Lower gas and oil production in North America offset gains made overseas by Unocal in the third quarter. The company reported that earnings (excluding special items) from continuing operations fell slightly during the third quarter to $126 million, or 52 cents/diluted share, compared with the Thompson/First Call consensus of 54 cents/share and 3Q2001 earnings of $127 million, or 52 cents/share.

North America production was down 51,000 boe/d to 237,000 boe/d in the third quarter compared to 3Q2001. Unocal said the lower production was due principally to the decline rate in the Muni field (Gulf of Mexico), which had reached peak production rates in the third quarter 2001, declines in other fields and storm-related production curtailments in the Gulf of Mexico. Worldwide production averaged 466,000 boe/d, compared with 506,000 boe/d a year ago.

However, the company predicted a 2.5-5% increase in gas and oil production next year to an average of 469,000 to 472,000 boe/d. The higher forecast is based on expected spending of about $1.7 billion, essentially flat with 2002.

“We are committed to growing production and increasing returns and per-barrel margins,” said CEO Charles R. Williamson. “We hope to meet these commitments by emphasizing investments in our inventory of larger, higher potential return projects, exercising capital discipline and continuing to de-emphasize smaller scale, lower return development and exploitation activities.”

The keystone of the 2003 production growth forecast is the start of new production from the deepwater West Seno oil and gas field in Indonesia, which is expected to come on line at the beginning of the second quarter. The phase one development has peak production potential of more than 52,000 boe/d net to Unocal, increasing to more than 65,000 with phase two. Modest growth also is expected in Thailand.

North America production is expected to be relatively flat with 2002, as increases in Canada are offset by declines in the Lower 48. This assumes a modest degree of success with the company’s emerging deep shelf exploration program and does not include the impact of any divestitures that may occur.

Longer term, the company sees five-year annual production growth rates of 5-7% fueled by the company’s backlog of major development projects. “We have a string of major production projects that are slated to come on line over the next five years,” Williamson said. “In addition, we have other projects throughout our global operations arena that we expect to sanction in 2003 and beyond.”

Unocal said it also will continue to take steps to reduce the decline rate of its mature legacy production base. Unocal’s Lower 48 and Canadian production base is equally split between the lower decline onshore U.S. and Canada and the higher decline Gulf of Mexico shelf. Success with the deep-shelf program would have the effect of offsetting decline rates there as the company continues to grow its Canada and onshore U.S. positions.

The backlog of Unocal’s major projects extends well beyond the five-year horizon, and includes the monetization of giant gas fields in deepwater Indonesia, Bangladesh, and Vietnam. These fields combined represent 10 to 20 Tcf in discovery volumes.

“The next phase of Unocal’s future will be characterized by bringing on existing major developments, sanctioning existing discoveries, continuing our focused and high-impact exploration programs, and moving the monetization of our huge Asian gas resources forward,” Williamson said. “These major projects allow us to be more selective with respect to smaller scale, lower return projects.

“We believe our portfolio stacks up to any competitor’s portfolio of established, captured projects, and we are excited about our ability to grow the value of the company over this time period. We’ve worked hard to build this backlog of projects, and we look forward to seeing it pay off for our stockholders.”

Unocal expects fourth quarter earnings between 50 cents a share and 60 cents a share. Analysts are expecting 55 cents a share. The company cut its fourth quarter production estimate after suffering losses in the Gulf of Mexico because of Hurricane Lili. Unocal expects 2002 adjusted earnings of $1.74 a share to $1.84 a share. Analysts are expecting $1.78 a share. Earnings before items in 2001 were $753 million, or $3.04 a share. Including all items, income was $615 million, or $2.50 a share, on revenue of $6.75 billion.

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