Higher Prices, Lower Costs Lift Unocal Profit

Higher fourth-quarter energy prices and lower costs offset a dip in production for Unocal Corp., allowing the oil company on Tuesday to post a 88% jump in profit for the final quarter of 2003.

The El Segundo-based company, which focuses on finding and producing oil and natural gas, said its net income rose to $180 million, or 68 cents a share, from $96 million, or 38 cents, a year earlier. Revenue was flat at $1.59 billion, compared with $1.58 billion for the year-earlier quarter.

Production during the quarter fell 6.9% to the equivalent of 420,000 barrels of oil per day, down from 451,000. The company sold some active North American fields during the year but also produced less because of a slower-than-expected start at its West Seno project in the deep waters off Indonesia, Unocal said.

Helping to make up for the lower production, Unocal’s total costs in the quarter fell 3.7% on lower operating and other expenses.

Higher commodity prices also provided a boost as Unocal sold its crude oil for a worldwide average of $28.33 a barrel, up 11%, and its natural gas for an average of $3.65 per 1,000 cubic feet, up 18% over prices in the final quarter of 2002.

“They had a very good year,” said Bruce Lanni, an A.G. Edwards analyst who rates Unocal shares a “hold” and doesn’t own any. “They did a lot of restructuring, and that’s now starting to show itself in a positive way.”

During the year, Unocal sold nearly 100 oil and natural gas fields in the continental United States, mostly in the Gulf of Mexico, where higher costs were a drag on profit in its domestic operations.

Unocal Chief Executive Charles Williamson told analysts Tuesday that because of the restructuring moves “we have a much more stable North American base than we’ve had in the past, with a smaller Gulf of Mexico component.”

After adjusting for taxes, special items and discontinued operations, Unocal’s fourth-quarter income amounted to 63 cents a share, just beating the average analyst estimate of 62 cents, according to Thomson First Call.

Still, after Unocal’s earnings announcement Tuesday, the company’s shares fell 10 cents to $37.01 on the New York Stock Exchange. The shares rose almost 20% in 2003.

For the full year, Unocal’s net income almost doubled to $643 million, or $2.46 a share, compared with $331 million, or $1.34, in 2002. Revenue rose 23% to $6.5 billion, but costs also increased, by 13.5%.

Production in 2003 fell nearly 5% to the equivalent of 448,000 barrels of oil per day.

Looking ahead, Williamson said the company had “good momentum” moving into 2004. Unocal said it expected adjusted after-tax income of 70 cents to 80 cents a share for the first quarter, depending on commodity prices.

The company estimated that first-quarter production would average 410,000 to 420,000 barrels of oil per day, with full-year production rising to 450,000 barrels per day.