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1993
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
-----------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________.
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.)
1201 WEST 5TH STREET, LOS ANGELES, CALIFORNIA 90017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (213) 977-7600
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Pacific Stock Exchange
Stock Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 15, 1994 (based upon the average of the high and low
prices of these shares on the New York Stock Exchange Composite Transactions
listing) was $6,576 million.
Shares of Common Stock outstanding as of March 15, 1994: 241,841,427
DOCUMENTS INCORPORATED BY REFERENCE
Portions of 1994 Proxy Statement Part III
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
Unocal Corporation was incorporated in Delaware on March 18, 1983, to operate
as the parent of Union Oil Company of California (Union Oil) which was
incorporated in California on October 17, 1890. Virtually all operations are
conducted by Union Oil which does business as Unocal. The terms "Unocal" and
"the company" as used in this report mean Unocal Corporation and its
consolidated subsidiaries, except where the context indicates otherwise.
Unocal is a fully integrated, high-technology energy resources company whose
worldwide operations comprise many aspects of energy production. The company is
principally engaged in the exploration for, and the production, transportation
and sale of, crude oil and natural gas in the United States and foreign
countries; and the manufacture, purchase, transportation and marketing of
petroleum and selected chemical products. The company is also engaged in the
exploration for, and the production and sale of, geothermal resources. Other
operations include the production and marketing of specialty minerals, and real
estate development and sales. In addition, the company conducts research
programs in support of the above businesses.
Unocal competes in a challenging business environment of global competition,
political instability, rapid technological developments, volatile oil and gas
prices, and rising costs of environmental regulations. In order to meet these
challenges, the company has gone through many changes in recent years. The
company has sold or shut down most businesses that were marginally related to
its core activities or that were not a good strategic fit for Unocal.
In 1993, management developed and implemented a ten-year plan for growth with
a strategy firmly focused on Unocal's basic business and core competitive
strengths. The plan focuses on improving cash flow from operations and
strengthening profitability. Unocal expects to accomplish this plan primarily
by increasing energy resource production and continuing to emphasize cost
control and improvement in all areas of operations. During 1993, the company
launched a three-year development program to accelerate the production of proved
undeveloped reserves in the United States, primarily in the Gulf of Mexico.
Unocal's long-term growth strategy is to expand its extensive oil, gas and
geothermal operations in Southeast Asia. Unocal also expects to help develop
the energy resources potential in the greater Middle East, including the Caspian
Sea.
The company initiated the above plan as a result of significant progress made
toward meeting the three goals management established in early 1992. These goals
were: reducing total debt by $1.5 billion by May 1997; generating $700 million
in after-tax proceeds from sales of nonstrategic assets by May 1994; and
increasing annual after-tax contributions to cash flow by $200, also by May
1994. Since then, Unocal has reduced its total debt by $1.2 billion, about 80
percent of the way toward the goal. The company is also 80 percent of the way
toward meeting its two-year asset sales goal. At year-end 1993, $560 million in
after-tax proceeds were generated from asset sales. The third goal has been
accomplished by streamlining business organization and continuing to cut costs,
reducing staff, consolidating offices and eliminating nonessential activities.
During 1993, the company sold its geothermal operations in the Imperial
Valley of California, its national auto/truckstop system and its retail
agricultural products business. Planned asset sales in 1994 primarily include
oil and gas properties.
Unocal's operations are principally divided into two divisions: the Energy
Resources Division and the Petroleum Products and Chemicals Division.
The Energy Resources Division produces crude oil and natural gas, and its
largest operations are located in Thailand and the Louisiana/Gulf of Mexico
region. Other foreign producing locations include Indonesia, Canada and the
Netherlands. Unocal also produces geothermal fluids and steam to generate power
in The Geysers in northern California, the Philippines, and soon on the island
of Java in
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Indonesia. The company's current business developments include a gas development
project offshore Myanmar and geothermal projects on the islands of Java and
Sumatra in Indonesia. Unocal is also pursuing an interest in a Caspian Sea oil
development project offshore Azerbaijan.
The Petroleum Products and Chemicals Division principally converts basic
energy resources into higher-value products. Unocal operates three refineries in
California and markets petroleum products in the western United States, Alaska
and Hawaii. Unocal holds a 50 percent interest in The UNO-VEN Company (UNO-VEN),
a Midwestern refining and marketing company. Using natural gas as feedstock, the
company manufactures nitrogen-based fertilizers in southern Alaska to supply
markets in the western United States and Pacific Rim countries. Unocal also
produces and markets petroleum coke, lanthanides (rare earths), and specialty
graphites.
Unocal's net earnings, excluding the effects of accounting changes, were $343
million in 1993, up significantly from $196 million in 1992. The earnings
increase was primarily due to higher domestic natural gas prices and production,
improved margins for refining and marketing operations, lower exploration
expenses, continued cost reductions, and lower interest expense. These gains
were partially offset by lower crude oil prices. For a more detailed analysis
of the company's financial results and information on capital expenditures, see
Management's Discussion and Analysis under Item 7 of this report. Financial
information relating to the company's business segments, geographic areas of
operations, and sales revenues by classes of products is presented under Item 8
of this report.
PETROLEUM OPERATIONS
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
UNITED STATES
The company holds approximately 1.1 million net acres of proven lands in 21
states. Most of these lands are located in Texas, Louisiana, California,
Alaska, Oklahoma, New Mexico, and Montana. The company also holds approximately
1.8 million net acres of unproved lands in 26 states. Most of these lands are
located in Alaska, Texas, Louisiana, California, Colorado, Michigan, Florida and
Wyoming. Proved and unproved acreage in federal offshore exploration and
production areas are included in the contiguous states.
Unocal's domestic crude oil production comes principally from fields in
Alaska (27%), California (25%), Texas (19%) and Louisiana (18%). Approximately
42% of domestic natural gas production is from offshore and onshore fields in
Louisiana, with most of the balance coming from Texas (22%), Alaska (13%),
California (8%), and Oklahoma (4%).
Unocal has varying ownership interests in 26 natural gas processing plants
located near major gas fields in the United States. The company operates 12 of
these plants and has full ownership in four. At December 31, 1993, one plant
operated by Unocal and two plants operated by other companies were idle.
Most of the company's crude oil produced in the United States is either
delivered to or exchanged for crude oil that is processed in the company's
refineries. A substantial portion of the natural gas produced domestically is
sold to third parties under contracts having a term of at least one year.
Another large portion of the domestic gas production is sold to third parties in
the spot market. The remainder is primarily used in the company's chemicals
operations or as fuel in its refineries.
The following are highlights of Unocal's domestic exploration and development
activities in 1993:
EXPLORATION ACTIVITIES. Unocal's exploration success rate in the Gulf of
Mexico was 74 percent in 1993, with commercial hydrocarbons found in 20 of the
27 wells drilled in either unproved areas or untested formations within proved
areas. The company has been active in this area for more than 50 years. In
recent years, improved exploration techniques have revealed new oil and gas
resources. In 1993, Unocal completed extensive 3-D seismic coverage of its oil
and gas fields along the Gulf Coast, yielding new finds in new fault blocks and
deeper zones.
2
Offshore Texas, Unocal development in the Brazos A-105 Block has brought new
life to a field that, after 20 years on production, was nearing depletion.
Development in a new, deeper zone is expected to increase field production to
150 million cubic feet of gas per day by April 1994. Unocal is the operator with
a 56.25 percent working interest.
Onshore, Unocal logged new gas reserves in Fresh Water Bayou in Louisiana in
January 1994. The discovery well, Louisiana Furs C-16, tested at a daily rate
of 30.3 million cubic feet of gas and 192 barrels of condensate. The well was
drilled to a total depth of 19,260 feet and was completed in a producing horizon
below 17,500 feet. Production is expected to begin in mid-April once natural
gas handling facilities are completed. Unocal is the operator and holds a 50
percent working interest in the well.
Unocal discovered gas at Felicia Creek in Liberty County, Texas, in January
1993 and brought a second well on production in December. The field's daily
production averaged 8.8 million cubic feet of gas and 660 barrels of condensate
in February 1994. Unocal, the operator, holds a 50 percent interest in the
2,800-acre Area of Mutual Interest in which the field is located.
DEVELOPMENT ACTIVITIES. In 1993, the company launched a three-year
accelerated drilling program to increase production of its extensive inventory
of proven undeveloped oil and gas resources, primarily in North America. In the
fourth quarter 1993, the drilling program began to pay off, with U.S. gas
volumes up 10 percent compared with the fourth quarter 1992. Increased gas
production in the Gulf of Mexico helped push Unocal's U.S. production above 1
billion cubic feet per day in the fourth quarter 1993. Gulf operations account
for more than a third of the company's worldwide gas production. In February,
daily Gulf production of more than 664 million cubic feet of gas was the highest
in 12 years.
In December 1993, Unocal started production from a well on Mobile Block 904
offshore Mississippi. This is the company's first production from the Norphlet
trend, a prolific deep gas play. At 22,400 feet, the well is one of the deepest
Unocal has drilled in the Gulf of Mexico. Daily production averaged 23 million
cubic feet of natural gas in January 1994 and is expected to increase above 30
million cubic feet. Unocal's interest is 100 percent. Nearby Mobile Block 861,
brought on stream in February 1994, could add 30 million cubic feet per day. The
company holds a 25 percent interest. Vermilion block 328 (50 percent interest),
also brought on stream in February, is expected to produce 24 million cubic feet
per day by June 1994.
Offshore Louisiana, Unocal has a 50 percent interest in Garden Banks 191, on
stream since November 1993. This field is expected to produce 160 million cubic
feet of gas per day by October 1994. Unocal also holds a 50 percent interest in
Garden Banks 189, which achieved peak gas production of 69 million cubic feet
per day in January 1994.
Development drilling will continue in the Chakachatna area of the Cook Inlet
(Alaska). In 1994, four wells are planned to be drilled.
In central California, three 1992 natural gas discovery wells were placed on
production after the completion of a pipeline. Unocal's two 100 percent-owned
wells produced at a combined rate of 10.7 million cubic feet per day after
production began during December 1993. The other well, a farmout, produced at a
rate of 3.2 million cubic feet per day. Unocal's interest in the farmout well
will be 34 percent after payout.
FOREIGN
Unocal conducts production operations in six foreign countries: Thailand,
Indonesia, Netherlands, United Kingdom, Canada and Zaire. The company sells
most of the natural gas it produces overseas to third parties under long-term
contracts. The crude oil and condensate produced overseas are primarily sold at
spot market prices.
THAILAND. Unocal began natural gas production in Thailand in 1981 which has
become a major operation of the company. In February 1994, Unocal Thailand's
cumulative gas sales from the Gulf of Thailand topped two trillion cubic feet.
3
Unocal Thailand's fields in the Gulf achieved record production -- above 800
million cubic feet per day -- in the first half of 1993. However, that level was
reduced in July when another company began production from the Bongkot gas
field, which also feeds into the main pipeline that carries gas from the
offshore gas fields to Rayong on the country's eastern seaboard.
The Petroleum Authority of Thailand owns and operates the pipeline. The
decrease in Unocal production has been offset somewhat by the smaller Khanom
pipeline, which started regular deliveries of gas to southern Thailand in
February 1994. The reduced delivery levels will be eliminated after a second
major pipeline to Rayong begins operation. The new pipeline is scheduled for
completion in 1996.
Unocal Thailand's gross production averaged 747 million cubic feet of gas per
day and 27,000 barrels of condensate per day in December 1993, and that rate is
expected to increase slightly in 1994. Unocal's working interests in the three
contract areas in the Gulf of Thailand average 75 percent. Unocal Thailand
currently has more than 1,100 employees and an average of 1,500 employees of
contractors in its natural gas operation. Unocal and its partners have spent
more than $3.6 billion developing the offshore gas fields. Spending estimates
for 1994 are approximately $280 million.
Unocal will continue to develop its natural gas fields in the Gulf of
Thailand to sustain production and prepare for future increases. The Jakrawan
field came on production in December 1993, bringing to eight the number of gas
fields Unocal operates in the Gulf. Initial tests from the first production
platform indicate that Jakrawan's daily production could peak at 60 million
cubic feet of gas and 1,500 barrels of condensate. Development of a second
platform should begin in late 1994 when the construction of a pipeline is
underway.
New drilling platforms have been installed in the Erawan and Platong fields.
Appraisal drilling in the Pailin field in the Gulf and exploration onshore in
northeast Thailand continue.
Gas demand in Thailand is expected to continue its active growth over the
next 10 to 15 years, providing a market for increased production from the Gulf
and new supplies from neighboring countries. Unocal and Total, the operator,
have completed successful appraisal drilling in the Yadana gas field offshore
Myanmar. Negotiations are under way to construct a pipeline and sell the gas to
markets in both Myanmar and Thailand.
INDONESIA. Unocal began oil production in Indonesia in 1972 after the
discovery of the Attaka field. The field's cumulative oil production reached
500 million barrels in May 1993. Through field extensions and new discoveries,
Unocal continues to increase the field's oil and gas production. In August
1993, a new platform was set in the Attaka field. Daily production from the
platform averaged 12,000 barrels of oil and 8 million cubic feet of gas by
January 1994, boosting Attaka's total daily production by more than 30 percent.
The company's interest in Attaka is 50 percent.
The new Serang field, 12 miles from Attaka, began production in December
1993. The platform was set in 328 feet of water, a record depth for Indonesia.
Production is expected to reach 16,000 barrels of oil per day and 30 million
cubic feet of gas per day in 1994. Unocal's interest in Serang is 100 percent.
Exploratory drilling is planned in the southeastern end of the Indonesian
archipelago during 1994.
CANADA. Net crude oil production averaged 16,500 barrels per day in 1993,
down from 17,900 barrels per day in 1992. Daily production of natural gas was
42 million cubic feet, a 36 percent decrease from the 1992 level. The decreases
were primarily the result of property sales.
Expansion of the gas storage facility at Aitken Creek in Northern British
Columbia continued in 1993. The facility, the largest producer-owned gas
storage in Canada, stores gas for delivery when needed to British Columbia, the
Pacific Northwest and California. The facility can now deliver 250 million
cubic feet of gas per day, up from 150 million cubic feet per day in 1992.
Aitken Creek handled 36 billion cubic feet of gas in 1993, and the company's
share was 16 billion cubic feet.
4
NETHERLANDS. Offshore the Netherlands, the new Horizon oil field is now
producing a total of 12,700 barrels (gross) daily from three wells. Daily
production is expected to exceed 20,000 barrels in 1994 once three additional
wells are drilled. Located in the Dutch North Sea's Block P/9, the Horizon
platform began production in August 1993. The field was discovered in 1982.
Unocal's advances in horizontal drilling technology made field development
economically possible. Horizontal wells are more productive than conventional
wells because they can access more of the oil-bearing zones.
Gross production from the other four fields averaged 8,800 barrels per day in
1993, down from 10,600 barrels per day in 1992. The decrease reflects continued
natural decline of the fields.
Unocal holds an 80 percent working interest in all five fields.
UNITED KINGDOM. Gross production from the Heather field averaged 8,100
barrels of oil per day in 1993, a 16 percent decrease from a year ago. The
field is in natural decline and is expected to cease production in 1995. Unocal
holds a 31.25 percent interest in this field.
ZAIRE. Gross production from five fields averaged 16,200 barrels of oil per
day in 1993, compared with 18,900 barrels per day in 1992. The decrease was
mainly due to natural decline. Unocal holds a 17.7 percent interest in these
fields.
FOREIGN EXPLORATION AND OTHER
Unocal pursues exploration opportunities and business development projects to
sustain the long-term growth of the company. The company's exploration activity
in high-risk, high-potential wildcat areas is limited to projects that pass
rigorous geo-technical and economic review. Unocal has focused its exploration
activities on about 15 trends worldwide. This assures concentration of technical
talent and resources on the most promising trends with the highest potential
value to the company.
Unocal's business development group has focused on other opportunities where
commercially attractive resources are known to exist and the challenge is to
develop them effectively. Current activities to market confirmed gas resources
offshore Myanmar and to seek a role in the development of significant oil and
gas resources in the Caspian Sea reflect this strategy.
Negotiations are ongoing between the Republic of Azerbaijan and an
international consortium of oil companies of which Unocal is a member. These
negotiations, if successfully concluded, represent major resource potential late
in the decade. Although the geologic risk of the project is minimal and the
technical challenges of development seem manageable, the political situation in
the Caucasus region has not yet completely stabilized. Nevertheless, the region
has clear interests in developing its major energy resources and offers many
opportunities for Western expertise and capital to share the risks and economic
rewards. Unocal is prepared to join its partners in the preliminary stages of
development once a firm, commercially attractive agreement with the government
is reached.
In early 1993, Unocal signed a petroleum exploration agreement with the
Republic of Trinidad and Tobago for a frontier block 45 miles off the east coast
of Trinidad. Later the company completed an extensive 3-D seismic survey. The
company expects to spend at least $12 million in 1994 to explore the block.
Unocal currently holds a 100 percent interest in the block, which covers 486
square miles, with an average water depth of 300 feet. Under the terms of the
agreement, the company will drill three wells. The company is currently seeking
a partner to jointly explore the block.
In Syria the company plans to spend $9 million to drill two exploratory wells
in 1994.
In light of the changing political climates and relationships between
international oil companies and host governments in the foregoing and other
parts of the world, including changes by producing countries in
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posted or tax-reference prices for crude oil, increases in tax rates (sometimes
retroactively) and demands for increased participation in the ownership of
operations, it is recognized that there could be changes in the status of
Unocal's activities in these and other foreign countries during the coming
years.
OPERATING AND RESERVE STATISTICS
Set forth below are consolidated oil and gas reserve and operating data:
1993 1992 1991
---- ---- ----
Net proved reserves at year end: /(a)/
Crude oil and condensate - million
barrels
United States 483 506 529
Foreign 281 288 270
----- ----- -----
Total 764 794 799
Natural gas - billion cubic feet
United States 3,727 3,831 4,043
Foreign 2,905 2,906 2,815
----- ----- -----
Total 6,632 6,737 6,858
Net daily production: /(a)/
Crude oil and condensate - thousand
barrels
United States 148 151 156
Foreign 98 100 101
----- ----- -----
Total 246 251 257
Natural gas - million cubic feet
United States 952 933 899
Foreign 647 647 624
----- ----- -----
Total 1,599 1,580 1,523
Natural gas liquids - thousand barrels
Plant 4 5 5
Leasehold /(b)/ 16 13 12
----- ----- -----
Total 20 18 17
Natural gas sales to public - million
cubic feet daily
United States 752 766 761
Foreign 670 661 629
----- ----- -----
Total 1,422 1,427 1,390
For additional information regarding oil and gas financial data, and oil and
gas reserve data and its related present value of future net cash flow, see
pages 50 through 55 of this report.
During 1993, certain estimates of underground oil and gas reserves were filed
with the Department of Energy under the name of Union Oil. Such estimates were
consistent with reserve data filed with the Securities and Exchange Commission.
- --------
(a) Includes net profit type agreements on a gross basis. Natural gas is
reported on a wet gas basis; production excludes gas consumed on lease.
(b) Net of plant retention.
6
OIL AND GAS ACREAGE
As of December 31, 1993
(thousands of acres)
-------------------------------------------
Proven Acreage Prospective Acreage
------------------ ----------------------
Gross Net Gross Net
------ --------- ----------- --------
United States 1,563 1,145 2,636 1,804
Far East 276 200 32,856 15,243
Other Foreign 270 148 7,663 4,572
------ ----- ------ ------
Total 2,109 1,493 43,155 21,619
====== ===== ====== ======
PRODUCIBLE OIL AND GAS WELLS
As of December 31, 1993
----------------------------------------
Oil Gas
------------------ -------------------
Gross Net Gross Net
------- ------- -------- -------
United States 8,994 4,985 1,466 850
Far East 171 121 322 238
Other Foreign 1,528 636 450 311
------ ----- ------ ------
Total 10,693 5,742 2,238 1,399
====== ===== ====== ======
The company had 343 gross and 220 net wells with multiple completions.
DRILLING IN PROGRESS
As of December 31, 1993
--------------------------
Oil and Gas Wells
--------------------------
Gross Net
---------- -------------
United States 44 30
Far East 41 30
Other Foreign 12 6
--- ---
Total 97 66
=== ===
The company had ten secondary recovery projects in process of installation at
December 31, 1993.
NET OIL AND GAS WELLS COMPLETED AND DRY HOLES
Productive Dry
------------------ ------------------
1993* 1992 1991 1993* 1992 1991
---- ---- ---- ---- ---- ----
Exploratory
United States 9 5 7 11 11 15
Far East 4 - - 3 4 8
Other Foreign 1 - - 4 4 9
---- ---- ---- ---- ---- ----
Total 14 5 7 18 19 32
==== ==== ==== ==== ==== ====
Development
United States 164 155 140 7 8 6
Far East 60 68 44 4 4 1
Other Foreign 17 17 19 2 4 2
---- ---- ---- ---- ---- ----
Total 241 240 203 13 16 9
==== ==== ==== ==== ==== ====
- ----------------
* The number of net wells in the 1993 Annual Report to Stockholders was
misstated.
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REFINING, MARKETING AND TRANSPORTATION ACTIVITIES
REFINING
Unocal owns and operates three refineries in California. The company also
has a 50 percent interest in the Chicago Refinery (Illinois), which is operated
by UNO-VEN.
The refineries manufacture a complete line of high-quality petroleum products
and certain basic chemicals, including automotive and aviation gasolines,
liquefied petroleum gases, naphthas and solvents, jet and turbine fuels,
kerosine, diesel oils, automotive and industrial lubricating oils, waxes,
asphalts, residual fuel oils and petroleum coke. Rated capacities of crude oil
processing units for the four refineries are summarized below.
Refinery Barrels Per Day
-------- ---------------
California
Los Angeles-Wilmington and Carson plants 125,000
San Francisco 77,000
Santa Maria* 44,000
Illinois
Chicago (equity share) 73,500
The Carson plant was purchased in 1991 and was fully integrated into Unocal's
refining system in 1992. During 1993, additional pipelines were completed to
interconnect the Wilmington and Carson plants to increase the reliability and
flexibility of refinery operations. Also, the company moved the main components
of a gas-oil hydrotreater from its closed shale-oil facility in Colorado to the
Carson plant. The company plans to install the hydrotreater during 1994. The
new unit will increase hydrotreating capacity at Carson by nearly 30 percent,
thereby boosting its gasoline production.
Unocal's California refining system operates in a difficult business climate,
primarily because of increasingly stringent environmental regulations.
Reformulated gasoline, manufactured to Environmental Protection Agency (EPA)
standards, must be available for sale by January 1995 in compliance with the
Federal Clean Air Act Amendments of 1990. By March 1996, the more stringent
California Air Resources Board (CARB) standards take effect in California.
Unocal will complete EPA gasoline manufacturing facilities at its Los Angeles
refinery in the fourth quarter of 1994. Construction of facilities to produce
CARB gasoline is scheduled for completion at the Los Angeles and San Francisco
refineries in late 1995.
Unocal expects to spend approximately $210 million in 1994 and $175 million
in 1995 to modify its refineries in order to produce these reformulated fuels.
The goal is to maximize production of reformulated fuels while controlling
costs.
In the third quarter of 1993, Unocal began producing diesel fuel to meet CARB
requirements. Through an innovative approach, the company was able to start
production of the CARB formulation with relatively modest capital expenditures.
Unocal's Los Angeles Refinery only suffered minor damage when a major
earthquake hit Southern California on January 17, 1994.
- ------------------
* Produces unfinished products for further processing at the company's San
Francisco and Los Angeles refineries.
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The company's input to crude oil processing units and refinery production
data, including its equity portion of UNO-VEN, are shown below.
1993 1992 1991
-----------------------------
Thousand Barrels per day
-----------------------------
Input to crude oil processing units
Crude oil 273 269 247
Other materials 15 17 16
---- ---- ----
Total 288 286 263
==== ==== ====
Refinery production
Gasoline 158 152 152
Kerosine, heating oil and diesel fuel 72 72 69
Fuel oil 19 24 31
Other products 68 64 45
---- ---- ----
Total 317 312 297
==== ==== ====
MARKETING
Unocal markets gasoline and other refined petroleum products in the United
States under the "Unocal 76" trade name. Gasoline is marketed, directly or
through jobbers and marketers, to consumers at retail service stations.
Substantially all retail outlets, including locations owned and leased by the
company, are operated by independent dealers. The retail outlets also sell
branded tires, batteries and other automobile accessories.
In addition, jet fuels, diesel fuel, lube oil, and heavy fuel oil are
marketed to commercial users. The company's crude supply and transportation
group also markets crude oil produced by Unocal or purchased from others.
WEST COAST. Unocal's retail marketing on the West Coast covers seven states:
California, Arizona, Nevada, Hawaii, Washington, Oregon and Alaska. The company
has about a 13.5 percent market share in the greater Los Angeles metropolitan
area which represents one of the world's largest regional gasoline markets. The
West Coast marketing network includes 236 wholesale marketing stations and
terminals, and approximately 1,500 service stations.
Over several years, Unocal has worked to strengthen its retail marketing
effort. In October 1993, the company introduced co-branded, no-fee Visa and
Mastercard credit cards. Card users earn a one percent rebate on all purchases,
credited monthly against purchases from Unocal 76 stations. By March 1994,
Associated National Bank of Delaware had opened more than half a million co-
branded accounts. Unocal continues to offer its private label card, with 1.4
million active accounts. Unocal plans to outsource the data processing of its
private label credit card program. Unocal signed an agreement with First Data
Resources to handle the processing at its center in Tulsa, Oklahoma. The move
is expected to occur during the second quarter of 1994.
The company is also investing in improved technology at its service stations.
A satellite-based electronic point-of-sale system installed at 900 stations will
speed credit card transactions and reduce their cost. By the end of 1994,
nearly 330 service stations are scheduled to have card readers in the gasoline
dispensers.
The company continues its low-cost programs to help its independent dealers
increase station volumes. These include improving service station appearance
and lighting, and surveying customers to identify ways to improve the quality of
service.
SOUTHEAST MARKETING AND AUTO/TRUCKSTOPS. At the end of 1993, Unocal has
substantially completed the phase-out of its marketing operations in the
southeastern United States. Unocal has lube oil terminals and blending
operations in Savannah, Georgia, which have been integrated into the company's
system.
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In early 1993, the company completed the sale of its national auto/truckstop
system to National Auto/Truckstops, Inc. (National) for approximately $180
million. The sale included the transfer of 140 branded facilities of which 97
were Unocal-owned locations. National markets its products under the "76"
trade name.
The company's sales volumes of refined products, crude oil and natural gas
liquids, including its equity portion of UNO-VEN, are as follows:
1993 1992 1991
------------------------------
Thousand Barrels Per Day
------------------------------
Petroleum Products
Gasoline 194 235 266
Kerosine, heating oil and diesel fuel 93 121 126
Fuel Oil 13 17 28
Other products 45 44 16
---- ---- ----
Total 345 417 436
==== ==== ====
Crude Oil
Sales 375 414 434
Purchases 371 421 478
Natural gas liquids 22 24 21
The decline in sales volume from 1991 was principally due to the phase-out of
the company's marketing operations in the southeastern United States.
TRANSPORTATION
Unocal's petroleum supply and transportation operations provide important
support functions, keeping refineries supplied with feed stocks and transporting
products to market. A substantial part of Unocal's crude oil production and
purchases is transported to the company's refineries or to selling locations by
approximately 8,700 miles of raw material pipelines which Unocal owns, wholly or
partially, or leases. Unocal also has interests in approximately 7,400 miles of
refined product pipelines, either owned or through 17 joint venture pipelines.
The company has a 20.75 percent interest in the Colonial Pipeline Company. The
Colonial system runs from Texas to New Jersey, and transports a significant
portion of all liquefied petroleum products consumed in its 13-state market
area.
Unocal Pipeline Company, a wholly owned subsidiary, has a 1.36 percent
participation interest in the Trans-Alaska Pipeline System (TAPS), which
transports crude oil from the North Slope of Alaska to the port of Valdez in
Alaska. In 1993, TAPS oil throughput averaged 1.7 million barrels per day, of
which Unocal's share was approximately 23,000 barrels per day.
Unocal's marine fleet at year-end 1993 consisted of one crude oil tanker, two
refined product tankers and one chemical product tanker. The company also has
an extensive fleet of product tank trucks.
THE UNO-VEN COMPANY (UNO-VEN)
UNO-VEN, a refining and marketing partnership in the Midwest, owns the
Chicago Refinery, 12 product terminals, 4 lubricant terminals and a lube oil
blending and packaging plant. UNO-VEN has a long-term crude oil supply
agreement with a subsidiary of Petroleos de Venezuela, S.A. (PDVSA) which
provides 135,000 barrels per day of Venezuelan crude as feedstock for the
refinery through the year 2009. All products produced from its refinery
operations are marketed under the "76" trade name. UNO-VEN supplies, directly
or through jobbers and marketers, approximately 2,670 service stations and 51
truckstops. UNO-VEN's wholesale marketing and bulk distribution network
consists of 250 stations.
UNO-VEN is an Illinois general partnership. The managing general partners,
each with a 50 percent interest, are Midwest 76, Inc., a subsidiary of Union
Oil, and VPHI Midwest, Inc., a Venezuela Petroleum Holdings, Inc. (VPHI)
subsidiary. VPHI is a subsidiary of PDVSA.
10
CHEMICALS & MINERALS OPERATIONS
Unocal is involved in the production and marketing of agricultural, carbon
and mineral products. These businesses are divided into the two groups
described below.
AGRICULTURAL PRODUCTS. This group principally manufactures and markets
nitrogen-based fertilizers for wholesale markets. Unocal is a major fertilizer
supplier for U.S. farmers west of the Rockies and to the Pacific Rim markets.
In February 1993, the company's wholly owned subsidiary, the PureGro Company,
sold its remaining 33 agricultural retail outlets, primarily in the western
United States.
Unocal's primary fertilizer manufacturing plants, located in Kenai, Alaska,
produce ammonia and urea for agricultural applications using natural gas as
feedstock. The natural gas comes primarily from nearby Unocal-operated fields.
This operation is supported by a system of West Coast terminals, and product
upgrading plants in Kennewick, Washington, and West Sacramento, California.
Unocal's agricultural products operations faced major challenges with China's
reduction in urea imports and increased exports of ammonia and urea from former
Soviet republics. However, by year-end 1993, production in the former Soviet
republics was diminishing and markets began to return to the pre-1993 balance.
While domestic markets were impacted by the international market, Unocal serves
a stable, mature market for nitrogen fertilizers in the western United States.
In May 1993, Unocal completed its first shipment since 1974 to Vietnam. The
Kenai plant shipped 18,000 tons of urea, primarily for rice cultivation. This
market is expected to grow as a result of the normalization of U.S.-Vietnam
trade relations announced in February 1994.
CARBON AND MINERAL PRODUCTS. Green petroleum coke, a by-product of refining
operations, is calcined for use in aluminum production and other industrial
applications. Green sponge coke is also sold in the United States and overseas
as fuel. Calcining plants are located adjacent to Unocal's Santa Maria and San
Francisco refineries and UNO-VEN's Chicago Refinery.
Petroleum coke sales were reduced in 1993 because of the recession in the
aluminum industry. Increased coke sales for chemical reduction processes and
fuel partially offset the decline.
The Needle Coker Company, a joint venture equally owned by Unocal and UNO-
VEN, produces calcined needle coke at facilities adjacent to UNO-VEN's Chicago
Refinery. Needle coke is a high quality petroleum coke used to make graphite
electrodes for the production of steel in electric arc furnaces.
Through its wholly owned subsidiary, Poco Graphite, Inc., the company
manufactures premium graphite materials for use in electrodes, semiconductors,
biomedical products and other advanced technologies. The subsidiary experienced
its seventh consecutive year of sales growth. Construction is under way to
expand the company's manufacturing capacity in Decatur, Texas.
Unocal's mineral operations are carried out by Molycorp, Inc., a wholly owned
subsidiary, which mines, processes and markets lanthanides. It operates a
lanthanide mine and mill, and a chemical plant at Mountain Pass, California.
Lanthanide elements have a variety of applications in industrial and electronic
products, including high-strength magnets, television phosphors, and auto and
refining catalysts. Lanthanide markets have become highly competitive over the
past 10 years with the entry of suppliers from China, Japan and Eastern Europe.
Molycorp continued to focus its production on high-quality cerium of which
demand is growing for use in automobile catalytic converters and glass to help
filter ultraviolet radiation.
Molycorp also owns an approximate 45 percent interest in CBMM, a Brazilian
company which is the world's largest niobium producer. Niobium is used as a
hardening agent in steel.
11
Operations have been suspended at Molycorp's molybdenum mine and mill at
Questa (New Mexico), its molybdenum roasting facility in Washington
(Pennsylvania), and its lanthanide processing facilities at Washington and York
(Pennsylvania) and Louviers (Colorado).
The company's production of ammonia, processed sponge coke and lanthanides
are as follows:
1993 1992 1991
------------------------
Ammonia - tons daily 3,510 3,452 3,082
Processed sponge coke - tons daily 1,398 1,727 1,595
Lanthanide concentrates - million pounds 39 47 41
GEOTHERMAL OPERATIONS
Unocal is the world's largest supplier of geothermal energy for power
generation, with major operations in California and the Philippines and a new
development project in Indonesia. The production of geothermal resources for
power generation has been a core business for Unocal for more than 20 years.
Unocal's reserves of 125 million megawatt-hours represents the energy equivalent
of 188 million barrels of oil. In 1993, net geothermal electricity production
from worldwide operations was 7.3 million megawatt-hours, the energy equivalent
of 10.9 million barrels of oil.
In 1993, Union Oil sold its geothermal operations in the Imperial Valley of
California. The underlying geothermal reserves sold only represented about nine
percent of the company's geothermal reserves.
Unocal expects to begin supplying steam for power generation at the company's
first geothermal development in Indonesia in the second quarter of 1994. Demand
for electricity is rapidly increasing in this nation of nearly 200 million
people. Unocal currently has proven geothermal reserves on the island of Java
that represent about 35 million barrels of crude oil equivalent. The company
will begin exploration of very encouraging resource prospects on the island of
Sumatra in 1994.
In December 1993, Unocal tested steam production in the Gunung Salak
geothermal field, located near Jakarta. Unocal will supply steam to two
generating plants with a combined 110-megawatt capacity under a contract with
PERTAMINA, the Indonesian state oil company. The plants are scheduled to begin
operation in the second quarter of 1994. The contract also calls for Unocal to
develop steam to supply an additional 220 megawatts of generating capacity at
Salak as development proceeds. Unocal is now negotiating to expand its role and
accelerate development.
On northern Sumatra, Unocal will begin exploration drilling in the Sarulla
block in mid-1994. The company signed a contract with PERTAMINA in February 1993
to appraise and develop geothermal resources of up to 1,000 megawatts in the
240,000-acre tract south of Medan. If this resource is proven, Unocal will
build and operate the power plants at Sarulla under an energy sales contract
with PLN, the Indonesian State Electric Company. The contract calls for the
transfer of the power plants to PLN after an agreed period of operation.
Following the transfer, Unocal would continue to sell geothermal energy to PLN
for the remaining project life.
Below are geothermal reserves and operating data:
1993 1992 1991
------ ------- -----
Net proved geothermal reserves at year end:
- billion kilowatt-hours 125 128 131
- million equivalent oil barrels 188 192 197
Net daily production:
- million kilowatt-hours 20 23 23
- thousand equivalent oil barrels 30 34 35
Net geothermal lands in acres
- proven 20,249 34,931 34,134
- prospective 457,943 359,016 362,573
Net producible geothermal wells 266 268 270
12
OTHER OPERATIONS
REAL ESTATE
The Unocal Real Estate Division is responsible for managing and disposing of
surplus company-owned properties. The Division manages office facilities and
also handles the office leasing and sub-leasing operations for the company.
Unocal Land & Development Company, a wholly owned subsidiary, is responsible for
the development and sale of certain real estate assets for industrial,
commercial and residential purposes.
RESEARCH
Unocal has approximately 560 company research scientists, engineers and
support personnel working at a research center located in Brea, California.
Their primary functions are to provide the operating divisions with technical
services which improve the overall performance of their operations and to
develop new and improved products, processes and techniques for use in every
phase of the petroleum business and in pertinent areas of the chemical and
geothermal industries. A majority of the research group reports to the
operating divisions.
Unocal owns over 1,223 active patents in the United States and abroad which
are generally available to others under revenue producing licensing agreements.
In 1993, Unocal sold 19 such licenses.
The company's total research and development expenditures were $29 million in
1993, $50 million in 1992 and $63 million in 1991. Expenditures for technical
services were $57 million, $44 million and $41 million for the years 1993, 1992
and 1991, respectively.
COMPETITION
The petroleum industry is highly competitive. Unocal competes with numerous
companies in all phases of its petroleum operations. The company is also in
competition with other producers and marketers of non-petroleum energy.
Competition for finding, developing and producing oil and gas resources
occurs in bidding for domestic prospective leases or foreign exploration rights,
acquisition of geological, geophysical and engineering knowledge, and the cost-
efficient development and production of proved oil and gas reserves. The future
availability of prospective domestic leases is subject to competing land uses
and federal, state and local statutes and policies. The company's geothermal
operations are in competition with producers of other energy resources.
Competition also exists in the manufacture, distribution and marketing of
petroleum products. In the refining segment, the ability to produce high-value
products at a competitive cost, while meeting regulatory standards, is of
primary importance. On the marketing side, price, customer service, advertising
and new product development are the major factors affecting competition. In the
chemical businesses, the key competitive factors for the company's fertilizer
products are prices, cost and availability of gas supplies; and for petroleum
coke, product quality and prices.
EMPLOYEES
As of December 31, 1993, Unocal had 13,613 employees compared with 14,687 a
year ago. The decrease principally reflects the impact of business divestments.
Of the total employees, 2,248 were represented by various labor unions.
Collective bargaining agreements covering represented employees at Unocal's
refineries and various other facilities were entered into during February of
1993. Most of these new labor agreements are for three-year terms. See page 56
of this report for information on total payroll and employee benefits costs.
13
GOVERNMENT REGULATION
Certain interstate crude oil pipeline subsidiaries of Unocal are regulated
(as common carriers) by the Federal Energy Regulatory Commission. As lessee
from the United States government, Unocal is subject to Department of the
Interior regulations covering activities on the Outer Continental Shelf (OCS),
and on onshore lands. In addition, state regulations impose strict controls on
both state-owned and privately-owned lands.
Some federal and state bills would, if enacted, significantly and adversely
affect Unocal and the petroleum industry. These include the imposition of
additional taxes, divestiture of certain operations, land use controls and
restrictions on development of the OCS.
Regulations promulgated by the Environmental Protection Agency (EPA), the
Department of the Interior, the Department of Energy, the State Department, the
Department of Commerce and other government agencies are complex and subject to
change. New regulations may be adopted. The company cannot predict how
existing regulations may be interpreted by enforcement agencies or court
rulings, nor whether amendments or additional regulations will be adopted, nor
what effect such changes may have on its business or financial condition.
ENVIRONMENTAL REGULATION
Federal, state and local laws and provisions regulating the discharge of
materials into the environment or otherwise relating to environmental protection
have a continuing impact on the company's operations. Significant federal
legislation applicable to the company's operations includes the following: the
Clean Water Act, as amended in 1977; the Clean Air Act, as amended in 1977 and
1990; the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended in 1984; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended in 1986 (CERCLA);
the Toxic Substances Control Act of 1976, as amended in 1986; and the Oil
Pollution Act of 1990. Various state and local governments have adopted or are
considering the adoption of similar laws and regulations.
The California Air Resources Board and the federal government have both
adopted new standards for gasoline. The Federal Clean Air Act Amendments of
1990 require the manufacture and sale of reformulated gasolines in areas not
meeting specified air quality standards by January 1, 1995. These requirements
apply to the nine areas which have the worst ozone pollution, including Los
Angeles and San Diego. The California Air Resources Board has established
stricter standards than those imposed by the federal rules. These standards for
reformulated gasoline are to become effective March 1, 1996. The company
expects to spend $450 million over the three years ending in early 1996 to
modify its refineries to meet these regulatory standards.
The Air Quality Management Plan for the Los Angeles Basin, as adopted, and
the Clean Air Act Amendments could, by the year 2000, significantly and
adversely affect all of the company's petroleum operations in the Los Angeles
area, including its refining operations located near the Los Angeles harbor and
in Carson. The company believes it can continue to meet the requirements of
existing laws and regulations, although changes in operating procedures and the
acquisition of additional pollution control facilities may be necessary to meet
future regulatory standards.
The company has been a party to a number of administrative and judicial
proceedings under federal, state and local provisions relating to environmental
protection. These proceedings include actions for civil penalties or fines for
alleged environmental violations, permit proceedings including hearing requests
into the issuance or modification of National Pollution Discharge Elimination
System (NPDES) permits, requests for temporary variance from air pollution
regulations for refinery operations, and similar matters. The company has also
joined or intervened with the American Petroleum Institute, the Western States
Petroleum Association and with other oil companies in actions relating to
guidelines and proposed and final regulations of the EPA, the Department of the
Interior and other agencies.
14
In 1993, the company spent approximately $133 million in capital expenditures
in order to comply with and, in some cases, exceed the requirements of
applicable federal and state environmental regulations. The company also
incurred approximately $235 million of environment-related expense. This
includes expenditures to remediate past contamination and Unocal's operating,
maintenance, and administrative costs to maintain environmental compliance.
Estimated 1994 environmental expenditures are $296 million in capital and $242
million in expense.
For information on the company's environmental exposure, see Legal
Proceedings below and the Environmental Matters section of Management's
Discussion and Analysis on page 24 and Note 16 of the notes to consolidated
financial statements on page 44 of this report.
OTHER MATTERS
In the first quarter of 1994, the company plans to write down its remaining
investment of $24.6 million in the Guadalupe Oil Field. On March 4, 1994,
Unocal announced that if negotiations with the landowner permit the company to
do so, it will permanently cease production at the field which currently
produces 170 barrels of low gravity oil per day. The net cost to abandon the
field is approximately $8 million.
On March 15, 1994, the company pleaded no contest to three misdemeanor counts
and paid penalties of $1.5 million. The remaining misdemeanor counts against
the company and six employees were dropped by the San Luis Obispo County
District Attorney. On March 23, 1994, a lawsuit seeking civil penalties was
filed by the California Attorney General. See Legal Proceedings on page 16,
Item 4, for additional information.
The company will continue to concentrate on the cleanup of the diesel-like
additive formerly used to help produce the heavy crude oil. To date the company
has spent about $1.5 million in cleanup costs. Additional immediate remedial
cleanup is estimated at another $2 million. A longer term remediation plan is
being formulated. Although the cleanup cost has not been determined it is not
expected to have a material effect on the company's operating results or
financial condition.
ITEM 3 - LEGAL PROCEEDINGS
( 1 ) The company may face potentially significant financial exposure from
possible civil penalty citations, claims and lawsuits regarding environmental
matters. These matters include, for example, properties requiring presently
undeterminable amounts of cleanup efforts and expenses, soil or water
contamination, and claims for personal injuries allegedly caused by exposure to
toxic materials manufactured or used by the company.
Within this category, there are various sites for which the company could be
liable, either alone or in some proportionate amount with other defendants, for
civil penalties, claims and lawsuits:
Denver Petrochemical Site, Colorado McColl Hazardous Waste Site, Fullerton, California
Geothermal Site, Imperial Valley, California Oakland Petrochemical Site, California
Guadalupe Oil Field, San Luis Obispo, California Operating Industries, Inc., Monterey Park, California
Gulf Coast Vacuum, Abbeville, Louisiana Pure Oil Bulk Plant, Minneapolis, Minnesota
Heath Refinery, Heath, Ohio Purity Oil Sales site, Fresno, CA
Lorentz Barrel Site, San Jose, California San Diego Terminal, California
Los Angeles Airport, Los Angeles, California Western Processing Co., Kent, Washington
The present state of the law which imposes joint and several liability on
defendants, the potentially large number of claimants for any given site or
exposure, the uncertainty attendant to the possible award of punitive damages,
the imprecise and conflicting engineering evaluations and estimates of proper
cleanup methods and costs, and the recent judicial recognition of new causes of
action, all contribute to the practical impossibility of making any reasonable
estimate of the company's potential liability for most of these environmental
matters.
The company is usually just one of several companies cited as a potentially
responsible party. Although potential aggregate monetary damages might be
substantial, Unocal's share of any liability is likely to be relatively small.
Settlements and costs incurred in those matters that have previously been
resolved have not been materially significant to the company's operating results
or financial position.
15
Except for specific sites discussed later, the company does not believe that
the ultimate share of its liability at the above sites or other presently
unknown sites will be material to its financial condition. Even though
unlikely, an adverse decision awarding punitive damages to numerous plaintiffs
or imposing joint and several liability for the cleanup obligations of other
equally responsible parties, however, could have a material effect on the
company's financial condition. Also, if liabilities are aggregated and assumed
to occur in a single fiscal year, they could be material to the company's
operating results.
( 2 ) In the Exxon Valdez litigation, Alyeska and its owners, including
------------
Unocal Pipeline company, have reached a settlement for $98 million with the
remaining private plaintiffs in the litigation. The settlement will resolve all
outstanding private damage claims against Alyeska and its owner companies as a
result of the spill. The settlement was approved by both the state and federal
courts overseeing the litigation. Unocal's share of the settlement amount is
about $1.3 million. Exxon has filed appeals seeking to enjoin Alyeska's
settlement for the private damage claims.
The parties have settled the remaining claims of the State of Alaska in State
-----
of Alaska v. Exxon, et al., No. A92-175, U.S.D.C. Alaska (originally filed in
- --------------------------
Superior Court, Third Judicial District, No. 89-6852) and the United States in
United States of America v. Exxon, et al., No. A91-082, U.S.D.C. Alaska, without
- -----------------------------------------
admitting liability. The defendants agreed to pay $31.7 million to settle the
lawsuits, of which Unocal Pipeline company's share is $600,086.
( 3 ) The judgment against the company in Angelina Hardwood Lumber Company
--------------------------------
v. Prairie Producing Co., Cause No. 24, 654-91-01, in the District Court of
- ------------------------
Angelina County, Texas, is still on appeal. The judgment holds the company
liable for approximately $23.5 million in compensatory damages, $50 million in
punitive damages, and $5.5 million in prejudgment interest and attorneys' fees.
This case involves complicated factual and legal questions regarding a title
dispute to natural gas producing properties in Louisiana. The company firmly
believes that the judgment in this case is not justified and that a successful
outcome on appeal is reasonably likely.
( 4 ) On March 15, 1994, the company entered a plea of no contest to three
misdemeanor counts of a criminal complaint: a) California Water Code S 13272 -
failure to report the discharge of petroleum product to State waters; b)
California Water Code SS 13376 and 13387 (a) (1) - negligent failure to report
the discharge of petroleum product to navigable waters; and c) California Fish
and Game Code S 5650 - deposit of petroleum product where it could pass into
State waters. (People v. Unocal Corporation, et al., DA #930004569, San Luis
-------------------------------------
Obispo Country Municipal Court, State of California). All remaining charges
against the company and six of its current and former employees were dismissed.
The charges concern the failure to report contamination in the Guadalupe Oil
Field that may have occurred at various times in the 1960s, 1970s and 1980s.
The company agreed to pay $1.5 million in restitution and civil penalties.
Most of the monetary sanctions were paid under a Stipulation for Judgment and
Judgment Pursuant to Business & Professions Code 17200, et seq. in the case for
civil penalties (People v. Unocal Corporation, CV 75157, Superior Court of the
------------------------------
State of California, County of San Luis Obispo).
Under the terms of a three-year probation, the company must investigate and
remediate the hydrocarbon contamination at the Guadalupe Oil Field to the
satisfaction of the lead regulatory agency and also undertake a program of
mandatory education and training concerning environmental regulations for its
employees.
A civil suit seeking various forms of penalties and restitution was filed on
March 23, 1994 (People v. Union Oil Company of California, Superior Court of
-------------------------------------------
San Luis Obispo County, Civil No. 75194) by the California Attorney General on
behalf of the Department of Fish and Game, the Regional Water Quality Control
Board, and the Department of Toxic Substances Control. The complaint alleges
several categories of violations, namely, discharge into marine and state
waters, failure to report discharge, destruction of natural resources, failure
to warn and exposure to known carcinogens (benzene/toluene), public nuisance,
unauthorized disposal of hazardous waste, and labeling violations for "recycled"
diluent material. Injunctive
16
relief and civil penalties are demanded for the various claimed violations as
well as prejudgment and postjudgment interest, costs, and reasonable attorney
fees.
Cleanup and remediation of the Field are continuing. The ultimate cost of
that effort and the outcome of civil litigation are presently undetermined. In
the opinion of management, however, the likely financial outcome of this event
and the ensuing litigation could be substantial but will not result in any loss
which would materially affect the company's financial position or operations.
( 5 ) In the McColl dumpsite litigation, the defendants have reached a
partial tentative settlement of $18 million of claims for past costs by the EPA.
The company's share of the settlement is 18.75%, and the settlement is awaiting
final language and judicial approval, U.S.A., et al. v. Shell Oil company, et
-----------------------------------------
al., CV-91-0589 RKJ (EX), United States District Court, Central District of
- ---
California. Still remaining is the EPA determination on the parameters of the
final remedy at the site. The defendants' counterclaims also remain.
Predesign and design of the proposed remedial solution (soft material
solidification) continues as the result of an agreed order.
( 6 ) The company was cited by the EPA as one of 14 respondents to an
Administrative Order issued under Section 106 of CERCLA ("Superfund") regarding
the Gulf Coast Vacuum Site in Abbeville, Louisiana, which is an abandoned oil
and gas exploration and production waste site. Under this Order, the company is
required to conduct an "interim remedial action" at the Gulf Coast Site in
accordance with a Statement of Work and an earlier Record of Decision.
Compliance with the Order was completed in December, 1993. A consent decree
signed by the parties for performance of the final remediation was entered with
the EPA and is awaiting judicial approval. The company's share of the estimated
$16.4 million final remediation costs is 11 percent.
( 7 ) The company is still defending the EPA Region 9 administrative order
issued under Section 106(a) of CERCLA requiring the company and eight other
companies to conduct a prescribed Remedial Design and Remedial Action to address
groundwater contamination at the Purity Oil Sales Superfund Site near Fresno,
California. A consent order to perform the Remedial Design for the soils remedy
has been negotiated. Execution of the remedy covered by the design will be
negotiated later.
( 8 ) A final settlement was made with the City of Heath, Ohio, in 1993 in
the lawsuit filed by the City against the company and Ashland Petroleum
concerning an Ashland terminal, an alleged source of pollution which was
formerly a company refinery until sold to Ashland in 1970.
In related matters, the joint investigation of pollution which may be related
to the terminal/refinery site, as required by a consent order, is now complete.
Negotiations are pending with the state over further required actions which will
define the scope of the company's future liability at the Heath site.
The allegations against the company in all of the above matters have been
denied. Although management does not believe that an award of punitive or treble
damages is justified in any of these cases, any award of substantial punitive or
treble damages, however remotely possible, could have a material effect upon the
company's operating results or financial condition.
The company believes that its challenges to notices of environmental
violations will be upheld or will result in a significant reduction in the
amount of penalties sought. The company has or is in the process of instituting
remedial measures necessary to avoid similar future incidents.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
17
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Unocal Corporation as of March
1, 1994.
NAME, AGE AND PRESENT
POSITION WITH UNOCAL BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- ----------------------------- -------------------------------------------------
RICHARD J. STEGEMEIER, 65 Mr. Stegemeier has been Chairman of the Board
Chairman and Chief Executive since April 1989 and Chief Executive Officer
Officer since July 1988. From December 1985 to June
Director since 1980 1992 he was President and from December 1985 to
July 1988 he was Chief Operating Officer. Mr.
Stegemeier is also a director of First
Interstate Bancorp, Northrop Corporation and
Outboard Marine Corporation.
ROGER C. BEACH, 57 Mr. Beach became President and Chief Operating
President and Chief Officer in June 1992. He was named President of
Operating Officer the Refining & Marketing Division in April 1986
Director since 1988 and from May 1987 also served as Senior Vice
President of the company.
JOHN F. IMLE, JR., 53 In June 1992, Mr. Imle was named Executive Vice
Executive Vice President President and President of the Energy Resources
Director since 1988 Division, which includes worldwide oil, gas, and
geothermal businesses. He served as Senior Vice
President from October 1988 until his
appointment as Executive Vice President. Prior
thereto, he was President of the International
Oil & Gas Division.
NEAL E. SCHMALE, 47 Mr. Schmale has been Senior Vice President of
Senior Vice President the company since July 1988. In June 1992, he
Director since 1991 was named President of the new Petroleum
Products & Chemicals Division. He was President
of the Unocal Chemicals & Minerals Division from
May 1991 to June 1992. Prior thereto, he was
Senior Vice President, Corporate Development
from July 1988 through May 1991.
THOMAS B. SLEEMAN, 61 Mr. Sleeman has been Senior Vice President since
Senior Vice President and May 1987 and Chief Financial Officer since May
Chief Financial Officer 1991. From April 1986 to May 1991 he served as
Director since 1988 President, Unocal Chemicals and Minerals
Division.
GARY W. SPROULE, 43 Mr. Sproule became Senior Vice President,
Senior Vice President Administration and Planning in April 1992. From
July 1988 to April 1992, he was Vice President,
Corporate Budgets, Planning & Economics.
DENNIS P. CODON, 45 Mr. Codon became Vice President, General
Vice President, General Counsel, and Chief Legal Officer in December
Counsel, 1992. He has been Corporate Secretary since
Chief Legal Officer, and December 1990. He served as Deputy General
Corporate Secretary Counsel in 1990 and various other positions in
the Law Department prior thereto.
CHARLES S. McDOWELL, 52 Mr. McDowell has been Vice President since May
Vice President and 1991 and Comptroller since 1986.
Comptroller
18
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
1993 Quarters 1992 Quarters
--------------------------------- -----------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
-----------------------------------------------------------------------------------------------------------------------
Market price per common share - high $29-7/8 $32-5/8 $29-7/8 $30-1/8 $ 24 $28-1/8 $28-7/8 $27-1/4
- low 23-1/2 28-1/8 26-1/4 25-7/8 20-1/2 20-1/4 24-3/8 22-1/2
Cash dividends paid per common share .175 .175 .175 .200 .175 .175 .175 .175
-----------------------------------------------------------------------------------------------------------------------
Prices in the foregoing table are from the New York Stock Exchange Composite
Transactions listing. On March 15, 1994, the high price per share was $27-3/8
and the low price per share was $27-1/8.
Unocal common stock is listed for trading on the New York, Pacific and
Chicago stock exchanges in the United States, and on the Basel, Geneva and
Zurich stock exchanges in Switzerland.
As of March 15, 1994, the approximate number of holders of record of Unocal
common stock was 41,208, and the number of shares outstanding was 241,841,427.
Unocal's quarterly dividend rate declared has been $.20 per common share
since the third quarter of 1993. The previous quarterly dividend rate was $.175
per share since the third quarter of 1989. The company has paid a quarterly
dividend for 78 consecutive years.
ITEM 6 - SELECTED FINANCIAL DATA - see page 56.
19
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED RESULTS
Unocal's net earnings for 1993 were $213 million, compared with $220 million
in 1992 and $73 million in 1991. Earnings for the three years included the
following special items:
Millions of Dollars 1993 1992 1991
- -------------------------------------------------------------------
Special items:
Cumulative effect of accounting changes $(130) $ 24 $ -
Major asset sales 66 29 41
Litigation (33) (44) (17)
Write-downs of assets (12) (20) (67)
Restructuring costs - (34) -
Deferred income tax benefit - 44 -
Other (25) (13) (1)
- -------------------------------------------------------------------
Total $(134) $ (14) $ (44)
=======================
Excluding the effect of accounting changes and other special items, net
earnings were $347 million in 1993, $234 million in 1992 and $117 million in
1991. The significant improvement in 1993 operating earnings reflected higher
domestic natural gas prices and production, improved West Coast refining and
marketing margins, lower worldwide exploration expenses and lower interest
expense. In addition, the company benefited from continued cost reductions as a
result of its 1992 restructuring efforts. These favorable factors were
partially offset by lower crude oil prices.
In 1993, the company completed the sale of its geothermal operations in the
Imperial Valley of California and its national auto/truckstop system. Major
asset sales in 1992 included the company's retail chemical distribution and
polymers businesses.
Comparing 1992 results with 1991, the increase was mainly due to improved
margins for refined products, higher natural gas sales prices and volumes, and
lower domestic exploration costs. Partially offsetting these positive factors
were lower crude oil production and reduced earnings from chemical operations.
REVENUES
Consolidated revenues continued to decline in 1993, down by $1.7 billion from
1992 and $2.6 billion from 1991. This trend reflects the company's divestments
in recent years and the phase-out of its marketing operations in the
southeastern United States. The decrease in 1993 also reflects lower crude oil
prices. Divestments planned for 1994 are not expected to have a significant
effect on revenues.
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases, operating expense, and selling,
administrative and general expense totaled $5.4 billion in 1993, compared with
$7.0 billion in 1992 and $7.8 billion in 1991. The decline was mainly the
result of business divestments and the phase-out of Southeastern marketing
operations. Lower crude purchase costs and cost reduction efforts also
contributed to the decrease. Administrative and general expense in 1992
included a $55 million charge related to the company's restructuring efforts.
Dry hole and exploration expenses declined in 1993 reflecting highly focused
worldwide exploration activities. Lower interest expense in 1993 was mainly due
to the debt reduction efforts in late 1992.
20
OIL AND GAS EXPLORATION AND PRODUCTION
Millions of Dollars 1993 1992 1991
- ---------------------------------------------------------
Net earnings before special items $ 432 $ 415 $ 389
Special items 15 47 34
- ---------------------------------------------------------
Total $ 447 $ 462 $ 423
===================
The results for all three years reflected continued improvement in the U.S.
natural gas market. The company's average sales price for domestic natural gas
was $1.97 per thousand cubic feet, up from $1.74 in 1992 and $1.66 in 1991.
Domestic daily natural gas production in 1993 was up two percent from 1992 and
six percent from 1991. The results also reflected continued decreases in
exploration expenses and other cost reductions. While these gains were
significant, they were partially offset by a decrease in crude oil prices and
lower crude oil production due to natural decline and lost production resulting
from property sales. The company's average worldwide sales prices of crude oil
were $14.21 per barrel in 1993, $15.99 in 1992 and $16.50 in 1991.
Special items for 1993 consisted primarily of gains from the sale of
nonstrategic properties; for 1992, a $44 million deferred income tax benefit
related to foreign exploration expenses; and for 1991, a $24 million earnings
benefit from natural gas contract settlements.
REFINING, MARKETING AND TRANSPORTATION
Millions of Dollars 1993 1992 1991
- -----------------------------------------------------------
Net earnings before special items $ 175 $ 127 $ 40
Special items (9) (25) 31
- -----------------------------------------------------------
Total $ 166 $ 102 $ 71
=====================
The company's West Coast refining and marketing margins continued to improve
in 1993. Although selling prices for refined products were lower than a year
ago, the impact was more than offset by lower crude oil and product purchase
costs. The phase-out of the company's Southeastern retail operations in late
1991 also had a favorable impact on 1993 results.
Comparing 1992 results with 1991, the significant increase in earnings before
special items was principally due to improved margins in West Coast operations,
including the benefits from the integration of the Los Angeles Refinery with the
Carson Plant, and strong earnings from the company's UNO-VEN joint venture in
the Midwest.
Special items for 1993 principally included charges for asset write-offs
which were partially offset by gains from various asset sales. Special items
for 1992 reflected charges related to restructuring and a write-down of surplus
equipment; and for 1991, a gain from the sale of refined product inventories in
the Southeastern market.
CHEMICALS
Net earnings for this segment were $42 million in 1993, $23 million in 1992
and $47 million in 1991. The lower 1992 earnings were principally caused by
residual expenses associated with the retail chemical distribution and polymers
manufacturing businesses that were sold in early 1992. These businesses posted
a small loss in 1991.
With the sale of its retail agricultural business in 1993, this segment's
primary sources of income are derived from its manufacturing of nitrogen-based
fertilizer and petroleum cokes. Higher earnings were recorded for the petroleum
coke operations in 1993.
21
GEOTHERMAL
Geothermal energy earnings in 1993 were $46 million, which included a $19
million gain from the sale of the Imperial Valley operations. Net earnings were
$38 million in 1992 and $37 million in 1991, including Imperial Valley operating
earnings of $19 million in 1992 and $18 million in 1991. Geothermal steam
production in Indonesia is scheduled to come on stream in the second quarter of
1994.
CORPORATE AND OTHER
Millions of Dollars 1993 1992 1991
- -------------------------------------------------
Corporate expense $(124) $(116) $(130)
Other operations (9) (15) (26)
Net interest expense (193) (246) (240)
Special items (32) (52) (109)
- -------------------------------------------------
Total $(358) $(429) $(505)
=======================
Corporate expense includes general corporate overhead and other unallocated
items. Other operations include the results of shale oil, mineral and real
estate businesses. The 1993 results continued to reflect the favorable impact
of discontinuing the company's shale oil and molybdenum operations. The company
also recorded higher earnings from its lanthanide operations.
Net interest expense represents interest income and expense, net of
capitalized interest. The decrease in 1993 reflects the full-year impact of
more than $1 billion reduction in debt in 1992. Interest expense is expected to
be slightly lower in 1994 due to refinancing a portion of debt at lower interest
rates, and continued debt reduction.
Special items for all three years primarily include provisions for
litigation. The 1992 and 1991 amounts included asset write-downs of $6 million
and $67 million, respectively. The 1993 amount did not include any asset write-
downs.
FINANCIAL CONDITION
Millions of Dollars 1993 1992 1991
- ---------------------------------------------------------------
Current ratio 1.3 1.2 1.3
Total debt $3,522 $3,698 $4,726
Equity $3,129 $3,131 $2,464
Total debt ratio 53% 54% 66%
Floating-rate debt / total debt 16% 8% 15%
- ---------------------------------------------------------------
Cash flow from operating activities, including working capital changes, was
$1,100 million in 1993, $1,157 million in 1992 and $1,043 million in 1991. Cash
generated from operations was up $302 million in 1993, but this was more than
offset by working capital changes, payments for legal and tax settlements, and
an adjustment for a 1992 crude oil forward sale.
During 1993, the company generated $586 million in pretax proceeds from
various asset sales, compared with $469 million in 1992 and $132 million in
1991. The 1993 proceeds included $205 million from the sale of geothermal
Imperial Valley assets, $172 million from the sale of the company's national
auto/truckstop system, and $106 million from the sale of various oil and gas
properties.
The 1993 operating cash flow and proceeds from asset sales totaled $1,686
million, which provided sufficient cash for capital spending, dividend payments
and a $176 million reduction in debt. Consolidated working capital was $382
million at year-end 1993, which included $114 million of refundable income taxes
expected to be received in 1994.
22
In February 1994 the company issued $200 million of 6-3/8% notes due 2004.
Proceeds will be used to retire certain notes due in early 1994.
For 1994, the company expects cash generated from operations and asset sales,
including the tax refunds, to be sufficient to finance its operating
requirements, capital spending and dividend payments.
CAPITAL EXPENDITURE
Estimated
Millions of Dollars 1994 1993 1992 1991
- -----------------------------------------------------------------------------
Exploration and Production
Domestic $ 521 $ 562 $ 364 $ 488
Foreign 390 330 275 369
- ----------------------------------------------------------------------------
Total 911 892 639 857
Refining, Marketing and Transportation 388 236 201 479
Chemicals 14 11 64 86
Geothermal 73 53 37 24
Other 70 57 18 24
- ----------------------------------------------------------------------------
Total $1,456 $1,249 $ 959 $1,470
=================================
Capital expenditures increased significantly in 1993 from the prior year as
more cash was spent on worldwide oil and gas activities.
The 1993 spending on domestic oil and gas exploration and production was up
by 54 percent compared with 1992, primarily reflecting the first year of a
three-year accelerated drilling program to produce proved undeveloped reserves
in the United States. The increase in foreign spending was due to the continued
development of offshore gas fields in Thailand and a new oil field in the
Netherlands.
The $236 million spent on refining, marketing and transportation operations
during 1993 primarily reflected refinery upgrades to meet environmental
requirements and the addition of units to increase production of higher value
products. Capital spending on geothermal energy projects in 1993 primarily
included expenditures in Indonesia for development and exploration. The
increase in other capital expenditures from 1992 reflected environmental
remediation of properties held for sale by the Real Estate Division.
The $1.46 billion capital budget for 1994 is based on West Texas Intermediate
spot market crude oil price of $18 per barrel. In light of current crude
prices, capital spending will be kept in line with spot market prices of $15 to
$16 per barrel at least for the first six months. If crude prices remain below
$15 per barrel, spending should be about the same as in 1993. Approximately
$911 million, or 63 percent of the 1994 plan, is directed toward the company's
worldwide petroleum exploration and production.
The company plans to spend $521 million on exploration and production of
crude oil and natural gas resources in the U.S., down slightly from $562 million
in 1993. The major focus will be on Louisiana and the Gulf of Mexico, Alaska's
Cook Inlet, California and the Permian Basin in west Texas. The spending plan
includes $49 million for projects near existing operations that are classified
as exploratory but have potential for rapid development.
Capital spending for foreign petroleum exploration and production is expected
to total $390 million, an 18 percent increase from $330 million in 1993. The
1994 budget includes continued development of natural gas reserves offshore
Thailand and field development work in Indonesia and the Netherlands. This
budget includes $34 million for exploration work in Indonesia, most of which is
recoverable under the company's production sharing contract with Pertamina,
Indonesia's state-owned oil company.
Refining, marketing and transportation capital spending is budgeted at $388
million, up from $236 million in 1993. This includes more than $290 million for
refinery projects, including modifications required to
23
manufacture reformulated gasoline. Approximately $40 million is dedicated to the
upgrade of marketing facilities.
Planned capital spending for geothermal energy totals $73 million, compared
with $53 million last year. The higher spending reflects increased development
work on geothermal projects on the island of Java and exploratory drilling on
the island of Sumatra in Indonesia.
ENVIRONMENTAL MATTERS
In 1993, the company spent approximately $368 million for environmental
protection and for compliance with federal, state and local laws and provisions
regulating the discharge of materials into the environment. Of this amount $133
million was for capital expenditures and $235 million was recorded as expense.
The amount charged to earnings includes expenditures to remediate past
contamination and for Unocal's operating, maintenance and administrative costs
to maintain environmental compliance. Estimated 1994 expenditures for
environmental-related costs are $296 million in capital and $242 million in
expense. The increase in capital is primarily due to expenditures for refinery
projects to produce reformulated gasoline mandated by government agencies.
The Air Quality Management Plan for the Los Angeles Basin, as adopted, and
the Clean Air Act Amendments could, by the year 2000, significantly and
adversely affect all of the company's petroleum operations in the Los Angeles
area, including its refining operations located near the Los Angeles harbor and
in Carson. The company believes it can continue to meet the requirements of
existing laws and regulations, although changes in operating procedures and the
acquisition of additional pollution control facilities may be necessary.
The company is subject to federal, state and local environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the Resource Conservation and
Recovery Act (RCRA). Under these laws, the company is subject to possible
obligations to remove or mitigate the environmental effects of the disposal or
release of certain chemical and petroleum substances at various sites.
Corrective investigations and actions pursuant to RCRA are being performed at
the San Francisco Refinery, Beaumont facility, Los Angeles Refinery-Carson Plant
and Molycorp Inc. Mountain Pass Plant. The company also must guarantee future
closure and post-closure costs of its RCRA permitted facilities. The company
believes that these obligations are not likely to have an adverse material
effect on the company's operating results or financial condition.
The company is a defendant in several lawsuits, as are most other companies
within our industry, brought by government agencies seeking to impose cleanup
liability for environmental contamination. The company has been notified that
it may be a potentially responsible party (PRP) by the federal EPA at 67 sites
and may share liability at certain of these sites. Various state agencies,
private parties, and the company itself have identified other sites that may
require investigation or remediation.
Unocal does not consider the number of sites for which it has been named a
PRP as a relevant measure of liability. The company is usually just one of
several companies designated as a PRP. For example, all but a small percentage
of the 67 sites mentioned above are sites where the company has denied liability
to the EPA, and/or which are still under investigation, and/or which the company
estimates it has one percent or less of any potential liability. The company is
uncertain as to its involvement in many of the sites and is unable to estimate
with any certainty the potential loss that may arise from environmental
liabilities. The solvency of other parties and disputes regarding
responsibilities may also impact the company's ultimate liability. Settlements
and costs incurred in matters that have been resolved have not been materially
significant to the company's operating results or financial condition.
Management believes that Unocal's costs will not vary proportionally from those
of our competitors.
For sites where it is probable that future costs will be incurred, and such
costs can be reasonably estimated, reserves have been recorded in the
consolidated balance sheet. At December 31, 1993, the
24
company's environmental reserve for those sites was $87 million, which
represents the company's estimate of the future liability for these costs. In
addition, the company has accrued $432 million for the future costs to abandon
and remove wells and production facilities.
Future changes in technology, government regulations and practices, will
affect the company's ultimate liability for environmental remediation and
abandonment costs.
On March 4, 1994, Unocal announced that if negotiations with the land owner
permit the company to do so, it will permanently cease production at its
Guadalupe Oil Field (central coast of California). The company will continue to
concentrate on the cleanup of a diesel-like additive formerly used to help
produce the heavy crude oil. The field is currently producing 170 barrels of
oil per day. The field has been under study for some time to determine the
extent of the underground contamination. Although the cleanup cost has not been
determined, such cost is not expected to have a material effect on the company's
operating results or financial condition
See Note 16 to the consolidated financial statements for information on
contingent liabilities relating to environmental matters.
OUTLOOK
The 1994 outlook for the petroleum industry is uncertain since financial
results are sensitive to product prices. Negative factors affecting crude
prices include current oversupply, the possible re-entry of Iraq into the world
oil markets and OPEC's strategy of defending its market share. Demand for
natural gas is expected to remain strong. On the West Coast, the sluggish
economy continues to affect demand for refined products.
The company's current operating strategy is to increase cash flow from
operations by increasing resource production and emphasizing cost control in all
areas.
Over the next three years, the company expects to increase natural gas
production by about 25 percent and crude oil production about 14 percent. The
centerpiece of this effort is the accelerated development drilling program in
North America launched during 1993. The 1994 capital budget includes
approximately 535 wells, with 410 in North America. However, lower than
expected oil prices at the beginning of 1994, has caused the company to slow
down development of crude oil and focus more on natural gas development. This
shift and reduction in capital may delay achievement of the production goal for
crude oil.
Unocal also continues to seek a role in the development of vast oil and gas
resources in the Caspian Sea. Negotiations are ongoing with Azerbaijan and the
international consortium of oil companies of which Unocal is a member.
The company's refining and marketing operations will continue to focus on
improving refining efficiencies and strengthening its Western marketing. Unocal
expects to spend approximately $210 million in 1994 and $175 million in 1995, in
capital, to modify its refineries in order to produce reformulated gasoline that
will meet specifications mandated by the California Air Resources Board and the
1990 Federal Clean Air Act Amendments.
The company has made significant progress toward debt reduction and asset
sales goals established in April 1992. Total debt was reduced in 1993 by $176
million, which brings the total debt reduction to 80 percent of the $1.5 billion
five-year target. The company is also 80 percent of the way toward meeting its
two-year goal of generating $700 million in after-tax proceeds from asset sales.
Toward this goal, at year-end 1993, the company had realized proceeds of $560
million from asset sales.
The company will continue to work toward the debt reduction and asset sales
targets. Total debt is expected to be reduced by an additional $50 million in
1994. Planned asset sales in 1994 are expected to generate more than $200
million in after-tax proceeds.
25
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
-----
Report on Management's Responsibilities 27
Report of Independent Accountants 28
Financial Statements
Consolidated Earnings 29
Consolidated Balance Sheet 30
Consolidated Cash Flows 31
Consolidated Stockholder's Equity 32
Notes to Consolidated Financial
Statements 33-49
Supplemental Information:
Oil and Gas Financial Data 50-51
Oil and Gas Reserve Data 52-53
Present Value of Future Net Cash Flow
Related to Proved Oil and Gas Reserves 54-55
Selected Quarterly Financial Data 55
Selected Financial Data 56
Supporting Financial Statement
Schedules covered:
by the Foregoing Report of
Independent Accountants:
Schedule V - Property, Plant and
Equipment 60-62
Schedule VI - Accumulated Depreciation,
Depletion and
Amortization of Property,
Plant and Equipment 60-62
Schedule VIII - Valuation and
Qualifying Accounts
and Reserves 63
All other financial statement schedules have been omitted as they are not
applicable, not material or the required information is included in the
financial statements or notes thereto.
26
REPORT ON MANAGEMENT'S RESPONSIBILITIES
TO THE STOCKHOLDERS OF UNOCAL CORPORATION:
Unocal's management is responsible for the integrity and objectivity of the
financial information contained in this Annual Report. The financial statements
included in this report have been prepared in accordance with generally accepted
accounting principles and, where necessary, reflect the informed judgments and
estimates of management.
The financial statements have been audited by the independent accounting firm
of Coopers & Lybrand. Management has made available to Coopers & Lybrand all of
the company's financial records and related data, minutes of the company's
executive committee meetings and directors' meetings and all internal audit
reports. The independent accountants conduct a review of internal accounting
controls to the extent required by generally accepted auditing standards and
perform such tests and procedures as they deem necessary to arrive at an opinion
of the fairness of the financial statements presented herein.
Management maintains and is responsible for systems of internal accounting
controls designed to provide reasonable assurance that the company's assets are
properly safeguarded, transactions are executed in accordance with management's
authorization and the books and records of the company accurately reflect all
transactions. The systems of internal accounting controls are supported by
written policies and procedures and by an appropriate segregation of
responsibilities and duties. The company maintains an extensive internal
auditing program that independently assesses the effectiveness of these internal
controls with written reports and recommendations issued to the appropriate
levels of management. Management believes that the existing systems of internal
controls are achieving the objectives discussed herein.
Unocal assessed its internal control systems in relation to criteria for
effective internal control over financial reporting following the Treadway
Commission's Committee of Sponsoring Organizations "Internal Control -
Integrated Framework." Based on this assessment, Unocal believes that, as of
December 31, 1993, its systems of internal controls over financial reporting met
those criteria.
Unocal's Accounting, Auditing and Ethics Committee, consisting solely of
directors who are not employees of Unocal, is responsible for: reviewing the
company's financial reporting, accounting and internal control practices;
recommending the selection of independent accountants (which in turn are
approved by the Board of Directors and annually ratified by the stockholders);
monitoring compliance with applicable laws and company policies; and initiating
special investigations as deemed necessary. The independent accountants and the
internal auditors have full and free access to the Accounting, Auditing and
Ethics Committee and meet with it, with and without the presence of management,
to discuss all appropriate matters.
Richard J. Stegemeier Roger C. Beach Thomas B. Sleeman Charles S. McDowell
Chairman and Chief President and Senior Vice Vice President
Executive Officer Chief Operating President and and Comptroller
Officer Chief Financial
Officer
February 14, 1994
27
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS OF UNOCAL CORPORATION:
We have audited the accompanying consolidated balance sheet of Unocal
Corporation and its subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1993 and the
related financial statement schedules. These financial statements and financial
statement schedules are the responsibility of Unocal Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, which appear on
pages 29 through 51 of this Annual Report on Form 10-K, present fairly, in all
material respects, the consolidated financial position of Unocal Corporation and
its subsidiaries as of December 31, 1993 and 1992, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
As discussed in Notes 1 and 12 to the consolidated financial statements,
Unocal Corporation and its subsidiaries changed their method of accounting for
income taxes in 1992 and for postretirement benefits other than pensions and for
postemployment benefits in 1993.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Los Angeles, California
February 14, 1994
28
CONSOLIDATED EARNINGS UNOCAL CORPORATION
Years ended December 31
--------------------------
Dollars in millions except per share amounts 1993 1992 1991
REVENUES
Sales and operating revenues * $8,077 $ 9,887 $10,735
Interest, dividends and miscellaneous income 67 53 95
Equity in earnings of affiliated companies 84 66 52
Gain on sales of assets 116 55 13
- -----------------------------------------------------------------------------
Total revenues 8,344 10,061 10,895
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 3,158 4,555 5,205
Operating expense 1,704 1,733 1,858
Selling, administrative and general expense 489 703 699
Depreciation, depletion and amortization 963 964 1,005
Dry hole costs 45 68 120
Exploration expense 119 170 192
Interest expense 304 379 395
Excise, property and other operating taxes * 951 1,140 1,209
- -----------------------------------------------------------------------------
Total costs and other deductions 7,733 9,712 10,683
- -----------------------------------------------------------------------------
Earnings before income taxes 611 349 212
Income taxes 268 153 139
- -----------------------------------------------------------------------------
Earnings before cumulative effect of 343 196 73
accounting changes
Cumulative effect of accounting changes (130) 24 -
- -----------------------------------------------------------------------------
NET EARNINGS $ 213 $ 220 $ 73
Dividends on preferred stock 36 17 -
- -----------------------------------------------------------------------------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 177 $ 203 $ 73
- -----------------------------------------------------------------------------
Earnings per share of common stock
Before cumulative effect of accounting $ 1.27 $ .75 $ .31
changes
Cumulative effect of accounting changes (.54) .10 -
- -----------------------------------------------------------------------------
Net earnings per share $ .73 $ .85 $ .31
* Includes consumer excise taxes of $ 816 $ 992 $ 1,050
==========================
See Notes to Consolidated Financial Statements.
29
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
AT DECEMBER 31
-------------------
MILLIONS OF DOLLARS 1993 1992
-------------------
ASSETS
Current assets
Cash and cash equivalents $ 205 $ 157
Accounts and notes receivable
Trade 877 1,039
Refundable income taxes 114 -
Inventories 326 326
Other current assets 56 138
- ------------------------------------------------------------
Total current assets 1,578 1,660
Investments and long-term receivables
Affiliated companies 443 445
Other 404 343
Properties - net 6,723 6,896
Other assets 106 108
- ------------------------------------------------------------
Total assets $9,254 $9,452
============================================================
LIABILITIES
Current liabilities
Accounts payable $ 735 $ 712
Taxes payable 208 294
Current portion of long-term debt and
capital lease obligations 54 151
Interest payable 92 97
Other current liabilities 107 182
- ------------------------------------------------------------
Total current liabilities 1,196 1,436
Long-term debt and capital lease
obligations 3,468 3,546
Deferred income taxes 875 898
Other deferred credits and liabilities 586 441
- ------------------------------------------------------------
Total liabilities 6,125 6,321
- ------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock ($0.10 par value, stated at
liquidation value of $50 per share)
Shares authorized: 100,000,000
Shares outstanding: 10,250,000 in
1993 and 1992 513 513
Common stock ($1 par value)
Shares authorized: 750,000,000
Shares outstanding: 241,323,833 in 1993;
240,671,177 in 1992 241 241
Capital in excess of par value 163 149
Foreign currency translation adjustment (5) 5
Unearned portion of restricted stock issued (13) (11)
Retained earnings 2,230 2,234
- ------------------------------------------------------------
Total stockholders' equity 3,129 3,131
- ------------------------------------------------------------
Total liabilities and
stockholders' equity $9,254 $9,452
============================================================
The company follows the successful efforts method of accounting for its oil and
gas activities.
See Notes to Consolidated Financial Statements.
30
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
YEARS ENDED DECEMBER 31
----------------------------
MILLIONS OF DOLLARS 1993 1992 1991
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 213 $ 220 $ 73
Adjustments to reconcile net earnings to
net cash provided by operating activities
Cumulative effect of accounting changes 130 (24) -
Depreciation, depletion and amortization 963 964 1,005
Dry hole costs 45 68 120
Deferred income taxes 139 (114) (153)
Gain on sales of assets (before-tax) (116) (55) (13)
Other 42 55 79
Working capital and other changes related
to operations
Accounts and notes receivable 33 136 204
Inventories (24) 55 (3)
Accounts payable 25 (110) (234)
Taxes payable (52) 7 (39)
Other