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Low Prices, Dry Holes, Gulf Storms Dog Unocal

November 2, 1998
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Low Prices, Dry Holes, Gulf Storms Dog Unocal

Unocal Corp. said lower oil and gas prices, coupled with increased exploration costs because of several dry holes, led to lower third quarter earnings of $36 million, or 15 cents per share, compared with $177 million, or 70 cents/share in the third quarter of 1997. Earnings from continuing operations, excluding special items, were $4 million, or 2 cents per share, compared with $94 million, or 38 cents per share in 3Q97. Total revenues for the third quarter were $1.4 billion, about the same as a year ago. Capital expenditures were $502 million, up from $308 million in the same period of 1997.

In late October, three Spirit Energy 76 exploration wells turned out to be dry holes. They included the Calypso deep-water well. As a result, the company took an $18 million charge during the quarter, which lowered Unocal earnings by 5 cents per share. Unocal's total oil and gas exploration expenses in the third quarter, including dry hole costs, were $118 million, more than double the level for the comparable period in 1997. So far this year, Unocal's oil and gas exploration success rate has been 52% with 49 commercial successes. Dry hole costs were $156 million, which is 42% of the $375 million spent on exploration drilling so far this year.

Lower prices for oil and gas reduced after-tax operating earnings by about $70 million, or nearly 29 cents per share, compared with the same period a year ago. And the company experienced Gulf storm-related curtailments which contributed to a 5% decline in 3Q oil and gas production. Nevertheless, Unocal said its exploration program is on track to replace production with new reserves in 1998.

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