Unocal Corp. boasted record quarterly profit on Monday, but production told a different tale. Worldwide oil and gas production averaged 404,000 boe/d in the quarter, down from 463,000 boe/d in 2Q2003. On the natural gas side, the North American numbers were dismal, with a 26.2% drop in production to 593.7 MMcf/d from 804.8 MMcf/d in 2Q2003.
Unocal, headquartered in El Segundo, CA, said the oil and gas production decline “was due primarily to the sale of oil and gas producing assets in North America, which accounted for nearly 34,000 boe/d during 2003, natural production declines in North America, and lower contractor’s cost recovery for boe in Asia, which reduced production by about 7,000 boe/d.” Unocal lowered its full-year 2004 oil and gas production estimate to 400,000 boe/d from 425,000 boe/d.
In a statement by the company, Unocal said that in the past, “recent actual production levels have often fallen below Unocal’s estimates,” and the company has therefore decided to adopt a new approach for forecasts. It did not break down oil and natural gas estimates, but estimated them in an oil-equivalent basis.
Unocal said it is changing the way it estimates production because past forecasts “have been affected by factors such as different-than-anticipated declines, project start-up timing, and performance of new projects.” It said the production also is sensitive to constrained markets and/or pipeline capacity, as well as volatile oil price changes.
“Beginning with today’s outlook, Unocal will now offer production forecasts that the company expects will be exceeded by actual production. Accordingly, the production outlook based on the prior methodology is being revised from approximately 425,000 boe/d to approximately 400,000 boe/d for the full-year 2004. This reduced forecast reflects lower volumes in the second half of the year (annualized basis) due to dispositions of producing assets in the U.S. onshore and in Brazil (4,000 boe/d), as well other factors (21,000 boe/d).
Unocal plans to post its production forecasts on its web site, and will include detailed ranges of the numerous areas of production, which describe the company’s lowest and highest production estimates in those areas. In locations where Unocal is limited by market demand or pipeline capacity, the range will be between the contract minimum and the highest past production or the estimated capacity limits of the producing assets. A sensitivity factor will also be provided to adjust future production for the impact of adjustments in oil prices.
Despite the poor gas production results, Unocal reported record preliminary net earnings for the second quarter of $341 million ($1.25/share diluted), which was 93% above 2Q2003’s $177 million (68 cents). The record earnings included several special items in connection with adjusted after-tax earnings.
Unocal’s preliminary adjusted after-tax earnings were $231 million (86 cents/share), compared with Thomson/First Call estimates of 83 cents/share. Adjusted after-tax earnings were $191 million (73 cents/share) in 2Q2003, and $239 million (89 cents) in 1Q2004.
“We had an outstanding second quarter, recording the highest quarterly profit in the company’s history,” said CEO Charles R. Williamson. “In the second quarter, we benefited from higher commodity prices and lower exploration expense.” He said the company is executing major development programs in the Caspian Sea, Thailand, Bangladesh and deepwater Gulf of Mexico, “programs that we believe will contribute to production growth in 2005 and 2006.”
In the second quarter, after-tax special items included a $78 million gain from the sale of North American assets, a $46 million gain from the settlement of litigation related to Unocal’s Philippine geothermal business, and $27 million for net settlements and adjustments relating to tax matters. Partially offsetting these gains were environmental and litigation provisions of $13 million and a provision related to the arbitration settlement on Alaska gas deliveries of $29 million..
Second-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $3.65/Mcf, up from $3.53 in 2Q2003. The company’s worldwide liquids price realizations (including hedging activities) were $32.61/bbl, up from $25.36 a year earlier.
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