24.06
Other $ 27.51 $ 26.38 $ 26.36 $ 26.19
Average $ 25.61 $ 25.07 $ 25.10 $ 24.66
Natural gas (per mcf)
Far East $ 2.54 $ 2.31 $ 2.51 $ 2.30
Other $ 2.92 $ 2.80 $ 2.90 $ 2.76
Average $ 2.56 $ 2.35 $ 2.54 $ 2.34
---------------------------------------------------------------------------------------------------
Worldwide Net Daily Production (a)
Crude oil, condensate and ngls (thousand barrels) 165 161 164 163
Natural gas - dry basis (million cubic feet) 2,109 1,827 2,052 1,807
Barrels oil equivalent (thousands) 516 466 506 464
Worldwide Average Prices (b)
Crude oil, condensate and ngls (per barrel) $ 24.33 $ 24.53 $ 24.45 $ 24.08
Natural gas (per mcf) $ 3.41 $ 2.64 $ 3.89 $ 2.45
---------------------------------------------------------------------------------------------------
(a) Production includes 100 percent of production of consolidated subsidiaries and proportional
shares of production of equity investees.
(b) Average prices include hedging gains and losses but exclude gains or losses on derivative
positions not accounted for as hedges, the ineffective portion of hedges and other Global Trade margins.
-23-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations of Unocal should be read in conjunction with
Management's Discussion and Analysis in Item 7 of the Company's 2000 Annual
Report on Form 10-K and in Item 2 of Part I of the Company's First Quarter 2001
Quarterly Report on Form 10-Q.
The Pipelines business segment has been combined with certain activities of the
Company's gas storage businesses in Canada, which were previously reported in
the Exploration and Production segment, into a new segment called Midstream. The
Carbon and Minerals businesses are no longer disclosed as a separate segment and
are now reported in the Corporate and Other heading. See note 16 to the
consolidated financial statements in Item 1 of this report for revisions in the
Company's reportable segments.
CONSOLIDATED RESULTS
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- ------------------------
Millions of dollars 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------
Earnings from continuing operations $ 235 $ 250 $ 527 $ 374
Earnings from discontinued operations 12 14 16 23
Cumulative effect of accounting change - - (1) -
------------------------------------------------------------------------------------------------------------
Net earnings $ 247 $ 264 $ 542 $ 397
============================================================================================================
Earnings from continuing operations totaled $235 million in the second quarter
of 2001, which was a decrease of $15 million from the same period a year ago.
The second quarter 2001 results benefited from higher worldwide average
natural gas prices and higher worldwide natural gas production compared to the
same period in 2000. The Company's worldwide average natural gas price,
including realized hedging activities, was $3.41 per thousand cubic feet (mcf)
in the second quarter of 2001, which was an increase of 77 cents per mcf, or 29
percent, from the same period a year ago. The Company's worldwide natural gas
production was 2,109 million cubic feet per day (mmcf/d) in the second quarter
of 2001, which was an increase of 15 percent from the same period a year ago.
The increase was primarily due to higher natural gas production from the U.S.
Lower 48 and Far East. These positive results in the second quarter of 2001 were
more than offset by special items that benefited the results of the second
quarter of 2000. These items included a $55 million after-tax gain related to
payments received pursuant to a judgement in its reformulated gasoline patent
infringement case, a $42 million after-tax gain related to the formation of Pure
Resources, Inc. (Pure), and a $21 million after-tax insurance recovery related
to environmental issues.
Sales and operating revenues were $1,684 million for the second quarter of 2001,
which was a decrease of $341 million from the same period a year ago. This
decrease was primarily due to lower marketing and trading activities of crude
oil and condensate by the Company's Global Trade segment which more than offset
the increase in revenues generated by the Exploration and Production segment.
Earnings from continuing operations totaled $527 million for the first six
months of 2001, which was an increase of $153 million from the same period a
year ago. This increase was primarily due to higher worldwide average natural
gas prices and increased natural gas production. The Company's worldwide average
natural gas price, including realized hedging activities, was $3.89 per mcf for
the first six months of 2001, which was an increase of $1.44 per mcf, or 59
percent, from the same period a year ago. The Company's worldwide natural gas
production increased by 14 percent from the same period a year ago, primarily
due to higher natural gas production from the U.S. Lower 48 and Far East. These
positive results were partially offset by higher dry hole costs and higher
depreciation, depletion and amortization expense. The first six months of 2000
results included the second quarter special item benefits described above.
-24-
Earnings from discontinued operations were $12 million and $16 million in the
second quarter and first six months periods of 2001, respectively, compared with
$14 million and $23 million for the same periods a year ago. The Company
recorded pre-tax gains of $18 million and $25 million in the second quarter
and first six months periods of 2001, respectively, related to a participation
agreement tied to its former West Coast refining, marketing and transportation
assets, which were sold in 1997. The participation agreement covers price
differences between California Air Resources Board Phase 2 gasoline and
conventional gasoline. The maximum potential payments under this participation
agreement are capped at $100 million and extend to 2003. The second quarter and
six months periods of 2000 results reflected the Company's former agricultural
products business, which was sold later in that year.
In 2001, the Company recorded a one-time non-cash $1 million after-tax charge
consisting of the cumulative effect of change in accounting principle related to
the initial adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative instruments and Hedging Activities".
Special items represent certain significant transactions, presented in net
earnings, that management determines to be unrelated to or not representative of
the Company's ongoing operations. The following table is a reconciliation of
consolidated adjusted (excluding special items) after-tax earnings to net
earnings for the quarterly and six months periods ended June 30:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (a) $ 228 $ 170 $ 568 $ 309
Special items:
Continuing operations
Gain on asset sales - 42 - 42
Environmental and litigation provisions/settlements (14) (29) (45) (33)
Executive stock purchase program - (9) - (9)
Insurance benefits related to environmental issues - 21 - 21
Trading derivatives- non-hedging (Northrock) 21 - 4 -
Reformulated gasoline patent case - 55 - 55
Restructuring costs - - - (11)
-------------------------------------------------------------------------------------------------------------
Total special items from continuing operations 7 80 (41) 65
Discontinued operations
Gain on disposal - Agricultural products - 14 - 23
Gain on disposal - Refining and marketing 12 - 16 -
-------------------------------------------------------------------------------------------------------------
Total special items from discontinued operations 12 14 16 23
Cumulative effect of accounting change - - (1) -
-------------------------------------------------------------------------------------------------------------
Net earnings (a) $ 247 $ 264 $ 542 $ 397
=============================================================================================================
(a) Includes minority interests of: $ (14) $ 6 $ (30) $ 10
-25-
EXPLORATION AND PRODUCTION
The Company engages in oil and gas exploration, development and production
worldwide.
North America - Included in this category are oil and gas operations in the U.S.
Lower 48, Alaska and Canada. The emphasis of the U.S. Lower 48 operations is on
the onshore, continental shelf and deepwater areas of the Gulf of Mexico region.
The U.S. Lower 48 also includes the consolidated results of Pure Resources, Inc.
(Pure), a 65-percent owned subsidiary, which operates primarily in the Permian
and San Juan Basins in West Texas and New Mexico, the Gulf Coast and the Gulf of
Mexico. A substantial portion of the crude oil and natural gas produced in the
U.S. Lower 48 operations, excluding those of Pure, is sold to the Company's
Global Trade business segment. The remainder of North America production,
including the production of Pure and the Company's Northrock Resources Ltd.
(Northrock) Canadian subsidiary, is sold to third parties. In Alaska, natural
gas production, pursuant to agreements with Agrium, Inc. (Agrium), is sold to
Agrium's fertilizer plant in Kenai. In addition, Northrock and Pure take pricing
positions in hydrocarbon derivative instruments in support of their oil and gas
operations.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) (before special items)
Lower 48 (a) $ 142 $ 92 $ 383 $ 155
Alaska 13 23 32 47
Canada (b) (7) (11) 7 (8)
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) (a) (b) 148 104 422 194
Special items:
Gain on asset sales (Lower 48) - 42 - 42
Litigation provisions (Alaska) - 1 - -
Trading derivatives- non-hedging (Northrock) 21 - 4 -
-------------------------------------------------------------------------------------------------------------
Total special items 21 43 4 42
-------------------------------------------------------------------------------------------------------------
After-tax earnings (a) (b) $ 169 $ 147 $ 426 $ 236
=============================================================================================================
(a) Includes minority interests of: $ (15) $ (6) $ (32) $ (11)
(b) Includes minority interests of: $ - $ 12 $ - $ 20
After-tax earnings totaled $169 million in the second quarter of 2001, which was
an increase of $22 million from the same period a year ago. This increase was
primarily due to higher North America average natural gas prices and higher
natural gas production. Average North America natural gas prices, including
realized hedging activities, were $4.16 per mcf in the second quarter of 2001,
which was an increase of $1.25 per mcf, or 43 percent, from the same period a
year ago. North America average net daily natural gas production was 1,132
mmcf/d in the second quarter of 2001 compared to 953 mmcf/d in the same period a
year ago, which was an increase of 19 percent, primarily behind strong results
from the Lower 48. The increase in the Lower 48 was from the Company's
production on Ship Shoal 295 Block (Muni field) in the Gulf of Mexico, which
began production in the third quarter of 2000, as well as newly acquired
properties in Mobile Bay and other Gulf of Mexico shelf areas and the production
increases by Pure. These positive results were partially offset by higher
depreciation, depletion and amortization expense and higher dry hole costs from
the Gulf of Mexico deepwater drilling program. The second quarter 2001 results
also benefited from gains related to non-hedging commodity derivative positions
of Northrock in Canada versus losses in the same period a year ago. The second
quarter 2000 results included a $42 million after-tax gain related to the
formation of Pure.
-26-
After-tax earnings totaled $426 million for the first six months of 2001, which
was an increase of $190 million from the same period a year ago. This increase
was primarily due to higher North America average natural gas prices and higher
natural gas production. Average North America natural gas prices, including
realized hedging activities, were $5.01 per mcf in the first six months of 2001,
which was an increase of $2.46 per mcf, or 96 percent, from the same period a
year ago. North America average net daily natural gas production was 1,138
mmcf/d for the first six months of 2001 compared to 958 mmcf/d in the same
period a year ago, which was an increase of 19 percent, primarily behind the
strong results from the Lower 48. The first six months of 2001 also benefited
from gains related to non-hedging commodity derivative positions of Northrock in
Canada versus losses in the same period a year ago. These positive results were
partially offset by higher depreciation, depletion and amortization expense and
higher dry hole costs from the Gulf of Mexico deepwater drilling program and
Gulf of Mexico shelf. The first six months of 2000 results included the $42
million after-tax gain related to the formation of Pure.
International - Unocal's International operations include oil and gas
exploration and production activities outside of North America. The Company
operates or participates in production operations in Thailand, Indonesia,
Myanmar, Bangladesh, the Netherlands, Azerbaijan, the Democratic Republic of
Congo and Brazil. International operations also include the Company's
exploration activities and the development of energy projects primarily in Asia,
Latin America and West Africa.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items)
Far East $ 113 $ 88 $ 219 $ 170
Other 5 19 27 17
------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) 118 107 246 187
Special items: - - - -
------------------------------------------------------------------------------------------------------------
After-tax earnings $ 118 $ 107 $ 246 $ 187
============================================================================================================
After-tax earnings totaled $118 million in the second quarter of 2001, which was
an increase of $11 million from the same period a year ago. The increase was
primarily due to higher natural gas production volumes and higher natural gas
prices. Natural gas production increased 12 percent in the second quarter of
2001 compared to the same period a year ago, primarily in the Far East, boosted
by strong electricity demand in the Thailand market. The average net daily
natural gas production in the Far East was 908 mmcf/d in the second quarter of
2001 compared to 817 mmcf/d for the same period a year ago, which was an
increase of 11 percent. The average natural gas price for International
operations was $2.56 per mcf in the second quarter of 2001, which was an
increase of 21 cents per mcf, or nine percent, from the same period a year ago.
The second quarter of 2001 results also had lower dry hole costs compared to the
same period a year ago. These positive results were partially offset by lower
crude oil sales volumes due to timing of liftings and higher effective tax
rates, primarily due to a change in the Thai baht/U.S. dollar exchange rate.
After-tax earnings totaled $246 million for the first six months of 2001, which
was an increase of $59 million from the same period a year ago. The increase was
primarily due to higher natural gas prices and natural gas production volumes in
the Far East. The average natural gas price for International operations was
$2.54 per mcf for the first six months of 2001, which was an increase of 20
cents per mcf, or nine percent, from the same period a year ago. Natural gas
production increased about eight percent for the first six months of 2001
compared to the same period a year ago, primarily in the Far East. The average
net daily natural gas production in the Far East was 851 mmcf/d in the first six
months of 2000 compared to 790 mmcf/d for the same period a year ago, which was
an increase of eight percent.
-27-
GLOBAL TRADE
The Global Trade segment conducts most of the Company's worldwide crude oil,
condensate, natural gas and refined products trading and marketing activities,
excluding those of Pure and Northrock. It is also responsible for
commodity-specific risk management activities on behalf of most of the Company's
Exploration and Production segment, excluding Pure. Global Trade also purchases
crude oil, condensate and natural gas from certain of the Company's royalty
owners, joint venture partners and other unaffiliated oil and gas producing and
trading companies for resale. In addition, Global Trade takes pricing positions
in hydrocarbon derivative instruments.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) $ 4 $ 6 $ 7 $ 4
Special items: - - - -
------------------------------------------------------------------------------------------------------------
After-tax earnings (loss) $ 4 $ 6 $ 7 $ 4
============================================================================================================
After-tax results totaled $4 million in the second quarter of 2001, which was a
decrease of $2 million from the same period a year ago. The decrease in the
second quarter of 2001 was primarily due to lower results from non-hedging
commodity derivative positions related to crude oil.
For the six months ended June 30, 2001, after-tax results totaled $7 million,
which was an increase of $3 million from the same period a year ago. The
increase was primarily due to higher results from non-hedging commodity
derivative positions related to natural gas.
MIDSTREAM
The Midstream segment is comprised of the Pipelines business, which principally
encompasses the Company's equity interests in affiliated petroleum pipeline
companies and wholly-owned pipeline systems throughout the U.S., and the
Company's North America gas storage business.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) $ 18 $ 15 $ 27 $ 31
Special items: - - - -
------------------------------------------------------------------------------------------------------------
After-tax earnings $ 18 $ 15 $ 27 $ 31
============================================================================================================
After-tax earnings totaled $18 million for the second quarter of 2001, which was
an increase of $3 million from the same period a year ago. The increase was
primarily due to improved results from the Company's North America gas storage
business.
For the six months ended June 30, 2001, after-tax earnings totaled $27 million,
which was a decrease of $4 million from the same period a year ago. The decrease
was primarily due to a $6 million asset write-down related to a Colonial
Pipeline Company investment.
-28-
GEOTHERMAL AND POWER OPERATIONS
The Geothermal and Power Operations segment produces geothermal steam for power
generation, with operations in the Philippines and Indonesia. The segment's
activities also include the operation of power plants in Indonesia and equity
interests in gas-fired power plants in Thailand. The Company's non-exploration
and production business development activities, primarily power-related, are
also included in this segment.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) $ 2 $ 5 $ 3 $ 14
Special items: - - - -
------------------------------------------------------------------------------------------------------------
After-tax earnings $ 2 $ 5 $ 3 $ 14
============================================================================================================
After-tax earnings totaled $2 million and $3 million in the second quarter and
first six months of 2001, respectively, which were decreases of $3 million and
$11 million, respectively, from the same periods a year ago. The decreases were
primarily due to higher receivable provisions related to operations in
Indonesia.
CORPORATE AND OTHER
Corporate and Other includes general corporate overhead, miscellaneous
operations (including real estate activities, carbon and minerals) and other
corporate unallocated costs. Net interest expense represents interest expense,
net of interest income and capitalized interest.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings effect (before special items)
Administrative and general expense $ (21) $ (21) $ (44) $ (43)
Net interest expense (a) (32) (37) (65) (73)
Environmental and litigation expense (2) (3) (5) (6)
Other (a) (7) (6) (23) 1
-------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings effect (before special items) (a) (62) (67) (137) (121)
Special items:
Environmental and litigation provisions (14) (30) (45) (33)
Other
Executive stock purchase program - (9) - (9)
Insurance benefits related to environmental issues - 21 - 21
Reformulated gasoline patent case - 55 - 55
Restructuring costs - - - (11)
-------------------------------------------------------------------------------------------------------------
Total special items (14) 37 (45) 23
-------------------------------------------------------------------------------------------------------------
After-tax earnings effect (a) $ (76) $ (30) $ (182) $ (98)
=============================================================================================================
(a) Includes minority interests of: $ 1 $ - $ 2 $ 1
The after-tax earnings effect was a loss of $76 million in the second quarter of
2001 compared to a loss of $30 million in the same period a year ago. The second
quarter 2000 results benefited from a $55 million after-tax gain related to
payments received pursuant to a judgement in the Company's reformulated gasoline
patent infringement case and a $21 million after-tax insurance recovery related
to environmental issues. Environmental and litigation provisions in the second
quarter of 2001 were lower than the second quarter of 2000. Net interest expense
was also lower in the second quarter of 2001 from the same period a year ago
primarily due to higher capitalized interest.
-29-
The after-tax earnings effect was a loss of $182 million for the first six
months of 2001 compared to a loss of $98 million from the same period a year
ago. The results of the six months period in 2000 benefited from the $55 million
after-tax gain related to payments received in the Company's reformulated
gasoline patent infringement case and the $21 million after-tax insurance
recovery. Environmental and litigation provisions were higher in the first six
months of 2001 compared to the same period a year ago, primarily due to higher
estimated costs related to the cleanup of former Company operated sites and
facilities sold with retained liabilities. Net interest expense was also lower
for the first six months of 2001, compared to the same period a year ago
primarily due to a lower balance on a limited-recourse loan and higher
capitalized interest. The Company also made a $10 million pre-tax cash
contribution in 2001, included in the Other category, to fund a charitable
foundation.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
At At At
June 30, December 31, June 30,
----------------------------------------------------
Millions of dollars 2001 2000 2000
----------------------------------------------------------------------------------------------------------------
Current ratio 1.1:1 1.0:1 0.9:1
Total debt and capital leases $ 2,959 $ 2,506 $ 2,784
Trust convertible preferred securities 522 522 522
Stockholders' equity 3,155 2,719 2,455
----------------------------------------------------
Total capitalization $ 6,636 $ 5,747 $ 5,761
====================================================
Total debt/total capitalization 45% 44% 48%
Floating-rate debt/total debt 6% 3% 8%
----------------------------------------------------------------------------------------------------------------
For the first six months of 2001, net cash flow provided by operating activities
was $1,244 million compared with $768 million in the same period a year ago.
This increase primarily reflected the effects of higher worldwide average
natural gas prices and higher worldwide natural gas production. Cash flow
generated by operating activities reflected a reduction of commodity prices
during the first six months of the year, lower crude oil trading activity by the
Company's Global Trade business segment and the collection, in June 2001, of $73
million from the Petroleum Authority of Thailand in settlement of its
"take-or-pay" obligation for natural gas purchases from the Company's Yadana
project in Myanmar.
Pre-tax proceeds from asset sales, including those classified as discontinued
operations, were $30 million for the first six months of 2001. The proceeds
included $12 million from the sale of certain oil and gas properties, $11
million from the sale of miscellaneous assets and a $7 million payment
associated with a participation agreement involving certain gasoline margins
realized by the Company's former West Coast refining, marketing and
transportation assets, which were sold in 1997.
Capital expenditures for the first six months of 2001 were $824 million,
compared with $558 million in the same period a year ago. The higher capital
expenditures in 2001 were primarily due to higher exploratory expenditures and
property acquisitions in the Gulf of Mexico and Brazil. The capital expenditures
amount for the first six months of 2001 excluded Pure's acquisition of
properties from International Paper Company for $267 million and Pure's cash
outlay of $150 million, as of June 30, 2001, for the acquisition of Hallwood
Energy Corporation (see note 3 to the consolidated financial statements in Item
1 of this report). Capital expenditures for the first six months of 2000
excluded $161 million related to the Northrock acquisition.
For the full year 2001, total capital expenditures, excluding major
acquisitions, are currently expected to be approximately $1.7 billion. Of this
total, about 56 percent is expected to be spent in support of North American
exploration and development (E&P) programs, including the Company's Gulf of
Mexico deepwater drilling program, and about 36 percent is expected to be spent
for International E&P projects, with the remainder of the capital for non-E&P
and Corporate-related expenditures.
-30-
Cash on hand plus cash generated from operating activities and asset sales have
been and are expected to remain sufficient to cover the Company's operating
expenses, ongoing capital expenditure program (exclusive of major acquisitions),
scheduled dividend payments and repayment of maturing debt during the remainder
of 2001.
The Company's long-term debt, including the current portion, was $2.96 billion
at June 30, 2001, compared with $2.51 billion at year-end 2000. This increase
reflected the borrowings made by Pure to fund its acquisition of properties from
International Paper Company and the purchase of Hallwood Energy Corporation.
The Company has substantial borrowing capacity (including $1 billion of undrawn
credit facilities available under its bank credit agreement) to meet
unanticipated cash requirements.
ENVIRONMENTAL MATTERS
At June 30, 2001, the Company's reserves for environmental remediation
obligations totaled $232 million, of which $144 million was included in current
liabilities. During the first six months of 2001, cash payments of $41 million
were applied against the reserve and $60 million in provisions were added to the
reserve balance. The increase in the reserve provisions was primarily for the
anticipated cleanup at former Company operated facilities and facilities sold
with retained liabilities. The Company also estimated that it possibly could
incur additional remediation costs aggregating approximately $230 million (as
discussed in note 13 to the consolidated financial statements in Item 1 of this
report). The Company's total environmental reserve amount is grouped into the
following four categories.
Reserve Summary
At
June 30,
Millions of dollars 2001
----------------------------------------------------------------------------
Superfund and similar sites $ 14
Active company facilities 45
Company facilities sold with retained liabilities
and former company-operated sites 83
Inactive or closed company facilities 90
----------------------------------------------------------------------------
Total reserves $ 232
============================================================================
-31-
OUTLOOK
Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases / decreases in future revenues, earnings, cash flows, capital
expenditures, assets, liabilities and other financial items and of future levels
of or increases / decreases in reserves, production, sales including related
costs and prices, and other statistical items; plans and objectives of
management regarding the Company's future operations, products and services; and
certain assumptions underlying such estimates, projection plans and objectives.
While these forward-looking statements are made in good faith, future operating,
market, competitive, legal, economic, political, environmental, and other
conditions and events could cause actual results to differ materially from those
in the foward-looking statements. See pages 47 through 49 of Management's
Discussion and Analysis in Item 7 of the Company's 2000 Annual Report on Form
10-K for a discussion of certain of such conditions and events.
Volatile energy prices continue to impact financial results in the year 2001.
The Company expects energy prices to remain volatile due to changes in climate
conditions, worldwide demand, crude oil and natural gas inventory levels,
production quotas set by OPEC and other factors.
The Company expects adjusted (excluding special items) after-tax earnings to be
between 50 and 60 cents per share for the third quarter of 2001, assuming
average NYMEX benchmark commodity prices of $25.70 per barrel of crude oil and
$3.00 per MMBtu for natural gas. The Company also expects adjusted after-tax
earnings for the full year of 2001 to be between $3.20 and $3.40 per share,
assuming average NYMEX benchmark commodity prices of $27 per barrel of crude oil
and $4.50 per MMBtu for natural gas. The third quarter and full year forecasts
are also dependent on the Company's deepwater drilling results and other
factors. The Company expects net daily worldwide production for the third
quarter of 2001 to average between 515,000 and 525,000 Barrels of Oil Equivalent
(BOE). For full-year 2001, the Company expects net worldwide daily production of
about 505,000 to 515,000 BOE.
The Company made a discovery on the Trident prospect, located on Alaminos Canyon
Block 903 in the Gulf of Mexico, with the Discoverer Spirit drillship. The well
was drilled in 9,687 feet of water to a total depth of 20,500 feet. The well
encountered more than 300 feet of hydrocarbon-bearing pay section and additional
zones of interest. The Company has a 59.5 percent working interest in the seven
block prospect. The Company is now engaged in the extended evaluation of the
discovery and evaluating the location for the first appraisal well. The
Discoverer Spirit drillship is now drilling a delineation well on the discovery
at the Mad Dog prospect on Green Canyon Block 826.
In the Cook Inlet, Alaska, the Company drilled two development oil wells from
the King Salmon platform in the McArthur River field. One of the wells,
the K-13, came on production in early July and is producing about 7,100 b/d.
The Company holds a 56 percent working interest in this production zone in the
McArthur River field.
In July 2001, the Company's Northrock subsidiary successfully completed the
acquisition of all the common shares of Tethys Energy, Inc., a Canadian
exploration and production company. Each shareholder of Tethys received C$4.25
(US$2.76) for each share deposited. The cash consideration for the transaction
was approximately C$145 million (US$95 million) in addition to C$30 million
(US$20 million) in assumed debt.
-32-
The Company expects its Thailand operations to continue to perform strongly. Gas
demand in the Kingdom of Thailand continues to rise due to increased power
consumption and as it continues to convert its power plants from imported
fuel oil to indigenous natural gas. The Company began producing crude oil from
its Plamuk field, located in the Pattani Basin in the Gulf of Thailand, in late
July 2001. Crude production from the neighboring Yala field will be added once
the production application is approved by the Thai government. The Plamuk field
is currently producing about 2,500 b/d to 3,000 b/d and the production from the
two fields is expected to ramp up to 15,000 b/d to 18,000 b/d in the first
quarter of 2002. The Company has a 71.25 percent working interest in these
fields.
In Myanmar, average daily gas production is expected to exceed the daily
contract quantity of 525 mmcf/d for the rest of 2001.
The Company is involved in a multiple well delineation drilling program on the
Ranggas prospect offshore East Kalimantan in Indonesia. The Ranggas discovery,
announced in January 2001, is located in the Rapak Production Sharing Contract
area in which the Company holds an 80 percent working interest.
In Brazil, deepwater drilling continues on the Lagosta prospect in Block BES-2,
where the Company has a 30 percent working interest. The Company drilled two
deepwater wells in its operated Block BC-9, where it has a 35 percent working
interest. The Kitty Hawk and Eagle wells were drilled in the second quarter 2001
and did not encounter commercial quantities of hydrocarbons. The wells were
subsequently plugged and abandoned. In addition, the Company completed its
acquisition of an interest in the Pescada-Arabaiana oil and gas project in the
Potiguar basin in May 2001 and the Company began recording its share of oil and
gas production starting in the second quarter of 2001.
In Gabon, the Company is participating in a multi-well program. The first two
wells were drilled on the Astrid Block, the Renee #1 and the Judy #1 prospects,
and did not encounter commercial quantities of hydrocarbons. The Company
anticipates drilling two more wells late in 2001 or early 2002.
As of June 30, 2001, the Company had a gross receivable balance of approximately
$343 million related to its geothermal operations in Indonesia. Approximately
$141 million was related to Gunung Salak electric generating Units 1, 2, and 3,
of which $140 million represented past due amounts and accrued interest
resulting from partial payments for March 1998 through June 2001. Although
invoices generally have not been paid in full, amounts that have been paid have
been received in a timely manner in accordance with the steam sales contract.
The remaining $202 million primarily relates to Salak electric generating Units
4, 5 and 6. Provisions covering a portion of these receivables have been
recorded. The Company continues to pursue collection of the outstanding
receivables.
The Company has entered into eight licensing agreements that grant motor
gasoline refiners, blenders and importers (including CITGO Petroleum
Corporation, Tesoro Petroleum Corporation and units of The Williams Companies,
Inc.) the right to make cleaner-burning gasolines using formulations patented by
the Company. The terms of the licensing agreements are confidential. The Company
continues to negotiate with other refiners, blenders and importers on licensing
agreements for the Company's cleaner-burning gasoline patents.
In February and March 2001, petitions were filed with the U.S. Patent and
Trademark Office (PTO) by Washington, D.C., law firms, acting on behalf of
unnamed parties, requesting reexamination of two of the Company's patents (the
`126 and `393 patents, respectively). In May, the PTO denied the request for
reexamination of the `126 patent and granted the petition to reexamine the `393
patent.
-33-
The Company anticipates that the PTO will initially reject all or some of the
claims of the `393 patent, as such rejections occur in the overwhelming majority
of cases where reexamination is granted. Subsequently, the Company will be able
to present information and arguments in support of the validity of its patent
claims. The reexamination process is expected to take several months, but the
Company believes the `393 patent claims are valid and non-obvious and expects
the patent to be sustained by the PTO.
In March 2001, ExxonMobil Corporation requested the U.S. Federal Trade
Commission (FTC) to conduct an investigation into certain alleged unfair
competition practices allegedly engaged in by the Company in connection with its
patents. ExxonMobil alleges that the Company engaged in anticompetitive conduct
in the regulatory processes that established California and federal standards
for reformulated gasolines (RFG) and thus gained "monopoly profits" in the RFG
market. ExxonMobil requests that the FTC use its authority to fashion an
appropriate remedy. On August 13, 2001, the Company received notice that the FTC
is conducting an investigation in conjuction with this matter.
In mid-September 2001, the U.S. District Court in Los Angeles is scheduled to
hear the Company's motion for the award of additional damages with respect to
the defendants' infringement of the `393 patent from August 1996 through
December 2000. The Company will request that the court apply the 5.75 cents per
gallon awarded in the original 1997 trial to the defendants' infringing volumes
produced since August 1996. The defendants' motions that these damage
proceedings be stayed pending the outcome of the `393 reexamination or,
alternatively, that the court allow additional evidence on damages are scheduled
to be heard on the same date.
Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," SFAS
No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 143 "Accounting for
Asset Retirement Obligations". SFAS No. 141 eliminates the pooling method of
accounting for a business combination, except for qualifying business
combinations that were initiated prior to July 1, 2001, and requires that all
combinations be accounted for using the purchase method. SFAS No. 142, which is
effective for fiscal years beginning after December 15, 2001, addresses
accounting for identifiable intangible assets, eliminates the amortization of
goodwill and provides specific steps for testing the impairment of goodwill.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. SFAS No. 143, which is
effective for fiscal years beginning after June 15, 2002, requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred as a capitalized cost of the long-lived asset and
to depreciate it over its useful life. The Company is currently in the process
of evaluating the impact that SFAS No. 142 and 143 will have on its financial
position and results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices. As part of its overall risk
management strategies, the Company uses derivative financial instruments to
manage and reduce risks associated with these factors. The Company also pursues
outright pricing positions in certain hydrocarbon derivative instruments, such
as futures contracts.
Interest Rate Risk - From time to time the Company temporarily invests its
excess cash in interest-bearing securities issued by high-quality issuers.
Company policies limit the amount of investment in securities of any one
financial institution. Due to the short time the investments are outstanding and
their general liquidity, these instruments are classified as cash equivalents in
the consolidated balance sheet and do not represent a material interest rate
risk to the Company. The Company's primary market risk exposure for changes in
interest rates relates to the Company's long-term debt obligations. The Company
manages its exposure to changing interest rates principally through the use of a
combination of fixed and floating rate debt. Interest rate risk sensitive
derivative financial instruments, such as swaps or options may also be used
depending upon market conditions.
The Company evaluated the potential effect that near term changes in interest
rates would have had on the fair value of its interest rate risk sensitive
financial instruments at June 30, 2001. Assuming a ten percent decrease in the
Company's weighted average borrowing costs at June 30, 2001, the potential
increase in the fair value of the Company's debt obligations and associated
interest rate derivative instruments, including the Company's net interests in
the debt obligations and associated interest rate derivative instruments of its
subsidiaries, would have been approximately $117 million at June 30, 2001.
Foreign Exchange Rate Risk - The Company conducts business in various parts of
the world and in various foreign currencies. To limit the Company's foreign
currency exchange rate risk related to operating income, foreign sales
agreements generally contain price provisions designed to insulate the Company's
sales revenues against adverse foreign currency exchange rates. In most
countries, energy products are valued and sold in U.S. dollars and foreign
currency operating cost exposures have not been significant. In other countries,
the Company is paid for product deliveries in local currencies but at prices
indexed to the U.S. dollar. These funds, less amounts retained for operating
costs, are converted to U.S. dollars as soon as practicable. The Company's
Canadian subsidiaries are paid in Canadian dollars for their crude oil and
natural gas sales.
From time to time the Company may purchase foreign currency options or enter
into foreign currency swap or foreign currency forward contracts to limit the
exposure related to its foreign currency debt or other obligations. At June 30,
2001, the Company had various foreign currency swaps and foreign currency
forward contracts outstanding to hedge its debt and other local currency
obligations in Canada, Thailand and The Netherlands. The Company evaluated the
effect that near term changes in foreign exchange rates would have had on the
fair value of the Company's combined foreign currency position related to its
outstanding foreign currency swaps and forward contracts. Assuming an adverse
change of ten percent in foreign exchange rates at June 30, 2001, the potential
decrease in fair value of the Company's foreign currency forward contracts,
foreign-currency denominated debt, foreign currency swaps and foreign currency
forward contracts of its subsidiaries, would have been approximately $10 million
at June 30, 2001.
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Commodity Price Risk - The Company is a producer, purchaser, marketer and trader
of certain hydrocarbon commodities such as crude oil and condensate, natural gas
and refined products and is subject to the associated price risks. The Company
uses hydrocarbon price-sensitive derivative instruments (hydrocarbon
derivatives), such as futures contracts, swaps and options to mitigate its
overall exposure to fluctuations in hydrocarbon commodity prices. The Company
may also enter into hydrocarbon derivatives to hedge contractual delivery
commitments and future crude oil and natural gas production against price
exposure. The Company also actively trades hydrocarbon derivatives, primarily
exchange regulated futures and options contracts, subject to internal policy
limitations.
The Company uses a variance-covariance value at risk model to assess the market
risk of its hydrocarbon derivatives. Value at risk represents the potential loss
in fair value the Company would experience on its hydrocarbon derivatives, using
calculated volatilities and correlations over a specified time period with a
given confidence level. The Company's risk model is based upon historical data
and uses a three-day time interval with a 97.5-percent confidence level. The
model includes offsetting physical positions for hydrocarbon derivatives related
to the Company's fixed price pre-paid crude oil and pre-paid natural gas sales.
The model also includes the Company's net interests in its subsidiaries' crude
oil and natural gas hydrocarbon derivatives and forward sales contracts. Based
upon the Company's risk model, the value at risk related to hydrocarbon
derivatives held for purposes other than trading was approximately $12 million
at June 30, 2001. The value at risk related to hydrocarbon derivatives held for
trading purposes was approximately $10 million at June 30, 2001.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is incorporated by reference: the information with respect to certain
legal proceedings pending or threatened against the Company previously reported
in Item 3 of Unocal's Annual Report on Form 10-K for the year ended December 31,
2000 and in Item 1 of Part II of Unocal's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001; the information regarding environmental
remediation reserves in note 12 to the consolidated financial statements in Item
1 of Part I of this report; the discussion of such reserves in the Environmental
Matters section of Management's Discussion and Analysis in Item 2 of Part I; and
the information regarding certain legal proceedings and other contingent
liabilities in note 13 to the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 2001 Annual Meeting of Stockholders of Unocal was held on May 21, 2001. The
following actions were taken by the stockholders at the Annual Meeting, for
which proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended:
1. The four nominees proposed by the board of directors were elected as
directors by the following votes for three-year terms expiring at the
2004 Annual Meeting of Stockholders, or until their successors are duly
elected and qualified:
Name Votes For Votes Withheld
Frank C. Herringer 215,009,977 4,153,753
Charles R. Larson 214,901,597 4,262,133
Marina v.N. Whitman 214,927,684 4,236,046
Charles R. Williamson 215,073,307 4,090,423
2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
Unocal's independent accountants for 2001 was passed by a vote of
216,364,714 for versus 1,803,259 against and 995,757 abstentions. There
were no broker non-votes.
3. A proposal to approve the 2001 Directors' Deferred Compensation and
Stock Award Plan was passed by a vote of 193,387,663 for versus
23,876,365 against and 1,899,702 abstentions. There were no broker
non-votes.
4. A stockholder proposal to urge the Board of Directors to adopt,
implement and enforce a code of conduct based on the International
Labor Organization's Conventions on Workplace Human Rights failed to
pass, with a vote of 42,872,530 for versus 140,453,276 against and
11,808,298 abstentions. There were 24,029,626 broker non-votes.
5. A stockholder proposal to link compensation and bonus packages of
Unocal's executives to the Company's ethical and social performance
failed to pass, with a vote of 30,044,283 for versus 161,899,934
against and 3,189,887 abstentions. There were 24,029,626 broker
non-votes.
6. A stockholder proposal to require the Board to provide a report four
months from the date of the Annual Meeting describing its efforts,
criteria and process of achieving Board inclusiveness failed to pass,
with a vote of 27,797,705 for versus 160,971,396 against and 6,365,002
abstentions. There were 24,029,627 broker non-votes.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The Exhibit Index on page 39 of this report lists the exhibits
that are filed as part of this report.
(b) Reports on Form 8-K:
Filed during the second quarter of 2001:
(1) Current Report on Form 8-K, dated March 27, 2001, and filed April 5,
2001, for the purpose of reporting, under Item 5, Unocal Bylaw
amendments, filed as an exhibit under Item 7, and effective March 27,
2001.
There were no filings during the third quarter of 2001 to the date
hereof.
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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)
Dated: August 14, 2001 By: /s/JOE D. CECIL
---------------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer
Principal Accounting Officer)
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EXHIBIT INDEX
10.1 2001 Directors' Deferred Compensation and Stock Award Plan
(incorporated by reference to Exhibit B to Unocal's Proxy Statement
dated April 9, 2001, for its 2001 Annual Meeting of Stockholders, File
No. 1-8483).
10.2 Amendment to Long Term Incentive Plan of 1998, as amended (subject to
stockholder approval).
10.3 Form of Nonqualified Stock Option Grant under the Long Term Incentive
Plan of 1998, effective July 27, 2001 (subject to stockholder
approval), between Unocal and each of Charles R. Williamson (as to
450,000 shares of Unocal Common Stock), Timothy H. Ling (as to 240,000
shares of Unocal Common Stock) and Dennis P.R. Codon (as to 150,000
shares of Unocal Common Stock), each with an exercise price of $35.355
per share.
12.1 Statement regarding computation of ratio of earnings to fixed
charges of Unocal Corporation for the six months ended June
30, 2001 and 2000.
12.2 Statement regarding computation of ratio of earnings to fixed
charges of Union Oil Company of California for the six months
ended June 30, 2001 and 2000.
Copies of exhibits will be furnished upon request. Requests should be addressed
to the Corporate Secretary.
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