Unocal Profit Off 95% as Prices Drop, Costs Rise

Cheap oil and expensive exploration caused a 95% drop in Unocal Corp.’s third-quarter earnings--below analysts’ expectations, which were lowered after the El Segundo company warned last month that sharply depressed earnings were on the way.

San Antonio-based Ultramar Diamond Shamrock Corp., whose holdings include more than 350 gas stations in California, also cited weak oil prices and poor refining margins for its 36% drop in earnings.

Unocal, the nation’s 11th-largest oil company, said earnings before nonrecurring gains and charges slumped to $4 million, or 2 cents a diluted share, from $94 million, or 38 cents, a year ago. Wall Street was expecting Unocal to earn 6 cents a share.

Unocal’s revenue slipped to $1.39 billion from $1.40 billion.

“Low commodity prices continued to exert significant downward pressure on our earnings,” said Roger Beach, Unocal chairman and chief executive. Lower prices for oil and gas in the third quarter reduced after-tax operating earnings by about $70 million, or nearly 29 cents per share, he said.

Unocal also reported that the cost of unsuccessful wells, known as dry holes, rose to $67 million for the third quarter, or about 28 cents a share, from $7 million. Dry hole costs worldwide hit $156 million, or 42% of what Unocal has spent on exploration drilling this year.

But the company also has had 49 successful discoveries this year and will continue its expanded exploration programs in the Gulf of Mexico and overseas, Beach said. Unocal said about half the dry hole expense came from its operations in the continental United States.

The company said the costs reflect an effort to boost the company’s growth through exploration and production.

In the latest quarter, special items resulted in a net gain of $32 million, or 13 cents a share, bringing net income to $36 million, or 15 cents. A year ago, special items resulted in a net gain of $83 million, or 32 cents a share, which made net income $177 million, or 70 cents.

At Ultramar, earnings before charges fell to $35.5 million, or 40 cents a share, from $55.6 million, or 71 cents, a year ago. Revenue rose 4.9%, to $2.74 billion from $2.61 billion.

Unocal shares rose 63 cents to close at $35.56; Ultramar was off $2.63 at $26.38, both on the NYSE.

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