Unocal Expects a Big Drop in Second-Quarter Profit : Energy: Analysts say earnings will be lower industrywide. Companies with West Coast operations may be especially susceptible.

Unocal Corp. said Monday that its second-quarter earnings would be “substantially below” last year’s earnings, citing poor profits from gasoline sales and depressed crude oil and natural gas prices.

Analysts said Unocal’s problems were part of a larger industry malaise brought on by the recession, a glut of cheap energy and intense competition for gasoline market share.

“These factors are negatively affecting many oil companies, particularly those that market gasoline and produce crude oil on the West Coast,” said Unocal Chairman Richard J. Stegemeier in a statement.

Unocal offered no estimate of its second-quarter earnings.

But some analysts speculated that operating earnings would be about half of last year’s $33 million.

Other analysts expected the company barely to break even.

Unocal’s net earnings for the second quarter of 1990 were $165 million, including a onetime $132-million net gain from the sale of Norwegian assets.

Analysts were not surprised at Unocal’s announcement, although many downgraded their earnings estimates for the company accordingly.

Many blamed the earnings on slack demand for gasoline because of the recession.

“It’s a very competitive marketplace. . . . West Coast marketing margins are very bad,” said Frederick P. Leuffer Jr., an analyst with C. J. Lawrence, Morgan Grenfell Inc. in New York.

Unocal spokesman Michael Thacher said the company lost $6 million in the first quarter in its refining, marketing and transportation units and was expecting roughly the same trend in the second quarter.

“Demand was off and the big marketers were trying to hang onto their market share, and that kept prices under pressure at the pump,” said Dillard P. Spriggs, president of consulting firm Petroleum Analysis Ltd.

“California was worse than areas east of the Rockies,” he said.

In May, Unocal was the No. 3 marketer of gasoline in Southern California, with a 15.89% market share, according to the authoritative Lundberg Survey.

Atlantic Richfield Co. was No. 1 with a 22.81% share; Shell Oil Co. was second with 16.16%; Mobil Corp. was fourth with 13.36%, and Chevron Corp. was fifth with 12.72%, Lundberg reported.

Desire to improve refining and marketing profits led Shell on Friday to put its Los Angeles-area refinery up for sale.

Unocal has taken steps to minimize its losses in refining and marketing.

In April, the company announced that it would shut down 200 to 300 of its 2,900 West Coast service stations to weed out unprofitable ones and to cut costs. Previously, the company had said it would pull out of service station operations in the Southeast and Northwest.

Meanwhile, the company is undergoing a major restructuring of its refining operations.

Unocal is spending $515 million to make its Los Angeles refinery run more efficiently and refine cheaper, high-sulfur, heavy crude oils.

The upgrade of the facility will improve annual pretax cash profits by $140 million, according to the consulting firm Petroleum Finance Ltd.

Analysts also blamed Unocal’s poor earnings on weak energy prices, particularly for natural gas. “We have seen domestic natural gas prices decline about 40 cents per thousand cubic feet (mcf) since the first quarter” of 1991, Thacher said.

Unocal’s price for domestic natural gas is averaging in the range of $1.50 to $1.55 per mcf, he said.

In the second quarter of 1990, such gas was priced around $1.71 per mcf.

“(Unocal’s) earnings are a little more sensitive to changes in natural gas prices than other major oil companies because they produce a lot of gas,” Leuffer said.

In crude oil, Thacher said Unocal was averaging about $15.50 per barrel, almost $1 a barrel less than it was in the first quarter.

Prices for heavy California and Alaskan crude oils have been particularly hard hit, he added.

In the second quarter of 1990, Unocal’s U.S. crude oil price averaged about $13.29 per barrel.

But Unocal’s news wasn’t all bad.

Stegemeier said the company’s international operations are performing strongly, worldwide oil and gas production is up significantly over 1990 and cash flow remained strong.

Meanwhile, the company’s board declared a regular quarterly dividend of 17.5 cents a share, payable Aug. 9 to stockholders of record on July 10.

Unocal stock closed up 12 1/2 cents a share at $23.25 a share in trading on the New York Stock Exchange.

Unocal Profit Sags Quarterly net income figures. Unocal said its second-quarter net income would be down substantially because of lower refining and marketing profits and low crude and natural gas prices. Millions 1989 1st: $87 2nd: $120 3rd: $79 4th: -$26 1990 1st: $77 2nd: $165 3rd: $121 4th: $38 1991 1st: $75 2nd: up to $18* *Figures from Unocal, except for second quarter ’91 analyst’s estimate