<PAGE>
1993
--------------
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 1-554
UNION OIL COMPANY OF CALIFORNIA
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1315450
(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: None
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]
Shares of Common Stock outstanding as of March 15, 1994: 1,000
Registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is, therefore, filing this form with the reduced disclosure
format.
<PAGE>
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
Union Oil Company of California (Union Oil) was incorporated in California on
October 17, 1890, and is a wholly owned subsidiary of Unocal Corporation (Unocal
or the Parent). Virtually all operations of Unocal are conducted by Union Oil
which does business as Unocal. The terms "Union Oil" and "the company" as used
in this report mean Union Oil Company of California and its consolidated
subsidiaries except where the context indicates otherwise.
Union Oil 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.
Union Oil 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 Union
Oil.
In 1993, management developed and implemented a ten-year plan for growth with
a strategy firmly focused on Union Oil's basic business and core competitive
strengths. The plan focuses on improving cash flow from operations and
strengthening profitability. Union Oil 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. Union Oil's long-term growth strategy is to expand its extensive oil,
gas and geothermal operations in Southeast Asia. Union Oil 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 million, also by
May 1994. Since then, Union Oil 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.
Union Oil'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. Union Oil 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 Indonesia. The Company's current business developments
include a gas development project offshore Myanmar and geothermal projects
1
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on the islands of Java and Sumatra in Indonesia. Union Oil 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. Union Oil operates three
refineries in California and markets petroleum products in the western United
States, Alaska and Hawaii. Union Oil 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. Union Oil also produces and markets petroleum coke, lanthanides
(rare earths), and specialty graphites.
Union Oil's net earnings, excluding the effects of accounting changes, were
$344 million in 1993, up significantly from $197 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.
Union Oil'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%).
Union Oil 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 Union Oil 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 Union Oil's domestic exploration and
development activities in 1993:
EXPLORATION ACTIVITIES. Union Oil'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 formation within proved
areas. The company has been active in the Gulf of Mexico for more than 50 years.
In recent years, improved exploration techniques have revealed new oil and gas
resources. In 1993, Union Oil 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.
Offshore Texas, Union Oil 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
2
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increase field production to 150 million cubic feet of gas per day by April
1994. Union Oil is the operator with a 56.25 percent working interest.
Onshore, Union Oil 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. Union Oil is the operator and
holds a 50 percent working interest in the well.
Union Oil 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. Union Oil, the operator, holds a 50 percent
interest in the 2,800-acre Area of Mutual Interest in which the field is
located.
Mexico helped push Union Oil'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, Union Oil 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 Union Oil 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. Union Oil'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, Union Oil 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. Union Oil 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. Union Oil'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. Union Oil's interest in the farmout
well will be 34 percent after payout.
FOREIGN
Union Oil 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. Union Oil began natural gas production in Thailand in 1981 which
has become a major operation of the company. In February 1994, Union Oil's
cumulative gas sales from the Gulf of Thailand topped two trillion cubic feet.
The company'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
3
<PAGE>
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 Union Oil 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.
The company'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. Union Oil's working interests in the
three contract areas in the Gulf of Thailand average 75 percent. The company's
operations in Thailand currently have more than 1,100 employees and an average
of 1,500 employees of contractors in its natural gas operation. Union Oil and
its partners have spent more than $3.6 billion developing the offshore gas
fields. Spending estimates for 1994 are approximately $280 million.
Union Oil 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 Union Oil 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. Union Oil 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. Union Oil 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,
Union Oil 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. Union Oil'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.
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.
Union Oil's advances in horizontal drilling
4
<PAGE>
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.
Union Oil 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. Union
Oil 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. Union Oil holds a 17.7 percent interest in
these fields.
FOREIGN EXPLORATION AND OTHER
Union Oil 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. Union Oil 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.
Union Oil'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 Union Oil 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. Union Oil 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, Union Oil 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.
Union Oil 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 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 Union Oil's activities
in these and other foreign countries during the coming years.
5
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OPERATING AND RESERVE STATISTICS
Set forth below are consolidated oil and gas reserve and operating data:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
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
</TABLE>
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 48 through 53 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
<PAGE>
OIL AND GAS ACREAGE
<TABLE>
<CAPTION>
As of December 31, 1993
(thousands of acres)
----------------------------------------------
Proven Acreage Prospective Acreage
------------------ ----------------------
Gross Net Gross Net
------ ----- ------ ----
<S> <C> <C> <C> <C>
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
====== ===== ====== ======
</TABLE>
PRODUCIBLE OIL AND GAS WELLS
<TABLE>
<CAPTION>
As of December 31, 1993
-------------------------------------------
Oil Gas
------------------ -----------------
Gross Net Gross Net
------ ----- ------ ----
<S> <C> <C> <C> <C>
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
====== ===== ====== ======
</TABLE>
The company had 343 gross and 220 net wells with multiple completions.
DRILLING IN PROGRESS
<TABLE>
<CAPTION>
As of December 31, 1993
--------------------------
Oil and Gas Wells
--------------------------
Gross Net
--------- -----------
<S> <C> <C>
United States 44 30
Far East 41 30
Other Foreign 12 6
----- ------
Total 97 66
===== ======
</TABLE>
The company had ten secondary recovery projects in process of installation at
December 31, 1993.
NET OIL AND GAS WELLS COMPLETED AND DRY HOLES
<TABLE>
<CAPTION>
Productive Dry
------------------- ------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
==== ==== ==== ==== ==== ====
</TABLE>
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REFINING, MARKETING AND TRANSPORTATION ACTIVITIES
REFINING
Union Oil 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.
<TABLE>
<CAPTION>
Refinery Barrels Per Day
- - - -------- ---------------
<S> <C>
California
Los Angeles-Wilmington and Carson plants 125,000
San Francisco 77,000
Santa Maria* 44,000
Illinois
Chicago (equity share) 73,500
</TABLE>
The Carson plant was purchased in 1991 and was fully integrated into
Union Oil'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.
Union Oil'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. Union
Oil 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.
Union Oil 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, Union Oil 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.
8
<PAGE>
The company's input to crude oil processing units and refinery production
data, including its equity portion of UNO-VEN, are shown below.
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------
Thousand Barrels per day
<S> <C> <C> <C>
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
==== ==== ====
</TABLE>
MARKETING
Union Oil 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 Union Oil or purchased from others.
WEST COAST. Union Oil'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, Union Oil 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. Union Oil continues to offer its private label card, with 1.4
million active accounts. Union Oil plans to outsource the data processing of
its private label credit card program. Union Oil 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, Union Oil has
substantially completed the phase-out of its marketing operations in the
southeastern United States. Union Oil 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 Union Oil-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:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------
Thousand Barrels Per Day
---------------------------
<S> <C> <C> <C>
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
</TABLE>
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
Union Oil'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 Union Oil'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 Union Oil owns, wholly
or partially, or leases. Union Oil 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 Union Oil's share was approximately 23,000 barrels per day.
Union Oil'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
<PAGE>
CHEMICALS & MINERALS OPERATIONS
Union Oil is involved in the production and marketing of agricultural, carbon
and mineral products. These businesses are divided into two groups described
below.
AGRICULTURAL PRODUCTS. This group principally manufactures and markets
nitrogen-based fertilizers for wholesale markets. Union Oil 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.
Union Oil'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 Union Oil-operated
fields. This operation is supported by a system of West Coast terminals, and
product upgrading plants in Kennewick, Washington, and West Sacramento,
California.
Union Oil'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,
Union Oil serves a stable, mature market for nitrogen fertilizers in the western
United States.
In May 1993, Union Oil 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 Union Oil'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 Union Oil 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.
Union Oil'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
<PAGE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------
<S> <C> <C> <C>
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
</TABLE>
GEOTHERMAL OPERATIONS
Union Oil 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 Union Oil for more than 20 years.
Union Oil'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, Unocal sold its geothermal operations in the Imperial Valley of
California. The underlying geothermal reserves sold only represented about nine
percent of the Company's worldwide geothermal reserves.
Union Oil 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. Union Oil 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, Union Oil tested steam production in the Gunung Salak
geothermal field, located near Jakarta. Union Oil 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 Union Oil
to develop steam to supply an additional 220 megawatts of generating capacity at
Salak as development proceeds. Union Oil is now negotiating to expand its role
and accelerate development.
On northern Sumatra, Union Oil 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, Union Oil 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, Union Oil would continue to sell geothermal energy to
PLN for the remaining project life.
Below are geothermal reserves and operating data:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
12
<PAGE>
OTHER OPERATIONS
REAL ESTATE
The 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
Union Oil 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.
Union Oil 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, Union Oil 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. Union Oil 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, Union Oil had 13,607 employees compared with 14,674
a year ago. The decrease principally reflects the impact of business
divestments. Of the total employees, 2,248 were represented by various labor
unions. Salaries, wages and employee benefits totaled $744 million in 1993, $816
million in 1992 and $842 million in 1991.
Collective bargaining agreements covering represented employees at Union
Oil's refineries and various other facilities were entered into during February
of 1993. Most of these new labor agreements are for three-year terms.
13
<PAGE>
GOVERNMENT REGULATION
Certain interstate crude oil pipeline subsidiaries of Union Oil are regulated
(as common carriers) by the Federal Energy Regulatory Commission. As lessee
from the United States government, Union Oil 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 Union Oil 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.
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
14
<PAGE>
company also incurred approximately $235 million of environment-related expense.
This includes expenditures to remediate past contamination and Union Oil'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 22 and Note 16 of the notes to consolidated
financial statements on page 43 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,
Union Oil 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:
<TABLE>
<S> <C>
Denver Petrochemical Site, McColl Hazardous Waste Site, Fullerton,
Colorado California
Geothermal Site, Imperial Oakland Petrochemical Site, California
Valley, California
Guadalupe Oil Field, San Operating Industries, Inc., Monterey Park,
Luis Obispo, California California
Gulf Coast Vacuum, Pure Oil Bulk Plant, Minneapolis, Minnesota
Abbeville, Louisiana
Heath Refinery, Heath, Ohio Purity Oil Sales, site, Fresno, CA
Lorentz Barrel Site, San San Diego Terminal, California
Jose, California
Los Angeles Airport, Los Western Processing Co., Kent, Washington
Angeles, California
</TABLE>
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 inprecise 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, Union Oil's share of any liability is likely to be relatively
small. Settlements and costs incurred in those matters that have been previously
resolved have not been materially significant to the company's operating results
or financial position.
15
<PAGE>
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. Union Oil'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. Unocal Corporation, 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 relief and civil penalties are demanded for the
various claimed violations as well as prejudgment and postjudgment interest,
costs, and reasonable attorney fees.
16
<PAGE>
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
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
All of Union Oil's outstanding common stock is owned by Unocal. Accordingly,
there is no established public trading market for Union Oil's stock. The
company declared dividends to Unocal totaling $227 million in 1993, $176 million
in 1992 and $156 million in 1991.
ITEM 6 - SELECTED FINANCIAL DATA - Not required.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED RESULTS
Union Oil's net earnings for 1993 were $214 million, compared with $221
million in 1992 and $75 million in 1991. Earnings for the three years included
the following special items:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - -------------------------------------------------------------------
Special items:
<S> <C> <C> <C>
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)
</TABLE>
Excluding the effect of accounting changes and other special items, net
earnings were $348 million in 1993, $235 million in 1992 and $119 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.
18
<PAGE>
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.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ---------------------------------------------------------
<S> <C> <C> <C>
Net earnings before special items $ 432 $ 415 $ 389
Special items 15 47 34
- - - ---------------------------------------------------------
Total $ 447 $ 462 $ 423
===================
</TABLE>
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
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - -----------------------------------------------------------
<S> <C> <C> <C>
Net earnings before special items $ 175 $ 127 $ 40
Special items (9) (25) 31
- - - -----------------------------------------------------------
Total $ 166 $ 102 $ 71
=====================
</TABLE>
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.
19
<PAGE>
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.
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
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - -------------------------------------------------
<S> <C> <C> <C>
Corporate expense $(123) $(115) $(128)
Other operations (9) (15) (26)
Net interest expense (193) (246) (240)
Special items (32) (52) (109)
- - - -------------------------------------------------
Total $(357) $(428) $(503)
=======================
</TABLE>
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.
20
<PAGE>
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
-----------------------------
<S> <C> <C> <C>
Current ratio 1.3 1.2 1.3
Total debt $3,522 $3,698 $4,726
Equity $3,117 $3,140 $2,475
Total debt ratio 53% 54% 66%
Floating-rate debt / total debt 16% 8% 15%
</TABLE>
Cash flow from operating activities, including working capital changes, was
$1,104 million in 1993, $1,150 million in 1992 and $1,036 million in 1991. Cash
generated from operations was up $301 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 $357
million at year-end 1993, which included $114 million of refundable income taxes
expected to be received in 1994.
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.
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
Estimated
Millions of Dollars 1994 1993 1992 1991
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
===============================
</TABLE>
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
21
<PAGE>
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 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 Union Oil'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.
22
<PAGE>
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.
Union Oil 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 Union Oil'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 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, the company 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
23
<PAGE>
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.
Union Oil 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 Union Oil is a member.
The company's refining and marketing operations will continue to focus on
improving refining efficiencies and strengthening its Western marketing. Union
Oil 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.
24
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report on Management's Responsibilities 26
Report of Independent Accountants 27
Financial Statements
Consolidated Earnings 28
Consolidated Balance Sheet 29
Consolidated Cash Flows 30
Consolidated Shareholder's Equity 31
Notes to Consolidated Financial 32-46
Statements
Supplemental Information:
Oil and Gas Financial Data 47-48
Oil and Gas Reserve Data 49-50
Present Value of Future Net Cash Flow
Related to Proved Oil and Gas Reserves 51-52
Selected Quarterly Financial Data 52
Revenue Data 53
Supporting Financial Statement
Schedules covered:
by the Foregoing Report of
Independent Accountants:
Schedule V - Property, Plant and 56-58
Equipment
Schedule VI - Accumulated Depreciation,
Depletion and
Amortization of Property,
Plant and Equipment 56-58
Schedule VIII - Valuation and
Qualifying Accounts
and Reserves 59
</TABLE>
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.
25
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Union Oil'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.
Union Oil 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, Union Oil believes that, as of
December 31, 1993, its systems of internal controls over financial reporting met
those criteria.
Union Oil's Accounting, Auditing and Ethics Committee, consisting solely of
directors who are not employees of Union Oil, 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 Unocal's
stockholder's); 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.
February 14, 1994
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF UNION OIL COMPANY OF CALIFORNIA:
We have audited the accompanying consolidated balance sheet of Union Oil
Company of California and its subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of earnings, cash flows and Shareholder's
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 Union Oil Company of California'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 28 through 48 of this Annual Report on Form 10-K, present fairly, in all
material respects, the consolidated financial position of Union Oil Company of
California 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,
Union Oil Company of California 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
27
<PAGE>
CONSOLIDATED EARNINGS UNION OIL COMPANY OF CALIFORNIA
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
Dollars in millions 1993 1992 1991
- - - ---------------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
Sales and operating revenues * $8,077 $ 9,887 $10,731
Interest, dividends and miscellaneous 67 53 95
income
Equity in earnings of affiliated 84 66 52
companies
Gain on sales of assets 116 55 13
- - - ---------------------------------------------------------------------
Total revenues 8,344 10,061 10,891
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 488 702 695
expense
Depreciation, depletion and amortization 963 964 1,004
Dry hole costs 45 68 120
Exploration expense 119 170 192
Interest expense 304 379 395
Excise, property and other operating 951 1,140 1,208
taxes *
- - - ---------------------------------------------------------------------
Total costs and other deductions 7,732 9,711 10,677
- - - ---------------------------------------------------------------------
Earnings before income taxes 612 350 214
Income taxes 268 153 139
- - - ---------------------------------------------------------------------
Earnings before cumulative effect of 344 197 75
accounting changes
Cumulative effect of accounting changes (130) 24 -
- - - ---------------------------------------------------------------------
NET EARNINGS $ 214 $ 221 $ 75
==========================
*Includes consumer excise taxes of $ 816 $ 992 $ 1,050
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
CONSOLIDATED BALANCE SHEET UNION OIL COMPANY OF CALIFORNIA
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------
MILLIONS OF DOLLARS 1993 1992
- - - ----------------------------------------------------------------------
<S> <C> <C>
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 119 119
- - - ---------------------------------------------------------------------
Total assets $9,267 $9,463
- - - ---------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable $ 735 $ 712
Taxes payable 208 294
Current portion of long-term debt and 54 151
capital lease obligations
Interest payable 92 97
Other current liabilities (includes 132 184
amounts due Unocal:
1993 - $83; 1992 - $53)
- - - ---------------------------------------------------------------------
Total current liabilities 1,221 1,438
Long-term debt and capital lease 3,468 3,546
obligations
Deferred income taxes 875 898
Other deferred credits and liabilities 586 441
- - - ---------------------------------------------------------------------
Total liabilities 6,150 6,323
- - - ---------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock ($2-1/12 par value)
Shares authorized: 260,000,000
Shares outstanding: 1,000 in 1993 and 1992 - -
Capital in excess of par value 891 891
Foreign currency translation adjustment (5) 5
Retained earnings 2,231 2,244
- - - ----------------------------------------------------------------------
Total shareholder's equity 3,117 3,140
- - - ----------------------------------------------------------------------
Total liabilities and shareholder's equity $9,267 $9,463
- - - ----------------------------------------------------------------------
</TABLE>
The company follows the successful efforts method of accounting for its oil and
gas activities.
See Notes to Consolidated Financial Statements.
29
<PAGE>
CONSOLIDATED CASH FLOWS UNION OIL COMPANY OF CALIFORNIA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
MILLIONS OF DOLLARS 1993 1992 1991
-----------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 214 $ 221 $ 75
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 1,004
Dry hole costs 45 68 120
Deferred income taxes 139 (114) (153)
Gain on sales of assets (before-tax) (116) (55) (13)
Other 39 53 76
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 (292) (51) (1)
- - - ----------------------------------------------------------------------
Net cash provided by operating
activities 1,104 1,150 1,036
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (includes dry
hole costs) (1,249) (959) (1,470)
Proceeds from sales of assets 586 469 132
Other - - (13)
- - - ---------------------------------------------------------------------
Net cash used in investing
activities (663) (490) (1,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from the Parent - 500 -
Long-term borrowings 543 401 1,552
Reduction of long-term debt and
capital lease obligations (718) (1,278) (1,035)
Increase (decrease) in short-term
notes payable (1) (152) 4
Dividends paid to the Parent (209) (165) (157)
Other (8) 16 (4)
- - - ---------------------------------------------------------------------
Net cash provided by (used in)
financing activities (393) (678) 360
Increase (decrease) in cash and cash
equivalents 48 (18) 45
Cash and cash equivalents at beginning
of year 157 175 130
- - - ---------------------------------------------------------------------
Cash and cash equivalents at end of year $ 205 $ 157 $ 175
- - - ---------------------------------------------------------------------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 296 $ 377 $ 368
Income taxes (net of refunds) $ 291 $ 237 $ 335
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
CONSOLIDATED SHAREHOLDER'S EQUITY UNION OIL COMPANY OF CALIFORNIA
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ----------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Shares authorized - 260,000,000
Shares outstanding - 1,000 $ - $ - $ -
------------------------------------------------------------------------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 891 249 237
Capital contribution from the Parent - 642 12
------------------------------------------------------------------------
Balance at end of year 891 891 249
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year 5 27 25
Current year adjustment (10) (22) 2
------------------------------------------------------------------------
Balance at end of year (5) 5 27
RETAINED EARNINGS
Balance at beginning of year 2,244 2,199 2,280
Net earnings for year 214 221 75
Cash dividends declared to the Parent (227) (176) (156)
Balance at end of year 2,231 2,244 2,199
------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY $3,117 $3,140 $2,475
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
For the purpose of this report Union Oil Company of California (Union Oil)
and its consolidated subsidiaries will be referred to as the company. Union Oil
is a wholly owned subsidiary of Unocal Corporation (Unocal or the Parent).
The consolidated financial statements of the company include the accounts of
subsidiaries more than 50 percent owned. Investments in affiliates owned 50
percent or less are accounted for by the equity method. Under the equity
method, the investments are stated at cost plus the company's equity in
undistributed earnings after acquisition. Income taxes estimated to be payable
when earnings are distributed are included in deferred income taxes.
Inventories
Inventories are valued at lower of cost or market. The cost of crude oil,
refined products and chemicals inventories is determined using the last-in,
first-out (LIFO) method. The cost of other inventories is determined by using
various methods. Cost elements primarily consist of raw materials and
production expenses.
Capitalized Leased Properties
Facilities and lands leased by the company under firm, long-term obligations
are capitalized as assets and depreciated in the same manner as owned
properties. Future minimum rental payments are discounted to present value
using the company's incremental borrowing rate in effect at the time of leasing
and such value is recorded as a liability. Earnings are charged for
depreciation of the facilities and the imputed interest on the rental
obligations in lieu of actual rental payments.
Oil and Gas Exploration and Development Costs
The company follows the successful efforts method of accounting for its oil
and gas activities.
Acquisition costs of exploratory acreage are capitalized. Full amortization
of the nonproductive portion of such costs is provided over the shorter of the
exploratory period or the lease holding period. Costs of successful leases are
transferred to proved properties. Exploratory drilling costs are initially
capitalized. If exploratory wells are determined to be commercially
unsuccessful, the related costs are expensed. Geological and geophysical costs
for exploration and leasehold rentals for unproved properties are expensed.
Development costs of proved properties are capitalized.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization related to proved oil and gas
properties and estimated future abandonment and removal costs for offshore
production platforms are calculated at unit of production rates based upon
estimated proved recoverable reserves.
Depreciation of other properties is generally on a straight-line method using
various rates based on estimated useful lives.
32
<PAGE>
Maintenance and Repairs
Expenditures for maintenance and repairs are expensed. In general,
improvements are charged to the respective property accounts and such accounts
are relieved of the original cost of property replaced.
Retirement and Disposal of Properties
Upon retirement of facilities depreciated on an individual basis, remaining
book values are charged to current depreciation expense. For facilities
depreciated on a group basis, remaining book values are charged to accumulated
allowances. Gains or losses on sales of properties are included in current
earnings.
Income Taxes
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement superseded SFAS 96, which the company adopted in 1988. SFAS 109
continues to require the use of the liability method for reporting income taxes
in which current or deferred tax liabilities or assets are recorded in
accordance with enacted tax laws and rates. Under this method, the amount of
deferred tax liabilities or assets at the end of each period is determined using
the tax rate expected to be in effect when taxes are actually paid or recovered.
SFAS 109 changed, among other things, the recognition criteria for deferred
tax assets. Future tax benefits are recognized to the extent that realization
of such benefits is more likely than not. Upon adoption, the company was able
to record certain deferred foreign income tax benefits not previously
recognized. The favorable cumulative effect of this accounting change for the
periods prior to January 1, 1992, was $24 million.
Deferred income taxes are provided for the estimated income tax effect of
temporary differences between financial and tax bases in assets and liabilities.
Deferred tax assets are also provided for certain tax credit carryforwards. A
valuation allowance to reduce deferred tax assets will be established if
appropriate. See Note 8 for the principal temporary differences and unused tax
credits.
Foreign Currency Translation
Foreign exchange gains and losses as a result of translating a foreign
entity's financial statements from its functional currency into U.S. dollars are
included as a separate component of shareholders' equity. The functional
currency for all foreign operations, except Canada, is the U.S. dollar. Gains
or losses incurred on currency transactions in other than a country's functional
currency are included in net earnings.
Environmental Costs
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Expenditures that relate to existing
conditions caused by past operations and have no future economic benefit are
expensed. Liabilities are recognized for those superfund sites and facilities
previously owned by the company where it is probable that the company is
obligated for environmental expenditures, and the amounts can be reasonably
estimated. The timing of liability recognition generally coincides with the
formulation and commitment to an appropriate plan of action.
Environmental liabilities are not discounted or reduced by possible
recoveries from third parties. However, accrued liabilities reflect anticipated
allocation of liabilities among settling participants in multi-party sites.
Environmental remediation costs required for properties held for sale are
capitalized. A valuation allowance will be established if the aggregate book
value of those properties including capitalized remediation costs exceed net
realizable value.
See Notes 6 and 16 for additional environmental information.
33
<PAGE>
Other
Interest is capitalized on major construction and development projects as
part of the cost of the asset.
Certain items in prior year financial statements have been reclassified to
conform to the 1993 classification.
NOTE 2 - RESTRUCTURING COSTS
In 1992, as part of its efforts to improve cash flow and operating results,
the company underwent work force reductions and operational changes. Voluntary
retirement and severance packages were accepted by 1,145 employees. A $55
million provision, net of reduced pension obligations, was included in
administrative and general expenses.
NOTE 3 - WRITE-DOWNS OF ASSETS
Earnings in 1993 included a pretax charge of $19 million for the write-off of
refining projects, primarily due to the cancellation of a portion of work
associated with the reformulated fuels program at the company's Los Angeles
Refinery.
In 1992, the company recorded a pretax charge of $50 million for the write-
down of its interest in a Canadian partnership and various assets that were shut
down or sold.
In 1991, the company recorded several write-downs of assets. Pretax charges
to earnings included $73 million for the Los Angeles Refinery due to the
suspension of the hydrotreater project as a result of the company's purchase of
a major portion of the Shell Oil Company's refinery in Carson, California. Also
included were $25 million for nitric acid and urea ammonium nitrate
manufacturing plants in West Sacramento, California, due to the reduction in
scope of an expansion project, and $8 million for certain mineral assets.
NOTE 4 - DISPOSITIONS OF ASSETS
In 1993, the sale of the company's geothermal assets in the Imperial Valley
of California and other geothermal exploration leases resulted in a $40 million
pretax gain on proceeds of $218 million. An $11 million pretax gain on proceeds
of $172 million was recorded from the sale of the company's national
auto/truckstop system. In addition, various oil and gas properties were sold
which generated total proceeds of $106 million with a pretax gain of $42
million. The company also sold its retail agricultural businesses with a pretax
loss of $1 million on proceeds of $31 million.
In 1992, the company recorded a pretax loss of $1 million on the sales of its
retail chemical distribution and polymer businesses, and Southeast marketing
terminals. The total proceeds from the sales of these businesses, net of
certain related costs, were approximately $250 million. In addition, the
company realized a pretax gain of $53 million and proceeds of approximately $158
million from the sale of various oil and gas properties in North America and the
Netherlands.
34
<PAGE>
NOTE 5 - CASH FLOW INFORMATION
The company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less. All income taxes paid are
included in determining cash flows from operating activities. As a result,
income taxes expected to be paid on the taxable income from the sales of assets
are not included in cash flows from investing activities.
In the consolidated statement of cash flows for 1993, other changes related
to operations principally included $106 million of payments for Alaska tax and
geothermal energy sales contract settlements. Also included was a cash flow
reduction of $125 million relating to the settlement of crude oil forward sales
contracts, for which revenue was recognized in 1993, but cash was received in
1992.
The consolidated statement of cash flows for 1992 excluded the effect of
noncash activities related to the merger of Unocal Exploration Corporation into
Union Oil. The effect on the balance sheet was to increase properties, deferred
income taxes and shareholders' equity by $173 million, $64 million and $142
million, respectively, and to decrease minority interest liability by $33
million.
NOTE 6 - OTHER FINANCIAL INFORMATION
Consolidated earnings include the following:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 334 $ 413 $ 435
Less capitalized interest 30 34 40
- - - ------------------------------------------------------------------
Interest expense $ 304 $ 379 $ 395
Maintenance and repair costs $ 442 $ 505 $ 583
Research and development costs $ 29 $ 50 $ 63
- - - ------------------------------------------------------------------
</TABLE>
The consolidated balance sheet at December 31 includes the following:
<TABLE>
Millions of Dollars 1993 1992
- - - ------------------------------------------------------------------
<S> <C> <C>
Other deferred credits and liabilities:
Postretirement medical benefits obligation $ 200 $ -
Reserve for litigation and other claims 153 149
Reserve for environmental remediation 87* 48
Other employee benefits 52 40
Unearned revenues - 99
Other 94 105
- - - ------------------------------------------------------------------
Total other deferred credits and liabilities $ 586 $ 441
- - - ------------------------------------------------------------------
Allowances for doubtful accounts and notes $ 16 $ 18
receivable
Allowances for investments and long-term $ 4 $ 5
receivables
- - - ------------------------------------------------------------------
</TABLE>
*Includes $45 million for estimated future remediation costs for properties
divested in 1993.
NOTE 7 - EXCISE, PROPERTY AND OTHER OPERATING TAXES
<TABLE>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Consumer excise taxes $ 816 $ 992 $1,050
Real and personal property taxes 68 78 76
Severance and other taxes on production 47 48 53
Other taxes and duties 20 22 30
- - - ------------------------------------------------------------------
Total $ 951 $1,140 $1,209
- - - ------------------------------------------------------------------
</TABLE>
In addition, social security and unemployment insurance taxes, which are charged
to earnings and included with salaries and wages, totaled $44 million in 1993,
$48 million in 1992 and $49 million in 1991.
35
<PAGE>
NOTE 8 - INCOME TAXES
Union Oil files a consolidated federal income tax return with the Parent,
which includes essentially all U.S. subsidiaries. All income taxes are included
in the accounts of Union Oil and its subsidiaries. The components of pretax
earnings and the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes
United States $ 180 $ (84) $(261)
Foreign 432 434 475
- - - ------------------------------------------------------------------
Total earnings before income taxes $ 612 $ 350 $ 214
- - - ------------------------------------------------------------------
Income taxes
Current
Federal $ (73) $ 20 $ 38
State (19) 13 17
Foreign 221 234 237
- - - ------------------------------------------------------------------
Total 129 267 292
Deferred
Federal 113 (97) (131)
State 14 (3) (12)
Foreign 12 (14) (10)
- - - ------------------------------------------------------------------
Total 139 (114) (153)
- - - ------------------------------------------------------------------
Total income taxes $ 268 $ 153 $ 139
- - - ------------------------------------------------------------------
</TABLE>
Due to an operating loss carryback in 1993, the company expects a $114
million income tax refund in 1994.
The following table is a reconciliation of income taxes at the federal
statutory income tax rates to income taxes as reported in the Consolidated
Earnings Statement.
<TABLE>
<CAPTION>
Dollars in Millions 1993 1992 1991
- - - ---------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 34% 34%
Taxes on book earnings computed at $ 214 $ 119 $ 73
statutory rate
Foreign taxes in excess of statutory 66 75 83
rate
Recorded benefits related to - (44) -
exploration costs
Dividend exclusion (13) (13) (12)
Unused general business tax credits (12) - -
Effect of federal rate change on 12 - -
deferred taxes
Other 1 16 (5)
- - - ----------------------------------------------------------------
Total $ 268 $ 153 $ 139
- - - ----------------------------------------------------------------
</TABLE>
36
<PAGE>
The significant components of deferred income tax assets and liabilities
included in the Consolidated Balance Sheet as of December 31, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992
- - - -------------------------------------------------------------
Deferred tax assets (liabilities)
<S> <C> <C>
Depreciation and intangible drilling
costs $(1,206) $(1,167)
Pension assets (124) (103)
Investments in affiliates (86) (84)
Other deferred tax liabilities (186) (263)
Depletion 130 160
Exploratory costs 132 160
Federal alternative minimum tax
credits 108 125
Future abandonment costs 134 130
Postretirement medical benefit cost 74 -
Unearned revenue - 46
Other deferred tax assets 205 201
- - - -------------------------------------------------------------
Total $ (819) $ (795)
- - - -------------------------------------------------------------
</TABLE>
The above net deferred income tax liabilities are classified in the
Consolidated Balance Sheet as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992
- - - --------------------------------------------------------------
<S> <C> <C>
Other current assets $ 26 $ 75
Other assets 30 28
Deferred income taxes (875) (898)
- - - --------------------------------------------------------------
Total $(819) $(795)
- - - --------------------------------------------------------------
</TABLE>
No deferred U.S. income tax liability has been recognized on the
undistributed earnings of foreign subsidiaries or affiliates that have been
retained for reinvestment. If distributed, no additional U.S. tax is expected
due to the availability of foreign tax credits. Such undistributed earnings for
tax purposes, excluding previously taxed earnings, are estimated at $955 million
as of December 31, 1993.
At year-end 1993, the company had $60 million of unused foreign tax credits
with various expiration dates through 1997. No deferred tax asset for these
foreign tax credits is recognized for financial statement purposes.
The federal alternative minimum tax credits are available to offset future
U.S. federal income taxes on an indefinite basis. In addition, the company has
approximately $28 million of business tax credit carryforwards that will expire
between 2001 and 2008.
NOTE 9 - INVENTORIES
<TABLE>
Millions of Dollars 1993 1992
- - - -------------------------------------------------------------
<S> <C> <C>
Crude oil and condensate $ 44 $ 26
Refined products 146 151
Chemicals 55 67
Minerals 15 19
Supplies, merchandise and other 66 63
- - - -------------------------------------------------------------
Total $ 326 $ 326
- - - -------------------------------------------------------------
</TABLE>
37
<PAGE>
Current cost of inventories exceeded the LIFO inventory value included above
by $147 million and $176 million at December 31, 1993 and 1992, respectively.
The LIFO profits included in earnings were insignificant in 1993 and 1992 while
1991 earnings included $90 million due to the sale of the company's southeastern
U.S. marketing inventory.
NOTE 10 - PROPERTIES AND CAPITALIZED LEASES
Investments in owned and capitalized leased properties at December 31, 1993
and 1992 are set forth below. Total accumulated depreciation, depletion and
amortization was $11,667 million and $11,579 million at December 31, 1993 and
1992, respectively.
Capitalized leased properties principally consist of service stations and
petroleum facilities. Capital leases have expiration dates ranging from 1994 to
2009, and include purchase options and favorable renewal options.
<TABLE>
<CAPTION>
1993 1992
---------------------------------------
Millions of Dollars Gross Net Gross Net
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned properties (at cost)
Petroleum operations:
Exploration
United States $ 200 $ 77 $ 413 $ 133
Foreign 119 59 110 61
Production
United States 7,896 2,924 7,512 2,854
Foreign 3,811 1,022 3,621 980
Refining, marketing and transportation 2,945 1,600 3,079 1,630
- - - -------------------------------------------------------------------------------
Total 14,971 5,682 14,735 5,658
Chemical operations 679 220 819 266
Geothermal operations 940 378 1,185 570
Corporate and other * 1,778 435 1,707 390
- - - -------------------------------------------------------------------------------
Total owned properties 18,368 6,715 18,446 6,884
Capitalized leased properties 22 8 29 12
- - - -------------------------------------------------------------------------------
Total $18,390 $6,723 $18,475 $6,896
- - - -------------------------------------------------------------------------------
</TABLE>
* Includes mineral and real estate assets.
NOTE 11 - RETIREMENT PLANS
The company and its subsidiaries have several non-contributory retirement
plans covering substantially all employees. Plan benefits are primarily based
on years of service and employees' compensation near retirement.
All U.S. plans are administered by corporate trustees. There was no company
contribution to any of the U.S. plans during the years 1991 through 1993 as plan
assets substantially exceeded the pension obligations. At year-end 1993, plan
assets principally consist of equity securities, U.S. government and agency
issues, corporate bonds and cash.
Employees of certain foreign subsidiaries of the company are covered by
separate plans. Total costs for all foreign plans were insignificant for each
period.
38
<PAGE>
Pension costs for the funded U.S. plans include the following components:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during $ 20 $ 27 $ 26
the year
Interest cost on projected benefit 48 51 49
obligation
Actual return on plan assets (125) (51) (203)
Net amortization and deferral 20 (57) 106
Net gain from partial settlement of (3) (22) (5)
obligation
- - - -------------------------------------------------------------------
Net pension expense (income) $ (40) $ (52) $ (27)
- - - -------------------------------------------------------------------
</TABLE>
The 1992 net gain from partial settlement of obligation was the result of the
voluntary retirement and severance packages accepted by employees and those
employees who left the company due to the sale of business units in 1992.
The following table sets forth the plans' funded status and amounts
recognized in the Consolidated Balance Sheet at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992
- - - -----------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 943 $ 871
- - - -----------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefits 556 457
Nonvested benefits 21 20
- - - -----------------------------------------------------------------
Accumulated benefit obligation 577 477
Effect of projected future salary 119 124
increases
- - - -----------------------------------------------------------------
Projected benefit obligation 696 601
- - - -----------------------------------------------------------------
Plan assets in excess of projected 247 270
benefit obligation
Unrecognized net loss 164 117
Unrecognized net assets (108) (130)
Unrecognized prior service cost 27 33
- - - -----------------------------------------------------------------
Prepaid pension cost $ 330 $ 290
- - - -----------------------------------------------------------------
</TABLE>
The assumed rates used to measure the projected benefit obligation and the
expected earnings on plan assets were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Weighted-average discount rate 7.25% 8.25% 8.25%
Increase in future compensation levels 5.0% 6.0% 5.0%
Expected long-term return on plan
assets 10.5% 11.5% 11.5%
</TABLE>
The amount of benefits which can be covered by the funded plans described
above are limited by the Employee Retirement Security Act of 1974 and the
Internal Revenue Code. Therefore, the company has an unfunded supplemental
retirement plan designed to maintain benefits for all employees at the plan
formula level. The amounts expensed for this plan were $2 million, $23 million
and $1 million in 1993, 1992 and 1991, respectively. The 1992 amount included a
one-time charge of $21 million as a result of the company's restructuring
program. The accumulated obligation recognized in the Consolidated Balance
Sheet at December 31, 1993 was $19 million.
39
<PAGE>
NOTE 12 - POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
The company's medical plan provides health care benefits for eligible
employees and retired employees. Employees may become eligible for
postretirement benefits if they reach the normal retirement age while working
for the company. The plan is contributory and the benefits are subject to
deductibles and co-payments.
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This new accounting standard requires the
company to recognize its obligation to provide postretirement health care
benefits and to accrue such costs rather than recording them on a cash basis.
The actuarial present value of the accumulated postretirement health care
obligation existing at January 1, 1993 was recognized in the Consolidated
Earnings Statement as a cumulative effect of an accounting change, resulting in
a charge to the first quarter 1993 earnings of $192 million before tax ($121
million after tax).
The following table sets forth the postretirement benefit obligation
recognized in the Consolidated Balance Sheet at December 31, 1993:
<TABLE>
<CAPTION>
Millions of Dollars 1993
- - - -----------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit
obligations:
Retirees $ 146
Fully eligible active employees 21
Other active employees 35
- - - -----------------------------------------------------------------
Total 202
Unrecognized prior service cost and loss (2)
- - - -----------------------------------------------------------------
Accrued postretirement benefit cost $ 200
- - - -----------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost includes the following components:
<TABLE>
Millions of Dollars 1993
- - - -----------------------------------------------------------------
<S> <C>
Service cost $ 5
Interest cost 17
- - - -----------------------------------------------------------------
Total $ 22
- - - -----------------------------------------------------------------
</TABLE>
The pay-as-you-go cost for postretirement medical benefits was $13 million
each in 1992 and 1991.
The accumulated postretirement benefit obligation at December 31, 1993 was
determined using a discount rate of 7.25 percent. The health care cost trend
rates used in measuring the 1993 benefit obligations were 9 percent for under
age 65 and 7 percent for age 65 and over, gradually decreasing to 5 percent by
the year 2001 and remaining at that level thereafter. The rates are subject to
change in the future. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, an increase in the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1993 by $20 million and net periodic benefits cost by $3 million.
The company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1993. This statement requires
the company to recognize its obligation to provide benefits, such as workers'
compensation and disabled employees' medical care, to former or inactive
employees after employment but before retirement. The charge to earnings for
the cumulative effect of the company's unfunded obligation prior to 1993 was $14
million before tax ($9 million after tax). The accumulated postemployment
benefit obligation was $17 million as of December 31, 1993.
40
<PAGE>
NOTE 13 - LONG-TERM DEBT AND CREDIT AGREEMENTS
The following table summarizes the company's long-term debt:
<TABLE>
<CAPTION>
At December 31
------------------
Millions of Dollars 1993 1992
- - - ------------------------------------------------------------------
<S> <C> <C>
Bonds and debentures
9-1/4% Debentures due 2003 $ 250 $ 250
9-1/8% Debentures due 2006 200 200
6-1/8% to 7-7/8% Industrial
Development Revenue Bonds due 1994 to 2008 76 141
8-5/8% Debentures due 2006 - 120
Swiss Franc Bonds due 1996, effective
rate 9.69% 110 110
Deutsche Mark Bonds due 1998,
effective rate 8.4% 110 110
6-5/8% Debentures due 1998 - 23
Notes
Commercial paper issued by Union Oil(3.45%) 537 35*
Medium-term notes due 1995 to 2011 (9.14% 575 580
8-3/4% Notes due 1997 300 300
Bank Credit Agreement - 250
9.0% Notes due 1993 - 250
9-3/4% Notes due 1994 250 250
9-5/8% Notes due 1995 250 250
9-3/4% Notes due 2000 250 250
Eurodollar Notes due 1996, effective rate 9.77% 200 200
8-3/4% Notes due 2001 200 200
8-1/2% Notes due 1994 150 150
Other miscellaneous debt 49 9
- - - ------------------------------------------------------------------
Total 3,507 3,678
Less current portion of long-term debt 52 148
- - - ------------------------------------------------------------------
Total long-term debt $3,455 $3,530
- - - ------------------------------------------------------------------
</TABLE>
* Weighted average interest rate at December 31, 1993.
At December 31, 1993, the commercial paper borrowings and the two notes due
1994 were classified as long-term debt. The company has both the ability and
intent to refinance these borrowings on a long-term basis through existing lines
of credit. The current portion of long-term debt at year-end 1993 represents
the net amount of debt expected to be reduced in 1994. The amounts of long-term
debt maturing in 1995, 1996, 1997 and 1998 are $282 million, $318 million, $303
million and $300 million, respectively.
During 1993, the company prepaid in full $120 million of 8-5/8% Debentures
due 2006, $23 million of 6-5/8% Debentures due 1998 and $65 million of 7-1/4%
Pollution Control Bonds due 1997. The redemption premium on the retired
debentures and bonds totaled $3 million and $1 million, respectively. In
addition, the company retired $250 million of 9% notes and paid down the $250
million loan under the Bank Credit Agreement. The debt repayments were funded
with the issuance of commercial paper and cash on hand.
The company borrowed $41 million under a revolving credit facility that was
established in 1993 for the purpose of funding its oil and gas development
program in the Netherlands. Also, a $250 million revolving credit facility was
established in December 1993 for the same purpose in Thailand. Both facilities
require a fee of 1/4 of 1 % on the total commitments.
The Bank Credit Agreement provides a revolving credit of $1.2 billion through
1996 at interest rates based on London Interbank Offered Rates. This agreement
is available for general corporate purposes, including the support of commercial
paper issued by Union Oil. At December 31, 1993, the company had available
undrawn commitments of $1.2 billion. The company pays a facility fee of 1/4 of
1% on the total commitments. The company also has reimbursement agreements with
a major bank providing for the reimbursement of amounts drawn under irrevocable
direct-pay letters of credit issued by such bank for the payment of $23 million
on certain industrial development revenue bonds issued in 1988. The company pays
a facility fee of .525% on these outstanding letters of credit. The company has
other letters of credit for approximately $142 million. The majority are
maintained for operational needs.
41
<PAGE>
NOTE 14 - LEASE RENTAL OBLIGATIONS
Future minimum rental payments for capitalized leased properties and for
operating leases having initial or remaining noncancelable lease terms in excess
of one year are as follows:
<TABLE>
<CAPTION>
Operating Capital
Millions of Dollars Leases Leases
- - - --------------------------------------------------------------
<S> <C> <C>
1994 $ 88 $ 4
1995 63 4
1996 44 4
1997 35 3
1998 31 1
Balance 89 7
- - - --------------------------------------------------------------
Total minimum lease payments $350 $23
- - - --------------------------------------------------------------
Less imputed interest 8
- - - --------------------------------------------------------------
Present value of net minimum lease payments * $15
- - - --------------------------------------------------------------
</TABLE>
* The current portion of these obligations amounted to $2 million. There were
no material contingent rentals applicable to capital leases.
Net operating rental expense included in consolidated earnings is as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - --------------------------------------------------------------
<S> <C> <C> <C>
Fixed rentals $ 129 $ 139 $ 142
Contingent rentals (based primarily on 37 44 58
sales and usage)
Sublease rental income (51) (61) (63)
- - - --------------------------------------------------------------
Net expense $ 115 $ 122 $ 137
</TABLE>
NOTE 15 - FINANCIAL INSTRUMENTS
FAIR VALUE
The company had $205 million in cash and cash equivalents at year-end 1993,
which approximates fair value because of the short maturity of these
investments.
The estimated fair value of the company's long-term debt, including currency
and interest rate swaps, was $3.8 billion at year-end 1993. This fair value was
estimated based upon the discounted amount of future cash outflows using the
rates offered to the company for debt of the same remaining maturities.
42
<PAGE>
OFF-BALANCE-SHEET RISK
The company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to fluctuations in
interest and currency exchange rates and petroleum-related prices. These
financial instruments include interest rate and currency swaps and forward
currency and futures contracts, which involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
financial statements. The company believes that the actual exposure to loss is
minimal and immaterial. As of December 31, 1993, the company had no financial
instruments with significant off-balance-sheet risk.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to concentrations
of credit risk consist primarily of temporary cash investments and trade
receivables. The company places its temporary cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risks with
respect to trade receivables are limited because there are a large number of
customers in the company's customer base spread across many industries and
geographic areas. As of December 31, 1993, the company had no significant
concentrations of credit risk.
NOTE 16 - CONTINGENT LIABILITIES
The company has certain contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings, including those involving
environmental, tax and other matters. Management is of the opinion, based on
developments to date, that such contingencies are not likely to have a material
effect on the company's financial condition (including shareholders' equity,
liquidity and capital resources). Although unlikely, substantial adverse
decisions 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; the likelihood
of such occurrences is considered remote.
The company may face potentially significant financial exposure from possible
claims and lawsuits regarding environmental matters. These matters include, for
example, designation of the company as a "potentially responsible party" under
the federal Comprehensive Environmental Response, Compensation, and Liability
Act; 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.
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, the uncertainty of potential recovery from third
parties 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. Settlements and costs incurred in those matters that have
been resolved have not been materially significant to the company's operating
results or financial condition, and the company does not believe that future
similar liability will be material to its financial condition. Even though
unlikely, a substantial adverse decision awarding punitive damages to several
plaintiffs or imposing several liability for the cleanup obligations of other
equally responsible parties, however, could have a significant 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 Union Oil's
operating results; the likelihood of such occurrences is considered remote.
The company also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. In the opinion of management, such contingent liabilities are not
likely to result in any loss that would materially affect the company's
operating results or financial condition. However, they could have a material
effect on the company's operating results in a given quarter or year when such
matters are resolved; the likelihood of such occurrence is considered remote.
43
<PAGE>
NOTE 17- SEGMENT AND GEOGRAPHIC DATA
The company is engaged principally in petroleum, chemical and geothermal
operations. Petroleum involves the exploration, production, transportation and
sale of crude oil and natural gas; and the manufacture, transportation and
marketing of petroleum products. Chemicals involves the manufacture, purchase,
transportation and marketing of chemicals for agricultural and industrial uses.
Geothermal involves the exploration, production and sale of geothermal
resources. Other business activities currently include the production and
marketing of lanthanides and niobium, and real estate development and sales.
The company's shale oil and molybdenum operations were suspended in 1991.
Financial data by business segment and geographic area of operation are shown
on the following two pages. Intersegment revenue eliminations in business
segment data are mainly transfers from exploration and production operations to
refining, marketing and transportation operations, and in geographic areas of
operations essentially represent transfers from foreign countries to the United
States. Intersegment sales prices approximate market prices.
NOTE 18 INVESTMENTS IN AFFILIATES
Investments in affiliated companies accounted for by the equity method were
$389 million, $387 million and $377 million at December 31, 1993, 1992 and 1991,
respectively. Dividends or cash distributions received from these affiliates
were $80 million, $74 million and $62 million for the same years, respectively.
These affiliated companies are primarily engaged in pipeline ventures, refining
and marketing operations, and the manufacture of needle coke.
The excess of the company's investments in Colonial Pipeline Company and West
Texas Gulf Pipeline Company over its share in the related underlying equity in
net assets is being amortized on a straight-line basis over a period of 40
years. The remaining unamortized balance at December 31, 1993 was $113 million.
The company has a 50% interest in The UNO-VEN Company (UNO-VEN), a refining
and marketing joint venture in the midwestern United States. The company's
share of the underlying equity in the net assets of UNO-VEN over the carrying
value of its investment is amortized on a straight-line basis over a period of
25 years. The remaining unamortized balance at December 31, 1993 was $63
million.
Summarized financial information for these equity investees is shown below.
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------------------------------------------------
Union Oil's Union Oil's Union Oil's
Millions of Dollars Total Share Total Share Total Share
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 452 $178 $ 480 $183 $ 766 $ 188
Noncurrent assets 2,081 564 2,124 556 2,218 626
Current liabilities 317 111 337 107 654 130
Noncurrent liabilities 1,068 301 1,066 301 1,124 330
Net equity 1,148 330 1,201 331 - 1,206 354
--------------------------------------------------------------------------------------------------
Revenues $2,257 $857 $2,421 $929 $2,400 $1,043
Costs and other deductions 1,903 773 2,125 863 2,370 991
Net earnings 354 84 296 66 - 30 * 52
- - - ---------------------------------------------------------------------------------------------------
</TABLE>
* Reflects a significant provision for a tariff settlement and associated
interest costs recorded by Kuparuk Pipeline Company, of which Union Oil's
share is five percent.
44
<PAGE>
BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:(d)
Petroleum
Exploration and Production $ 2,739 $ 2,865 $ 2,954
Refining, Marketing and Transportation 6,118 7,650 7,972
Chemicals 460 732 1,213
Geothermal 186 203 203
Corporate and Other 135 120 173
Intersegment Eliminations (1,294) (1,509) (1,624)
- - - -----------------------------------------------------------------------------------------
Total $ 8,344 $10,061 $10,891
Earnings:
Petroleum
Exploration and Production $ 782 $ 730 $ 757
Refining, Marketing and 256 139 93
Transportation (a)(e)
Chemicals (f) 65 37 71
Geothermal(g) 83 65 65
Corporate and Other (c) (574) (621) (772)
- - - -----------------------------------------------------------------------------------------
Pretax earnings from continuing 612 350 214
operations
Income taxes (268) (153) (139)
Cumulative effect of accounting changes (130) 24 -
- - - -----------------------------------------------------------------------------------------
Net earnings $ 214 $ 221 $ 75
Assets - December 31:
Petroleum
Exploration and Production $ 4,522 $ 4,473 $ 4,804
Refining, Marketing and
Transportation (b) 2,645 2,792 2,614
Chemicals 387 458 662
Geothermal 436 652 670
Corporate and Other 1,277 1,088 1,179
- - - -----------------------------------------------------------------------------------------
Total $ 9,267 $ 9,463 $ 9,929
(a) Includes equity in earnings of
affiliates of $ 69 $ 76 $ 52
(b) Includes equity in affiliates of $ 287 $ 283 $ 261
(c) Includes net interest expense of $ 279 $ 356 $ 357
(d) The recent decline generally reflects the effects of major asset sales which began in 1992.
(e) The 1991 write-down of the Los Angeles Refinery for $73 million is included in Corporate and Other.
(f) The 1991 write-down of the West Sacramento fertilizer manufacturing plant for $25 million is included in
Corporate and Other.
(g) 1993 includes a gain of $40 million from the sale of the company's Imperial Valley operations and other
exploration assets.
</TABLE>
45
<PAGE>
BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures:
Petroleum
Exploration and Production $ 892 $ 639 $ 857
Refining, Marketing and Transportation 236 201 479
Chemicals 11 64 86
Geothermal 53 37 24
Corporate and Other 57 18 24
- - - ---------------------------------------------------------------------------------------
Total $1,249 $ 959 $ 1,470
Depreciation, depletion and amortization:
Petroleum
Exploration and Production $ 727 $ 729 $ 677
Refining, Marketing and Transportation 120 111 100
Chemicals 21 24 37
Geothermal 52 58 59
Corporate and Other /(a)/ 43 42 131
- - - ---------------------------------------------------------------------------------------
Total $ 963 $ 964 $ 1,004
=======================================================================================
GEOGRAPHIC AREAS OF OPERATIONS
Millions of Dollars 1993 1992 1991
- - - ---------------------------------------------------------------------------------------
Revenues:
United States $7,071 $ 8,578 $ 9,522
Foreign 1,241 1,457 1,449
Corporate 55 40 21
Intersegment Eliminations (23) (14) (101)
- - - ---------------------------------------------------------------------------------------
Total $8,344 $10,061 $10,891
Earnings:
United States $ 737 $ 512 $ 456
Foreign 432 434 475
Corporate (557) (596) (717)
- - - ---------------------------------------------------------------------------------------
Pretax earnings from continuing
operations 612 350 214
Income taxes (268) (153) (139)
Cumulative effect of accounting changes (130) 24 -
- - - ---------------------------------------------------------------------------------------
Net earnings $ 214 $ 221 $ 75
Assets - December 31:
United States $6,743 $ 7,046 $ 7,430
Foreign 1,541 1,553 1,573
Corporate 983 864 926
- - - ---------------------------------------------------------------------------------------
Total $9,267 $ 9,463 $ 9,929
</TABLE>
(a) Includes asset write-downs as described in the footnotes (e) and (f) on
the previous page.
46
<PAGE>
OIL AND GAS FINANCIAL DATA
RESULTS OF OPERATIONS
Results of operations of oil and gas exploration and production activities
are shown below. Sales revenues are net of royalty and net profits interests.
Other revenues primarily include gains on sales of oil and gas properties,
natural gas contract settlements and miscellaneous rental income.
Production costs include lifting costs and taxes other than income. Other
operating expenses primarily include administrative and general expense.
Exploration expenses consist of geological and geophysical costs, leasehold
rentals and dry hole costs. Income tax expense is based on the tax effects
arising from the operations. Results of operations do not include general
corporate overhead and interest costs.
<TABLE>
<CAPTION>
United Far Other
Millions of Dollars States East Foreign Total
- - - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR 1993
Sales
To public $ 624 $517 $187 $1,328
Intercompany 839 198 12 1,049
Other revenues 54 - 45 99
- - - ----------------------------------------------------------------------------------
Total 1,517 715 244 2,476
Production costs 448 108 78 634
Exploration expenses 75 28 63 166
Depreciation, depletion and amortization 488 174 65 727
Other operating expenses 117 42 8 167
- - - ----------------------------------------------------------------------------------
Net 389 363 30 782
Income tax expense 153 168 14 335
- - - ----------------------------------------------------------------------------------
Results of operations $ 236 $195 $ 16 $ 447
YEAR 1992
Sales
To public $ 549 $502 $227 $1,278
Intercompany 943 231 16 1,190
Other revenues 26 2 48 76
- - - ----------------------------------------------------------------------------------
Total 1,518 735 291 2,544
Production costs 446 121 88 655
Exploration expenses 84 45 110 239
Depreciation, depletion and amortization 524 124 81 729
Other operating expenses 117 41 33 191
- - - ----------------------------------------------------------------------------------
Net 347 404 (21) 730
Income tax expense 128 184 (44) 268
- - - ----------------------------------------------------------------------------------
Results of operations $ 219 $220 $ 23 $ 462
YEAR 1991
Sales
To public $ 493 $428 $269 $1,190
Intercompany 1,006 266 18 1,290
Other revenues 59 7 51 117
- - - ----------------------------------------------------------------------------------
Total 1,558 701 338 2,597
Production costs 512 99 105 716
Exploration expenses 134 63 100 297
Depreciation, depletion and amortization 474 96 107 677
Other operating expenses 94 28 28 150
- - - ----------------------------------------------------------------------------------
Net 344 415 (2) 757
Income tax expense 127 192 15 334
- - - ----------------------------------------------------------------------------------
Results of operations $ 217 $223 $(17) $ 423
</TABLE>
47
<PAGE>
COSTS INCURRED
Costs incurred in oil and gas property acquisition, exploration and
development activities, either capitalized or charged to expense, are shown
below. Data for the company's capitalized costs related to petroleum production
and exploration activities are presented in Note 10.
<TABLE>
<CAPTION>
United Far Other
Millions of Dollars States East Foreign Total
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Property acquisition
Proved $ 32 $ - $ 2 $ 34
Unproved 8 - 14 22
Exploration 121 40 61 222
Development 469 203 94 766
- - - ------------------------------------------------------------------------------
1992
Property acquisition
Proved $ 14 $ - $ 4 $ 18
Unproved 4 8 3 15
Exploration 79 58 102 239
Development 330 161 40 531
- - - -------------------------------------------------------------------------------
1991
Property acquisition
Proved $ 29 $ - $ 1 $ 30
Unproved 20 8 4 32
Exploration 156 96 110 362
Development 365 188 59 612
- - - -------------------------------------------------------------------------------
</TABLE>
AVERAGE SALES PRICE AND PRODUCTION COSTS PER UNIT (UNAUDITED)
The average sales price is based on sales revenues and volumes attributable
to net working interest production. The average production costs per barrel
presented below are based on equivalent petroleum barrels, including natural gas
converted at a ratio of 5.3 MCF to one barrel of oil which represents the energy
content of the wet gas.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------
1993
<S> <C> <C> <C> <C>
Average sales price:
Crude oil and condensate - per barrel $13.68 $15.50 $14.88 $14.21
Natural gas - per MCF 1.97 2.11 1.79 2.01
Natural gas liquids - per barrel 13.65 8.06 9.51 12.51
Average production costs per barrel 3.77 1.64 5.39 3.18
- - - ------------------------------------------------------------------------------
1992
Average sales price:
Crude oil and condensate - per barrel $15.34 $17.48 $17.11 $15.99
Natural gas - per MCF 1.74 2.24 1.54 1.91
Natural gas liquids - per barrel 11.77 9.29 8.46 11.26
Average production costs per barrel 3.74 1.84 5.28 3.25
- - - ------------------------------------------------------------------------------
1991
Average sales price:
Crude oil and condensate - per barrel $15.82 $17.95 $17.75 $16.50
Natural gas - per MCF 1.66 2.15 1.63 1.83
Natural gas liquids - per barrel 13.78 7.63 11.11 12.67
Average production costs per barrel 4.32 1.59 5.79 3.60
- - - ------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
OIL AND GAS RESERVE DATA (UNAUDITED)
Estimates of physical quantities of oil and gas reserves, determined by
company engineers, for the years 1993, 1992 and 1991 are as shown below. As
defined by the Securities and Exchange Commission, proved oil and gas reserves
are the estimated quantities of crude oil, natural gas and natural gas liquids
that geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Accordingly, these estimates do not include probable or
possible reserves. Estimated oil and gas reserves are based on available
reservoir data and are subject to future revision. Proved reserve quantities
exclude royalties owned by others but include net profits type agreements on a
gross basis.
Natural gas reserves are reported on a wet-gas basis, which include natural
gas liquids reserves. For informational purposes, natural gas liquids reserves
in the U.S. were 95, 97 and 103 million barrels at December 31, 1993, 1992 and
1991, respectively. Foreign natural gas liquids reserves were insignificant for
the above periods. The domestic reserve quantities for natural gas liquids are
on a leasehold basis and are derived from the natural gas reserves by applying a
national average shrinkage factor obtained from the Department of Energy
published statistics.
<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES OF CRUDE OIL AND CONDENSATE United Far Other
MILLIONS OF BARRELS States East Foreign Total
- - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEVELOPED AND UNDEVELOPED AS OF 561 171 91 823
JANUARY 1, 1991
Revisions of estima (5) 1 1 (3)
Improved recovery 6 - 1 7
Discoveries and extensions 30 39 4 73
Purchases 15 (a) - 1 16
Sales (21)(b) - (2) (23)
Production (57) (24) (13) (94)
- - - -------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1991 529 187 83 799
Revisions of estimates 6 1 6 13
Improved recovery 3 - - 3
Discoveries and extensions 11 26 30 67
Purchases 16 - - 16
Sales (12)(c) - (8) (20)
Production (47)(d) (25) (12) (84)
- - - -------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1992 506 189 99 794
- - - -------------------------------------------------------------------------------------------------------------
Revisions of estimates (6) - 2 (4)
Improved recovery 6 - - 6
Discoveries and extensio 27 5 25 57
Purchases 4 - - 4
Sales (6) - (3) (9)
Production (48)(e) (25) (11) (84)
- - - -------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1993 483 169 112 764
=============================================================================================================
PROVED DEVELOPED RESERVES
December 31, 1990 435 93 71 599
December 31, 1991 397 103 66 566
December 31, 1992 388 107 57 552
December 31, 1993 360 98 78 536
</TABLE>
(a) Includes 10 million barrels acquired through exchanges of property.
(b) Includes the sale of 8 million barrels of future production under forward
contracts and 10 million barrels due to exchanges of properties.
(c) Includes the sale of 7 million barrels of future production under forward
contracts.
(d) Excludes 8 million barrels produced in 1992 but sold under forward contracts
in 1991.
(e) Excludes 7 million barrels produced in 1993 but sold under forward contracts
in 1992.
49
<PAGE>
OIL AND GAS RESERVE DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES OF NATURAL GAS United Far Other
BILLIONS OF CUBIC FEET States East Foreign Total
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEVELOPED AND UNDEVELOPED AS OF JANUARY 1, 1991 4,260 1,902 412 6,574
Revisions of estimates (156) (4) 20 (140)
Discoveries and extensions 316 699 14 1,029
Purchases 22 (a) - 3 25
Sales (48)(b) - (1) (49)
Production (351) (199) (31) (581)
- - - -------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1991 4,043 2,398 417 6,858
Revisions of estimates 30 (70) 4 (36)
Discoveries and extensions 175 492 7 674
Purchases 50 - 2 52
Sales (108) - (92) (200)
Production (359) (224) (28) (611)
- - - -------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1992 3,831 2,596 310 6,737
Revisions of estimates (94) 49 (20) (65)
Discoveries and extensions 348 261 19 628
Purchases 26 - 23 49
Sales (19) - (75) (94)
Production (365) (237) (21) (623)
- - - -------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1993 3,727 2,669 236 6,632
=================================================================================================
PROVED DEVELOPED RESERVES
December 31, 1990 2,892 1,603 276 4,771
December 31, 1991 2,589 1,664 279 4,532
December 31, 1992 2,460 1,587 225 4,272
December 31, 1993 2,520 1,601 147 4,268
</TABLE>
(a) Includes 8 BCF acquired through exchanges of properties.
(b) Includes dispositions of 12 BCF due to exchanges of properties.
50
<PAGE>
PRESENT VALUE OF FUTURE NET CASH FLOW RELATED TO PROVED OIL AND GAS RESERVES
(UNAUDITED)
The present value of future net cash flows from proved oil and gas reserves
for the years 1993, 1992 and 1991 are presented below. Revenues are based on
estimated production of proved reserves from existing and planned facilities and
on average prices of oil and gas at year-end. Development and production costs
related to future production are based on year-end cost levels and assume
continuation of existing economic conditions. Income tax expense is computed by
applying the appropriate year-end statutory tax rates to pretax future cash
flows less recovery of the tax basis of proved properties, and reduced by
applicable tax credits.
The company cautions readers that the data on the present value of future net
cash flow of oil and gas reserves are based on many subjective judgments and
assumptions. Different, but equally valid, assumptions and judgments could lead
to significantly different results. Additionally, estimates of physical
quantities of oil and gas reserves, future rates of production and related
prices and costs for such production are subject to extensive revisions and a
high degree of variability as a result of economic and political changes. Any
subsequent price changes will alter the results and the indicated present value
of oil and gas reserves. It is the opinion of the company that this data can be
highly misleading and may not be indicative of the value of underground oil and
gas reserves.
<TABLE>
<CAPTION>
United Far Other
Millions of Dollars States East Foreign Total
- - - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Revenues (b) $12,260 $ 6,049 $ 1,467 $19,776
Production costs 5,114 1,192 640 6,946
Development costs (a) 1,980 1,006 201 3,187
Income tax expense 1,172 1,788 263 3,223
- - - -----------------------------------------------------------------------------------
Net future cash flow 3,994 2,063 363 6,420
10% annual discount 1,333 546 124 2,003
- - - -----------------------------------------------------------------------------------
Present value of future net cash flow $ 2,661 $ 1,517 $ 239 $ 4,417
===================================================================================
1992
Revenues (b) $16,222 $ 6,907 $ 1,999 $25,128
Production costs 5,841 1,419 891 8,151
Development costs (a) 2,303 1,227 275 3,805
Income tax expense 2,295 2,011 385 4,691
- - - -----------------------------------------------------------------------------------
Net future cash flow 5,783 2,250 448 8,481
10% annual discount 2,176 688 192 3,056
- - - -----------------------------------------------------------------------------------
Present value of future net cash flow $ 3,607 $ 1,562 $ 256 $ 5,425
===================================================================================
1991
Revenues (b) $15,532 $ 7,221 $ 2,158 $24,911
Production costs 5,400 1,422 859 7,681
Development costs (a) 2,388 874 271 3,533
Income tax expense 2,135 2,207 412 4,754
- - - -----------------------------------------------------------------------------------
Net future cash flow 5,609 2,718 616 8,943
10% annual discount 2,405 833 277 3,515
- - - -----------------------------------------------------------------------------------
Present value of future net cash flow $ 3,204 $ 1,885 $ 339 $ 5,428
===================================================================================
(a) Includes dismantlement and abandonment costs.
(b) The average crude oil prices per barrel at year end used in this calculation
are as follows:
1993 $ 10.08 $ 14.96 $ 11.78
1992 14.70 18.97 16.44
1991 13.96 19.91 17.09
</TABLE>
51
<PAGE>
CHANGES IN PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Millions of Dollars 1993 1992 1991
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Present value at beginning of year $ 5,425 $ 5,428 $ 7,630
Discoveries and extensions, net of estimated future costs 626 807 981
Net purchases and sales of proved reserves (a) (52) (119) (42)
Revisions to prior estimates:
Prices net of estimated changes in production costs (2,026) 170 (3,605)
Future development costs 92 (262) (279)
Quantity estimates (403) (230) (177)
Production schedules and other 91 262 (310)
Accretion of discount 741 688 1,076
Development costs related to beginning of year reserves 764 531 580
Sales of oil and gas, net of production costs of $634 million
in 1993, $655 million in 1992 and $716 million in 1991 (1,653)(b) (1,709)(c) (1,764)
Net change in income taxes 812 (141) 1,338
- - - ------------------------------------------------------------------------------------------------------------
Present value at end of year $ 4,417 $ 5,425 $ 5,428
============================================================================================================
</TABLE>
(a) Purchases of reserves were valued at $39 million, $56 million and $168
million in 1993, 1992 and 1991, respectively. Sales of reserves,
including the sale of future production, were valued at $91 million,
$175 million and $210 million for the same years, respectively.
(b) Excludes the 1992 sale of future production for which income was
recognized in 1993 but cash was received in 1992.
(c) Excludes the 1991 sale of future production for which income was
recognized in 1992 but cash was received in 1991.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1993 Quarters 1992 Quarters
------------------------------------- -------------------------------------
Millions of Dollars 1st 2nd 3rd 4th 1st 2nd 3rd 4th
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $2,204 $2,041 $1,907 $1,925 $2,385 $2,632 $2,485 $2,385
Gross profit /(a)/ 247 215 186 141 115 217 205 223
Net earnings /(b)/ 11 88 70 45 40 66 11 104
- - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The fourth quarters of 1993 and 1992 exclude $16 million and $27 million
for asset write-downs, respectively.
(b) The first quarters of 1993 and 1992 include a charge of $130 million and a
gain of $24 million for the cumulative effect of accounting changes,
respectively.
52
<PAGE>
REVENUE DATA
<TABLE>
<CAPTION>
(Millions of Dollars) 1993 1992 1991
- - - ----------------------------------------------------------
Sales revenues
<S> <C> <C> <C>
Petroleum products $2,895 $ 3,710 $ 3,759
Crude oil and condensate 2,264 2,754 3,027
Chemicals 431 702 1,168
Natural gas 1,104 1,033 954
Geothermal 145 197 204
Natural gas liquids 101 116 117
Minerals 62 80 92
Other 36 47 55
Consumer excise taxes 816 992 1,050
- - - ----------------------------------------------------------
Total 7,854 9,631 10,426
- - - ----------------------------------------------------------
Operating revenues 223 256 305
Other revenues 267 174 160
- - - ----------------------------------------------------------
Total revenues $8,344 $10,061 $10,891
- - - ----------------------------------------------------------
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE: None
----------------------------
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedules and exhibits filed as
part of this annual report:
(1) Financial Statements: See Item 8 on page 25 of this Annual Report
on Form 10-K
(2) Financial Statement Schedules: See Item 8 on page 25 of this
Annual Report on Form 10-K
(3) Exhibits
The Exhibit Index on page 60 of this Annual Report on Form 10-K
lists the exhibits that are filed as part of this report.
(b) Two reports on Form 8-K were filed:
(1) Filed December 8, 1993, Union Oil announced the May 1, 1994,
retirement of Richard J. Stegemeier, the Chief Executive Officer of
the company.
(2) Filed March 2, 1994, the company announced a change in its bylaws
which reduces the
number of directors from 14 to 12, effective April 25, 1994.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNION OIL COMPANY OF CALIFORNIA
(Registrant)
Date: March 28, 1994 By THOMAS B. SLEEMAN
-------------------------
Thomas B. Sleeman
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 28, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
RICHARD J. STEGEMEIER Chairman of the Board
- - - ------------------------ and Chief Executive Officer
Richard J. Stegemeier
ROGER C. BEACH Director, President and
- - - ------------------------ Chief Operating Officer
Roger C. Beach
THOMAS B. SLEEMAN Director, Senior Vice President
- - - ------------------------ and Chief Financial Officer
Thomas B. Sleeman
CHARLES S. McDOWELL Vice President and Comptroller
- - - ------------------------ (Principal Accounting Officer)
Charles S. McDowell
- - - ------------------------ Director
John W. Amerman
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
MacDONALD G. BECKET
- - - ---------------------- Director
MacDonald G. Becket
CLAUDE S. BRINEGAR
- - - ---------------------- Vice Chairman of the Board
Claude S. Brinegar
MALCOLM R. CURRIE
- - - ---------------------- Director
Malcolm R. Currie
RICHARD K. EAMER
- - - ---------------------- Director
Richard K. Eamer
FRANK C. HERRINGER
- - - ---------------------- Director
Frank C. Herringer
JOHN F. IMLE, JR.
- - - ---------------------- Director
John F. Imle, Jr.
DONALD P. JACOBS
- - - ---------------------- Director
Donald P. Jacobs
NEAL E. SCHMALE
- - - ---------------------- Director
Neal E. Schmale
CHARLES R. WEAVER
- - - ---------------------- Director
Charles R. Weaver
MARINA v.N. WHITMAN
- - - ---------------------- Director
Marina v.N. Whitman
</TABLE>
55
<PAGE>
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------------
BALANCE AT SALES AND OTHER BALANCE AT
12/31/92 ADDITIONS RETIREMENTS CHANGES(D) 12/31/93
---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT & EQUIPMENT
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $11,656 $ 891 $ (497)(b) $(24) $ 12,026
Refining, Marketing and Transportation 3,079 236 (386) 16 2,945
--------- ------ ------- ---- ---------
Total 14,735 1,127 (883) (8) 14,971
Chemical Operations 819 11 (81) (70) 679
Geothermal Operations 1,185 53 (302) 4 940
Corporate and Other (a) 1,707 57 (36) 50 1,778
--------- ------ ------- ---- ---------
Total Owned Properties 18,446 1,248 (1,302) (24) 18,368
LEASED PROPERTIES
Total Leased Properties 29 1 - (8) 22
--------- ------ ------- ---- ---------
Total Properties $18,475 $1,249 $(1,302) $(32) $ 18,390
========= ====== ======= ==== =========
ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $ 7,628 $ 725 $ (396)(c) $(13) $ 7,944
Refining, Marketing and Transportation 1,449 120 (265) 41 1,345
--------- ------ ------- ---- ---------
Total 9,077 845 (661) 28 9,289
Chemical Operations 553 21 (71) (44) 459
Geothermal Operations 615 52 (105) - 562
Corporate and Other (a) 1,317 43 (17) - 1,343
--------- ----- ------- ---- ---------
Total Owned Properties 11,562 961 (854) (16) 11,653
LEASED PROPERTIES
Total Leased Properties 17 2 - (5) 14
--------- ------ ------- ---- ---------
Total Properties $11,579 $ 963 $ (854) $(21) $ 11,667
========= ====== ======= ==== =========
</TABLE>
- - - --------------------------------------------
(a) Includes minerals, oil shale and real estate properties
(b) Includes dry hole costs and land relinquishments.
(c) Includes land relinquishments.
(d) Consists mainly of intersegment transfers and foreign currency translation
adjustments.
56
<PAGE>
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1992
-------------------------------------------------------------------
BALANCE AT SALES AND OTHER BALANCE AT
12/31/91 ADDITIONS RETIREMENTS CHANGES(D) 12/31/92
---------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT & EQUIPMENT
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $ 11,547 $639 $ (473)(b) $(57) $ 11,656
Refining, Marketing and Transportation 3,039 201 (143) (18) 3,079
--------- ---- ------ ---- ---------
Total 14,586 840 (616) (75) 14,735
Chemical Operations 991 64 (239) 3 819
Geothermal Operations 1,151 37 (3) - 1,185
Corporate and Other (a) 1,644 18 (151) 196 1,707
--------- ---- ------ ---- ---------
Total Owned Properties 18,372 959 (1,009) 124 18,446
LEASED PROPERTIES
Total Leased Properties 29 - - - 29
--------- ---- ------- ---- ---------
Total Properties $ 18,401 $959 $(1,009) $124 $ 18,475
========= ==== ======== ==== =========
ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $ 7,231 $728 $ (294)(c) $(37) $ 7,628
Refining, Marketing and Transportation 1,449 111 (112) 1 1,449
--------- ---- ------- ---- ---------
Total 8,680 839 (406) (36) 9,077
Chemical Operations 587 24 (69) 11 553
Geothermal Operations 566 58 (9) - 615
Corporate and Other (a) 1,426 42 (138) (13) 1,317
--------- ---- ------- ---- ---------
Total Owned Properties 11,259 963 (622) (38) 11,562
LEASED PROPERTIES
Total Leased Properties 16 1 - - 17
--------- ---- ------- ---- ---------
Total Properties $ 11,275 $964 $ (622) $(38) $ 11,579
========= ==== ======= ==== =========
</TABLE>
- - - --------------------------------------------
(a) Includes minerals, oil shale and real estate properties
(b) Includes dry hole costs and land relinquishments.
(c) Includes land relinquishments.
(d) Consists mainly of intersegment transfers, foreign currency translation
adjustments, and the effect of the UXC merger.
57
<PAGE>
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1991
----------------------------------------------------------------------
BALANCE AT SALES AND OTHER BALANCE AT
12/31/90 ADDITIONS RETIREMENTS CHANGES/(D)/ 12/31/91
--------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT & EQUIPMENT
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $ 11,074 $ 856 $ (409)/(b)/ $ 26 $ 11,547
Refining, Marketing and Transportation 2,722 479 (196) 34 3,039
--------- ------ ----- ---- ---------
Total 13,796 1,335 (605) 60 14,586
Chemical Operations 922 86 (10) (7) 991
Geothermal Operations 1,163 24 (35) (1) 1,151
Corporate and Other /(a)/ 1,630 24 (21) 11 1,644
--------- ------ ----- ---- ---------
Total Owned Properties 17,511 1,469 (671) 63 18,372
LEASED PROPERTIES
Total Leased Properties 32 1 - (4) 29
--------- ------ ----- ---- ---------
Total Properties $ 17,543 $1,470 $ (671) $ 59 $ 18,401
========= ====== ====== ==== =========
ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION
OWNED PROPERTIES
Petroleum Operations:
Exploration and Production $ 6,778 $ 676 $ (222)/(c)/ $ (1) $ 7,231
Refining, Marketing and Transportation 1,448 98 (195) 98 1,449
--------- ------ ----- ---- ---------
Total 8,226 774 (417) 97 8,680
Chemical Operations 545 37 (8) 13 587
Geothermal Operations 530 59 (22) (1) 566
Corporate and Other /(a)/ 1,400 132 (12) (94) 1,426
--------- ------ ----- ---- ---------
Total Owned Properties 10,701 1,002 (459) 15 11,259
LEASED PROPERTIES
Total Leased Properties 17 2 - (3) 16
--------- ------ ----- ---- ---------
Total Properties $ 10,718 $1,004 $ (459) $ 12 $ 11,275
========= ====== ===== ==== =========
</TABLE>
- - - --------------------------------------------
(a) Includes minerals, oil shale and real estate properties
(b) Includes dry hole costs and land relinquishments.
(c) Includes land relinquishments.
(d) Consists mainly of intersegment transfers and foreign currency translation
adjustments.
58
<PAGE>
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
CHARGED OR CHARGED OR
BALANCE AT (CREDITED) (CREDITED) DEDUCTIONS BALANCE
BEGINNING TO COSTS & TO OTHER FROM AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES (A) OF PERIOD
- - - ----------- --------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR 1993
Amounts deducted from
applicable assets:
Accounts and notes receivable $18 $11 $(2) $(11) $16
Investments and long-term receivables $ 5 $ 2 $(2) $ (1) $ 4
YEAR 1992
Amounts deducted from
applicable assets:
Accounts and notes receivable $15 $16 $ 1 $(14) $18
Investments and long-term receivables $ 6 $ - $(1) $ - $ 5
YEAR 1991
Amounts deducted from
applicable assets:
Accounts and notes receivable $16 $15 $(2) $(14) $15
Investments and long-term receivables $ 5 $ 1 $ - $ - $ 6
</TABLE>
--------------------------------
(a) Represents receivables written off, net of recoveries, reinstatements, and
losses sustained.
59
<PAGE>
UNION OIL COMPANY OF CALIFORNIA
EXHIBIT INDEX
Exhibit 3.1 Certificate of Incorporation of Union Oil
(incorporated by reference to Exhibit 3 to Union
Oil's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 1-554).
Exhibit 3.2 Bylaws of Union Oil (incorporated by reference
to Exhibit 3 to Union Oil's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992,
File No. 1-8483. Amendments to bylaws to be
effective on and after April 25, 1994 are
incorporated by reference to Union Oil's Current
Report on Form 8-K, dated March 2, 1994, File
No. 1-554).
Exhibit 4 Instruments Defining the Rights of Security
Holders, Including Indentures.
The following Exhibits 10.1 through 10.7 are compensatory plans or agreements
required to be filed by Item 601 (b) (10) (iii) (A) of Regulation S-K.
Exhibit 10.1 The Management Incentive Program (incorporated
by reference to Unocal Corporation's
Registration Statement on Form S-8, File
No. 33-43231, filed October 8, 1991).
Exhibit 10.2 The Long-Term Incentive Plan of 1985
(incorporated by reference to Unocal
Corporation's Registration Statement on Form
S-8, File No. 2-93452, filed September 28,
1984).
Exhibit 10.3 Supplemental Retirement Plan for Key Management
Personnel, as amended and effective January 1,
1989 (incorporated by reference to Exhibit 10.3
to Union Oil's Annual Report on Form 10-K for
the year ended December 31, 1990, File No.
1-554).
Exhibit 10.4 Other Compensatory Arrangements (incorporated by
reference to Exhibit 10.4 to Union Oil's Annual
Report on Form 10-K for the year ended December
31, 1990, File No. 1-554).
Exhibit 10.5 Directors' Restricted Stock Plan of 1991
(incorporated by reference to Exhibit B to
Unocal's Proxy Statement for its 1991 Annual
Meeting of Shareholders, File No. 1-8483).
Exhibit 10.6 Form of Indemnity Agreement between Union Oil
and each of its directors (incorporated by
reference to Exhibit A to Unocal's Proxy
Statement for its 1987 Annual Meeting of
Shareholders, File No. 1-8483).
Exhibit 10.7 Consulting Agreement, dated April 26, 1993,
between Union Oil Company of California, dba
Unocal, and Claude S. Brinegar.
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges
Exhibit 23 Consent of Coopers & Lybrand
60
<PAGE>
EXHIBIT 4
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
Documents incorporated by reference:
Common Stock, par value Certificate of Incorporation and Bylaws,
$2-1/12 per share see Exhibit 3 on the Exhibit Index.
Shelf registration statement Filed in Union Oil Company of California and
Unocal Corporation Form S-3, #33-1924 and
#33-1924-01, Exhibit 4.1, dated December 11,
1985.
9-3/4% Notes due 1994 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated March 3, 1986.
8-1/2% Notes due 1994 Filed in Union Oil Company of California and
8-3/4% Notes due 1997 Unocal Corporation Prospectus Supplement to
above Form S-3, dated March 23, 1987.
Shelf registration statement Filed in Union Oil Company of California and
Unocal Corporation Form S-3, #33-21825 and
#33-21825-01, dated May 13, 1988. Also,
constitutes Post-effective Amendment no. 2
with respect to above Form S-3, #33-1924 and
#33-1924-01.
Medium-Term Notes, Series A Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated September 19, 1988.
9.625% Notes due 1995 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated May 7, 1990.
9.75% Notes due 2000 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated November 15, 1990.
<PAGE>
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(CONTINUED)
Documents incorporated by reference:
Shelf registration statement Filed in Union Oil Company of California
and Unocal Corporation Form S-3, #33-38505
and #33-38505-01, dated January 2, 1991.
Also, constitutes Post-effective Amendment
no. 1 with respect to above Form S-3, #33-
21825 and #33-21825-01.
Medium-Term Notes, Series B Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplements to
above Form S-3, dated January 30, 1991 and
February 18, 1994.
9.25% Debentures due 2003 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated January 31, 1991.
9.125% Debentures due 2006 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated February 12, 1991.
8.75% Notes due 2001 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated August 14, 1991.
6.375% Notes due 2004 Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplement to
above Form S-3, dated February 1, 1994.
Any instrument defining the rights of security holders with respect to
nonregistered long-term debt not being filed on the basis that the amount of
securities authorized does not exceed 10 percent of the total assets of the
company and subsidiaries on a consolidated basis will be furnished to the
Commission upon request.
<PAGE>
EXHIBIT 10.7
CONSULTING AGREEMENT
--------------------
WHEREAS, Claude S. Brinegar (hereinafter referred to as "Consultant") has agreed
to provide consulting services to Union Oil Company of California, dba Unocal
and Unocal Corporation (hereinafter jointly referred to as "Unocal") and
WHEREAS, Consultant and Unocal wish to establish the terms and conditions
under which such services are to be rendered.
THEREFORE, Consultant and Unocal agree as follows:
1. Period of Agreement
-------------------
This Agreement shall be effective for a term beginning May 1, 1993 and ending on
April 30, 1994. This Agreement shall automatically terminate on April 30, 1994
without the need for any prior notification. Consultant's confidentiality
obligations and Unocal's rights in the work performed shall survive termination
of this Agreement regardless of the time or reason for termination. This
Agreement may only be extended for an additional term by written agreement of
the parties and the prior approval of the Board of Directors.
2. Services
--------
Any consulting services shall be scheduled as mutually determined by Consultant
and by Unocal Corporation's Chief Executive Officer (hereinafter "CEO"). No
services shall be provided without the prior request of said CEO. Services in
excess of 30 consulting days during the term of this Agreement shall require the
prior written authorization of Unocal's CEO. Attendance at meetings other than
at a Unocal location shall require prior written approval of Unocal's CEO if
such attendance is to be treated as compensable under this Agreement.
During the period of this Agreement, Consultant may provide services for other
clients and/or employers, subject to the confidentiality requirements of this
Agreement and any other confidentiality agreement previously signed by
Consultant. Consultant will not provide services for another client which could
result in a conflict of interest. Therefore, Consultant agrees to inform Unocal
in advance of providing services to other clients and/or employers.
3. Fees and Expenses
-----------------
Consultant's retainer shall be Thirty-Seven Thousand Five Hundred Dollars
($37,500) per year payable in monthly installments of Three Thousand One Hundred
and Twenty-Five Dollars. If Consultant renders services for more than 15
calendar days during the term of this Agreement, such additional days shall be
compensated at the rate of Two Thousand Five Hundred Dollars ($2500) per day.
Consultant shall be entitled to reimbursement for reasonable travel and business
expenses associated with the performance of services under this Agreement.
Travel time to and from a consulting site shall not count as consulting time.
Unocal shall provide Consultant with secretarial, clerical and analytic
assistance at a Unocal office at Unocal's expense as reasonably necessary
for Consultant to provide services hereunder.
Consultant shall submit an invoice for each month to the Office of Unocal's
CEO stating the services rendered, the consulting time and the amount of any
reimbursable expenses, including appropriate documentation thereof. Payment for
services will normally be made within 15 calendar days of the submission of such
invoice.
4. Independent Contractor
----------------------
Any services shall be performed by Consultant as an independent contractor.
Consultant is not authorized to enter into any agreement on behalf of Unocal
with any third party. Consultant shall not provide any service as an employee
or agent of Unocal. Therefore, payments shall not constitute wages subject to
Federal or State
<PAGE>
withholding taxes. No services hereunder shall entitle Consultant to any Unocal
employee benefit or privilege or in any way affect benefits paid to Consultant
either currently or to be paid in the future in connection with any employee
benefit plan of Unocal or any affiliated company. This Agreement shall not
reduce or offset any fees or benefits the Consultant is otherwise entitled to as
a Director of Unocal.
5. Confidentiality
---------------
Any proprietary information relating to Unocal and/or its employees and their
current or previous work shall continue to be and remain the sole and exclusive
property of Unocal. Consultant shall not use such information, release such
information, or allow the release of such information unless Unocal's CEO
expressly so authorizes by written notice directed to Consultant. All
confidentiality obligations shall survive this Agreement, including any
extensions thereof.
This provision is not intended to limit Consultant providing services for others
so long as confidential and/or proprietary information is not used or disclosed
by Consultant in such activities.
6. Services Performed
------------------
Consultant's service shall be those determined by Unocal's CEO.
7. Death or Incompetency of Consultant
-----------------------------------
Notwithstanding any other provision of this Agreement, if Consultant dies or is
adjudged incompetent this Agreement shall terminate and no further payments
shall be due for any period following the month in which such death or
incapacity occurs. Any payment due will be made to Consultant's designated
beneficiary after submission of proof of such event to Unocal on such forms
as Unocal may require. If no beneficiary designation has been made, payment
shall be to Consultant's spouse. If there is a dispute regarding the proper
party to receive any payments under this Agreement, Unocal may make payment
to a court having jurisdiction for the disposition of such amounts and, upon
such payment, the obligations of Unocal under this Agreement shall be fully
discharged.
8. No Assignment of Payments
-------------------------
Except for Consultant's designation of a beneficiary, Consultant's right to
payments under this Agreement shall not be assigned.
Consultant's right to receive payments under this Agreement is not secured by
any specific property or assets of Unocal or any of its subsidiaries.
9. Applicable Law
--------------
This Agreement has been delivered in California and shall be construed in
accordance with and governed by the laws of California. Whenever possible each
provision of this Agreement shall be interpreted so as to be valid under
applicable law. However, if any provision of this Agreement shall be held
invalid under applicable law by a Court having jurisdiction, such provision
shall be ineffective only to the extent of such invalidity, without invalidating
the remainder of such provision or the other provisions of this Agreement.
10. No Assignment or Subcontracting of Services
-------------------------------------------
This Agreement is for Consultant's unique personal services. As such,
Consultant may not assign or subcontract Consultant's performance hereunder
without the prior express written agreement of Unocal's CEO, directed to
Consultant. Any attempt to make such an assignment shall be void.
<PAGE>
11. Waiver
------
Neither Unocal nor Consultant shall be deemed to have waived any right
available to either party under this Agreement or applicable law unless such
waiver is set forth in a written notice signed by an authorized representative
of the party to be bound and directed to the other party. Unless specifically
stated in such notice, no waiver shall apply to any other right, howsoever
available, or to the same right on a future occasion.
12. Modification
------------
This Agreement may not be altered or amended except by an agreement in writing
signed by Consultant and by Unocal's CEO.
13. Entire Agreement
----------------
This Agreement is the entire Agreement between Consultant and Unocal and
cancels and supersedes any previous agreement relating to the subject matter of
this Agreement except any secrecy or confidentiality agreement.
14. Section Titles
--------------
Section titles are for reference only and are without any substantive content
whatsoever.
15. Rights in Work Produced
-----------------------
Unocal shall have the right to all work produced by or for Consultant
pursuant to this Agreement, including without limitation, computer programs,
written reports, and scientific processes. This provision shall survive the
termination of this Agreement, including any extensions thereof.
UNION OIL COMPANY OF CALIFORNIA dba: UNOCAL
By: /s/ RICHARD J. STEGEMEIER
Print Name: Richard J. Stegemeier
Title: Chairman & Chief Executive Officer
Date: 4/26/93
CONSULTANT
Signature: /s/ CLAUDE S. BRINEGAR
Print Name: Claude S. Brinegar
Date: April 26, 1993
<PAGE>
EXHIBIT 12
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ----- ------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations $ 344 $ 197 $ 75 $ 491 $ 329
Provision for income taxes 268 153 139 84 218
Minority interest - 5 6 26 36
----- ----- ----- ------ ------
Earnings subtotal (a) 612 355 220 601 583
Fixed charges included in earnings:
Interest expense 304 379 395 419 421
Interest portion of rentals (b) 55 61 67 60 55
----- ----- ----- ------ ------
Subtotal 359 440 462 479 476
Earnings available before fixed charges $ 971 $ 795 $ 682 $1,080 $1,059
===== ===== ===== ====== ======
Fixed charges:
Fixed charges included
in earnings $ 359 $ 440 $ 462 $ 479 $ 476
Capitalized interest 30 34 40 10 23
----- ----- ----- ------ ------
Total fixed charges $ 389 $ 474 $ 502 $ 489 $ 499
===== ===== ===== ====== ======
Ratio of earnings to fixed charges (a) 2.5 1.7 1.4 2.2 2.1
</TABLE>
- - - -------------------------
(a) Includes pretax asset write-downs
of: $ 19 $ 50 $ 106 $ 127 $ 62
The ratio of earnings, excluding
asset write-downs, to fixed
charges would be: 2.5 1.8 1.6 2.5 2.3
(b) Calculated as one-third of operating rental expense.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statement of Union Oil Company of California, Registration Statement on Form S-3
(No. 33-38505) of our report, dated February 14, 1994, which appears on page 27
of this Annual Report on Form 10-K.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Los Angeles, California
March 31, 1994
