<PAGE>
1994
--------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K405/A
(Amendment No. 1)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
-----------------
Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 West 5th Street, Los Angeles, California 90017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 977-7600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 15, 1995 (based upon the average of the high and low
prices of these shares on the New York Stock Exchange Composite Transactions
listing) was $6,884 million.
Shares of Common Stock outstanding as of March 15, 1995: 245,234,398
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or about April 11, 1995) are incorporated by reference into Part III.
<PAGE>
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
Unocal Corporation was incorporated in Delaware on March 18, 1983, to
operate as the parent of Union Oil Company of California (Union Oil), which was
incorporated in California on October 17, 1890. Virtually all operations are
conducted by Union Oil and its subsidiaries. The terms "Unocal" and "the
company" as used in this report mean Unocal Corporation and its subsidiaries
except where the context indicates otherwise.
Unocal is a fully integrated, 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; and the manufacture, purchase,
transportation and marketing of petroleum products. The company is also engaged
in the exploration for, and the production and sale of, geothermal resources;
and the manufacture, transportation and marketing of chemicals for agricultural
and industrial uses. Other operations include the production and marketing of
specialty minerals, and real estate development and sales.
Unocal competes in a challenging business environment of global
competition, political instability, rapid technological developments, volatile
oil and gas prices, and rising costs of environmental regulations. In order to
meet these challenges, the company has gone through many changes in recent
years. The company has sold or shut down most businesses that were marginally
related to its core activities or that were not a good strategic fit for Unocal.
Also, the company has withdrawn from several nonstrategic oil and gas areas of
the United States over the past several years. The company continues to
evaluate its portfolio of U.S. oil and gas producing properties and expects to
sell additional non-core properties, including various ones in the Central U.S.
and in California, if adequate values can be obtained.
The company continues to follow its plan for growth with a strategy firmly
focused on Unocal's basic businesses and core competitive strengths. The plan
focuses on improving cash flow from operations and strengthening profitability.
Unocal expects to accomplish this plan primarily by increasing energy resource
production and continuing to emphasize cost control and improvement in all areas
of operations. Unocal's long-term growth strategy is to develop its significant
inventory of domestic oil and gas reserves in the Gulf of Mexico area and to
expand its extensive oil, gas and geothermal operations in Southeast Asia.
Unocal also expects to participate in the development of the energy resources
in the Caspian Sea and offshore Myanmar.
In mid-1994, Unocal underwent a major reorganization of the company's
management structure to focus on three critical business activities: operations,
growth and finance. For additional information on the company's reorganization,
see Management's Discussion and Analysis under Item 7 of this report.
Unocal recorded a net loss of $153 million in 1994 as a result of a change
in accounting policy, charges for environmental remediation and other special
items. In 1993, the company reported net earnings of $213 million. Excluding the
special charges, Unocal's adjusted net earnings from operations were $300
million in 1994, compared with $347 million in 1993. The 1994 operating earnings
reflected higher natural gas production, higher foreign crude oil production,
stronger earnings from agricultural products and lower domestic oil and gas
operating and depreciation expense. However, these positive factors could not
make up for the lower crude oil and natural gas prices, and lower margins in the
company's West Coast refining and marketing operations. For a 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.
1
<PAGE>
PETROLEUM OPERATIONS
OIL AND GAS PRODUCTION ACTIVITIES
UNITED STATES
The company holds approximately 921,000 net acres of proven lands in 20
states. Most of these lands are located in Texas, Louisiana, California, Alaska,
Oklahoma, and New Mexico. Proven acreage in federal offshore exploration and
production areas are included in the contiguous states.
Unocal's domestic crude oil production comes principally from fields in
Alaska (30%), California (24%), Texas (20%) and Louisiana (18%). Approximately
40% of domestic natural gas production is from offshore and onshore fields in
Louisiana, with most of the balance coming from Texas (27%), Alaska (12%),
California (7%), and New Mexico (4%).
Unocal has varying ownership interests in 26 natural gas processing plants
located near major gas fields in the United States. The company operates 14 of
these plants and has full ownership in five. All 26 of the processing plants
were active in 1994.
In 1994, the company's natural gas production in the U.S. averaged 1,095
million cubic feet per day, a 15 percent increase from 1993. This reflects the
results of a three-year accelerated drilling program initiated in 1993 to
increase production of the company's extensive inventory of proved undeveloped
oil and gas resources, primarily in the Gulf of Mexico area. Average crude oil
production in 1994 was 137,300 barrels per day, down seven percent from 1993,
primarily reflecting the sale of nonstrategic producing properties and natural
decline in the fields. The company expects no additional oil and gas production
increases before 1996.
Most of the company's crude oil produced in the United States is either
delivered to the company's West Coast refineries or sold to third parties. A
substantial portion of the natural gas produced domestically is sold to third
parties under contracts having terms of less than two years. The company
believes that it has sufficient production capacity in the U.S. to meet the
deliveries. 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.
While Unocal's domestic natural gas production in 1995 is expected to stay
at about the same level as in 1994, production in the Gulf of Mexico could rise.
Three fields alone--Mobil Block 916 offshore Alabama, the Fresh Water Bayou
field onshore Louisiana, and Ship Shoal 253 F offshore Louisiana--are expected
to provide 75 million cubic feet per day of additional production in 1995.
At Mobil Block 916, offshore Alabama, a deep gas development project,
Unocal drilled and completed two gas wells in 1994. Production from these and
two shallower wells were placed on production in early 1995. The four wells are
currently producing 50 million cubic feet of gas per day. Unocal has a 46
percent working interest.
At the Fresh Water Bayou field in Vermilion Parish, Louisiana, the first
two wells in the field were placed on production in 1994 and another began
production in 1995. The wells are currently producing at a combined rate of 115
million cubic feet of natural gas per day. Two additional wells are planned for
1995. Unocal is the operator of the Fresh Water Bayou field and holds a 50
percent working interest.
Unocal has a 50 percent working interest in Ship Shoal 253 F offshore
Louisiana. Three wells were drilled in 1994. Production is expected to peak at
about 45 million cubic feet of gas per day in 1995.
Offshore Louisiana, Unocal has an 87 percent working interest in Ship Shoal
208. The company plans to drill five development wells in 1995 and expects
additional crude production of two thousand barrels per day from the five
wells.
In the Cook Inlet of Alaska, additional drilling has increased production
from the Chakachatna platforms. The net increase from inception of the
development program in mid-1993 through December 31, 1994, amounted to about
2,100 barrels per day of oil equivalent. The 1995 drilling program includes
eight additional development wells.
In July 1994, Unocal sold its interest in the Point Pedernales Unit,
offshore California, and related onshore fields and facilities. Unocal's net
daily production from the properties was approximately 2,700 barrels of crude
oil and 1.3 million cubic feet of natural gas. This amounted to about five
percent of Unocal's net daily production of its California operations. The
company continues to evaluate the potential sale of its remaining California oil
and gas assets.
2
<PAGE>
In December 1994, an agreement was reached in which Unocal acquired
Marathon's interest in the onshore Swanson River field and the operatorship of
the Dolly Varden and Steelhead platforms and the Trading Bay production facility
in Alaska's Cook Inlet. In return, Marathon took over Unocal's working interest
in the Beaver Creek unit and ownership and operatorship of the Kenai and Cannery
Loop gas fields. This trade of properties in Alaska reflects the company's
continuing strategy to expand production of oil and gas while controlling its
operating costs in and around the Cook Inlet. Unocal is the largest oil producer
in this area, where it operates 10 of the 15 platforms. The company's net share
of oil production is about 20,000 barrels per day.
FOREIGN
Unocal has oil and gas production in six foreign countries: Thailand,
Indonesia, Canada, Netherlands, United Kingdom, and Zaire. The company sells
most of its foreign natural gas production overseas to third parties under long-
term contracts. The crude oil and condensate produced overseas are primarily
sold at spot market prices.
THAILAND. Natural gas and condensate production began in Thailand in 1981
and has since become Unocal's primary gas producing area. In February 1994,
Unocal Thailand's cumulative gas sales from the Gulf of Thailand exceeded two
trillion cubic feet. Unocal plans continued development of its natural gas
fields in the Gulf of Thailand to sustain production and prepare for future
production increases. Unocal and its partners have spent more than $3.6 billion
developing the offshore gas fields. Unocal's share of estimated capital
expenditures for 1995 is approximately $170 million.
Gross natural gas production averaged about 704 million cubic feet per day
(456 mmcfd net to Unocal) in 1994 and is expected to remain at about the same
level in 1995 due to pipeline constraints. An additional pipeline is being
constructed by the Petroleum Authority of Thailand (PTT) to increase delivery
capacity to onshore facilities. When completed in 1996, the company expects
gross production to rise to about 850 mmcfd (546 mmcfd net to Unocal). Unocal's
net working interests in all eight producing fields average 65 percent.
Unocal has drilled 11 successful delineation wells in the Pailin field,
with 12 additional wells planned for 1995. Unocal intends to negotiate a sales
contract for this new field with PTT before beginning development activities.
Unocal's future development plan in the Gulf of Thailand calls for
delineation and additional development of the eight fields operated by Unocal
under the existing gas sales contracts and the new Pailin field. For the next
four years, the company plans to drill nearly 380 wells and install an
additional 30 wellhead production platforms. Estimated gross capital
expenditures over the four year period are $1.2 billion ($743 million net for
Unocal).
Natural 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 of Thailand.
Unocal's natural gas production in Thailand is sold under long-term
contracts. The contract prices are based on formulas that allow prices to
fluctuate with market prices. The company typically supplied more natural gas to
PTT than is called for in the daily contract quantity provisions of its sales
contracts. In any event, the company's obligation to deliver gas to PTT is
limited to the available economic production from its properties in Thailand.
INDONESIA. Unocal operates six producing oil and gas fields. Discoveries
and extensions have increased production to the highest levels in more than a
decade. Net production in 1994 averaged about 70,000 barrels of oil and 170
million cubic feet of natural gas per day. A water flood project in the Attaka
field is expected to add new reserves in 1995. The Serang and Santan fields are
also slated for further development. Unocal also plans an aggressive exploration
program in 1995, including the most extensive 3-D seismic survey ever undertaken
in the East Kalimantan region.
CANADA. Net crude oil production averaged 14,600 barrels per day in 1994,
down from 16,500 barrels per day in 1993. Daily production of natural gas was 44
million cubic feet, compared with 42 million cubic feet in 1993. The decrease in
crude oil production was primarily the result of production declines in mature
fields and property sales. A one-time drawdown of the Aiken Creek field boosted
the 1994 natural gas production.
Unocal Canada operates the Aitken Creek natural gas storage facility in
Northern British Columbia and has a working interest of approximately 92
percent. Throughout 1993 and 1994, the Aitken Creek Facility was expanded to
increase the storage capacity to 36 billion cubic feet and deliverability to 300
million cubic feet of natural gas per day. Although gas prices did not meet
expectations, the storage and seasonal contracts were finalized prior to the
winter spot price decline so all gas sold was at a premium over spot prices.
3
<PAGE>
NETHERLANDS. Daily gross oil production from Unocal's five offshore fields
averaged 20,100 barrels from 1994, up 11,500 barrels from 1993. The increase
reflects a full year production from the Horizon field which began production in
August 1993. Partially offsetting the increase was lower production from the
older four fields due to natural decline.
The Horizon field was discovered in 1982. Unocal's advancements in
horizontal drilling technology made field development economically possible.
Horizontal wells are more productive than conventional wells because they can
access more of the oil-bearing zones.
Unocal holds an 80 percent working interest in all five fields.
UNITED KINGDOM. Gross production from the Heather field averaged 7,500
barrels of oil per day in 1994, down 7 percent from a year ago. The field is
approaching the end of its production life and is expected to cease production
within the next few years. Unocal holds a 31.25 percent interest in this field.
Zaire. Gross production from five fields averaged 18,100 barrels of oil per
day in 1994, compared with 16,200 barrels per day in 1993. Production from new
fault blocks accounted for the increase in production. Unocal holds a 17.7
percent interest in these fields.
WORLDWIDE OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES
Unocal pursues exploration opportunities and business development projects
to sustain the long-term growth of the company. The company's exploration
activity in high-risk, high-potential wildcat areas is limited to projects that
pass rigorous geotechnical and economic review. Unocal is focusing development
projects and frontier exploration in 20 to 25 targeted geologic trends. This
assures concentration of technical talent and resources on the most promising
trends with the highest potential value to the company.
The company holds approximately 1.6 million net acres of unproved lands in
the United States. Most of these lands are located in Alaska, Texas, Louisiana,
California and Colorado. Unproved acreage in federal offshore exploration and
production areas is included in the contiguous states. Unocal's domestic
exploration activities are mainly concentrated in the Gulf of Mexico.
Unocal is currently pursuing oil and gas exploration and development
opportunities in: Azerbaijan, Myanmar, Trinidad, Pakistan, China, Vietnam, Yemen
and Venezuela.
In Azerbaijan, Unocal is a member of an international consortium of oil
companies selected by the state-owned oil company to evaluate and develop three
Caspian Sea oil fields. In September 1994, the consortium signed a production-
sharing contract that authorizes the consortium to develop the Azeri, Chirag and
deep-water portions of the Guneshli fields, which lie in about 400 feet of water
120 miles southeast of Baku. The 30-year project is expected to cost
approximately $8 billion.
The fields could have oil reserves of as much as four billion barrels, and
the company's minimum interest in the field is 9.5 percent. No amounts
attributable to the field were included in the company's proven reserves at
year-end 1994. The amount of reserves that may be ultimately classified as
proven will depend on the results of a delineation drilling program, scheduled
for completion in mid-1997, and development of infrastructure, including an
export pipeline that may cross several borders. Political stability in the
Caucasus region is important to the success of the project.
In February 1995, Unocal signed a 30-year natural gas sales contract and a
pipeline agreement with Myanma Oil and Gas Enterprise which opened the way to
full-scale development of the $1 billion Yadana project offshore Myanmar in
which Unocal holds a minimum interest of 28.26 percent. Independent petroleum
engineers have estimated that the field contains 5.7 trillion cubic feet of
proven natural gas reserves. The company's proven reserves booked at year-end
1994 included 269 billion cubic feet of natural gas attributable to the field,
and the company expects to book additional reserves in future periods. The
success of the project and the timing of completion of production platforms,
pipeline facilities and other infrastructure for the project will depend, in
part, on political stability in the region. The company is currently examining
other exploration opportunities in Myanmar.
In Trinidad, Unocal has tested the second of two wells drilled on Block
89-3 in the Caribbean Sea, and did not identify any commercial quantities of oil
and gas resources. The company acquired the prospect in 1993 through a
4
<PAGE>
license from the Republic of Trinidad and Tobago that requires the drilling of
three wells in three years. Drilling of the third and final well is expected to
commence in late spring of 1995, depending on drilling rig availability.
In February 1995, the company signed a three-year exploration agreement
with the government of Pakistan covering three onshore blocks. The three blocks
cover approximately 4.5 million acres in the natural gas-prone Middle Indus
Valley. The company will conduct seismic work beginning in mid-1995, with
possible exploration drilling in 1997.
In China, Unocal is working closely with the Chinese National Offshore Oil
Corporation and the Chinese National Petroleum Corporation, which have
jurisdiction offshore and onshore, respectively, to identify large scale oil and
gas development projects. Unocal's work is conceptual and long-term in nature
focusing on the East China Sea Bohai Bay, Hainan Island and Sichaun Basin areas.
In Vietnam, the company is currently negotiating with PetroVietnam to
conclude a production sharing contract for Block B in the Gulf of Thailand,
which the company believes would be prospective for natural gas. Unocal,
with co-venturers, is considering bidding on other areas in Vietnam.
In light of the changing political climates and relationships between
international oil companies and host governments in the foregoing countries and
other parts of the world, including changes 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 Unocal's activities in these and other
foreign countries during the coming years.
5
<PAGE>
Operating and Reserve Statistics
Set forth below are consolidated oil and gas reserve and operating data:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net proved reserves at year end: (a)
Crude oil and condensate - million barrels
United States 419 483 506
Foreign 278 281 288
----- ----- -----
Total 697 764 794
Natural gas - billion cubic feet
United States 3,580 3,727 3,831
Foreign 3,331 2,905 2,906
----- ----- -----
Total 6,911 6,632 6,737
Net daily production: (a)
Crude oil and condensate - thousand barrels
United States 137 148 151
Foreign 123 98 100
----- ----- -----
Total 260 246 251
Natural gas - million cubic feet
United States 1,095 952 933
Foreign 671 647 647
----- ----- -----
Total 1,766 1,599 1,580
Natural gas liquids - thousand barrels
Leasehold (b) 17 16 13
Plant 5 4 5
----- ----- -----
Total 22 20 18
Natural gas sales to public - million cubic feet daily
United States 873 752 766
Foreign 656 670 661
----- ----- -----
Total 1,529 1,422 1,427
</TABLE>
For additional information regarding oil and gas financial data, and oil
and gas reser ve data and its related present value of future net cash flow, see
pages 56 through 61 of this report.
During 1994, 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 production sharing contracts 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, 1994
(thousands of acres)
---------------------------------------------
Proven Acreage Prospective Acreage
-------------- -------------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
United States 1,314 921 2,218 1,621
Far East 405 247 11,766 6,941
Other Foreign 243 134 5,667 2,702
----- ----- ------ ------
Total 1,962 1,302 19,651 11,264
===== ===== ====== ======
</TABLE>
Producible Oil and Gas Wells
<TABLE>
<CAPTION>
As of December 31, 1994
----------------------------------------------
Oil Gas
-------------- --------------------
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
United States 6,425 4,458 1,711 816
Far East 204 145 382 284
Other Foreign 1,034 435 111 52
----- ----- ----- -----
Total 7,663 5,038 2,204 1,152
===== ===== ===== =====
</TABLE>
The company had 171 gross and 114 net producible wells with multiple
completions.
Drilling in Progress
<TABLE>
<CAPTION>
As of December 31, 1994
-----------------------
Oil and Gas Wells
-----------------------
<S> <C> <C>
Gross Net
----- ---
United States 23 12
Far East 40 26
Other Foreign 4 2
-- --
Total 67 40
== ==
</TABLE>
The company had two waterflood projects in process of installation
at December 31, 1994.
Net Oil and Gas Wells Completed and Dry Holes
<TABLE>
<CAPTION>
Productive Dry
---------------- ----------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
United States 7 9 5 10 11 11
Far East 9 4 -- 3 3 4
Other Foreign 4 1 -- 6 4 4
--- --- --- --- --- ---
Total 20 14 5 19 18 19
=== === === === === ===
Development
United States 137 164 155 2 7 8
Far East 50 60 68 4 4 4
Other Foreign 19 17 17 4 2 4
--- --- --- --- --- ---
Total 206 241 240 10 13 16
=== === === === === ===
</TABLE>
7
<PAGE>
REFINING, MARKETING AND TRANSPORTATION ACTIVITIES
REFINING
Unocal owns and operates three refineries in California. The company,
through a subsidiary, owns a 50 percent interest in The UNO-VEN Company which
operates a refinery near Chicago, Illinois.
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 and sulfur. 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 (50 percent) 73,500
</TABLE>
In 1994, Unocal converted its refining system to produce reformulated
gasoline (RFG) for Southern California that meets federal Environmental
Protection Agency guidelines. The fuel was due in the market by January 1, 1995.
Major construction is ongoing at both the Los Angeles and San Francisco
refineries to prepare for the manufacturing of reformulated gasoline by March 1,
1996 that will meet more stringent standards for reduced vehicle emissions by
the California Air Resources Board (CARB).
In order to meet the 1995 federal and 1996 California fuel regulations, the
company spent approximately $160 million during 1994 in capital expenditures for
RFG. The company plans to spend an additional $240 million in 1995 and $50
million in 1996 for RFG.
In 1994, Unocal was granted a United States patent for reformulated
gasolines that will meet the 1996 CARB standards for reduced emissions. The
company expects to announce terms of a licensing program in April 1995.
During 1994, the company completed installation of the main components of a
gas-oil hydrotreater moved from its closed shale-oil facility in Colorado to the
Carson plant. The unit began operation in January 1995 and is expected to
improve the quality of gas-oil feedstocks by removing sulfur and nitrogen
compounds. A hydrogen plant from the shale-oil facility will also be installed
in 1995 at the San Francisco Refinery. The hydrogen plant project, which is
expected to cost $20 million, will be used to manufacture RFG.
The company's input to crude oil processing units and refinery production
data, including 50 percent of the volumes of UNO-VEN, are shown below.
- ---------------------------
* Produces unfinished products for further processing at the company's San
Francisco and Los Angeles refineries.
8
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------
Thousand Barrels per day
------------------------------
<S> <C> <C> <C>
Input to crude oil processing units
Crude oil 279 273 269
Other materials 16 15 17
--- --- ---
Total 295 288 286
=== === ===
Refinery production
Gasoline 158 158 152
Kerosine, heating oil and diesel fuel 75 72 72
Fuel oil 18 19 24
Other products 73 68 64
--- --- ---
Total 324 317 312
=== === ===
</TABLE>
MARKETING
Unocal principally markets gasoline and other refined petroleum products in
the western United States under the "Unocal 76" trade name. Gasoline is
marketed, directly or through marketers, to consumers at retail service
stations. Substantially all retail outlets, including locations owned and leased
by the company, are operated by independent dealers. The retail outlets also
sell branded tires, batteries and other automobile accessories. In addition, jet
fuels, diesel fuel, lube oil, and heavy fuel oil are marketed to commercial
users. The company's crude supply and transportation group also markets crude
oil produced by Unocal or purchased from others.
Unocal's retail marketing covers six western states: California, Arizona,
Nevada, Hawaii, Washington and Oregon. The company has approximately 13.5
percent market share in the greater Los Angeles metropolitan area, which is one
of the world's largest and most competitive regional gasoline markets. The West
Coast marketing network includes 200 wholesale marketing stations and terminals,
and approximately 1,600 service stations.
In an effort to focus on a changing market, the company is moving ahead
with a system-wide reformatting program that adds new ancillary businesses to
the company's service stations. These include FastBreak convenience stores,
ProWash and 78 CarCare services and franchise fast food restaurants. The company
plans to have about 75 multiple format stations operating in California by the
end of 1995. The company also expects to improve pumpability at about 120 retail
sites in 1995 by installing credit card readers at the dispensers and
reconfiguring the service islands. Planned capital expenditures for marketing
operations in 1995 approximate $50 million, mostly for reformatting service
stations in the western United States.
The company's sales volumes of refined products, crude oil and natural gas
liquids, including 50 percent of the volumes of UNO-VEN, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------
Thousand Barrels Per Day
----------------------------------
<S> <C> <C> <C>
Petroleum Products
Gasoline 175 194 235
Kerosine, heating oil and diesel fuel 85 93 121
Fuel Oil 13 13 17
Other products 43 45 44
--- --- ---
Total 316 345 417
=== === ===
Crude Oil
Sales 408 375 414
Purchases 397 371 421
Natural gas liquids 23 22 24
</TABLE>
9
<PAGE>
The decline in sales volumes from 1992 was due to the sale of the
auto/truckstops and continued phase-out of the company's marketing operations in
the southeastern United States.
TRANSPORTATION
Unocal's petroleum supply and transportation operations provide important
support functions, keeping refineries supplied with feed stocks and transporting
products to market. A substantial part of Unocal's crude oil production and
purchases is transported to the company's refineries or to selling locations by
approximately 8,800 miles of raw material pipelines which Unocal owns, wholly or
partially, or leases. Unocal also has interests in approximately 7,400 miles of
wholly owned or joint venture refined product 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 liquid petroleum products consumed in its 13-state market area.
Severe floods in East Texas in mid-October 1994 resulted in damage to the
pipelines carrying products from Houston to the Northeast. Temporary pipelines
were installed to bypass the breaks in Colonial Pipeline's main gasoline and
distillate lines.
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 1994, TAPS oil throughput averaged 1.6 million barrels per day, of
which Unocal's share was approximately 22,000 barrels per day.
Unocal's marine fleet at year-end 1994 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.
In August 1994, Unocal acquired a 5 percent share in the Pacific Pipeline
Project, a 130,000-barrel-per-day pipeline that will carry crude oil from the
southern San Joaquin Valley to refineries in the Los Angeles basin. The Pacific
Pipeline is expected to begin service in 1996 and will replace tankers, trucks
and trains currently being used.
THE UNO-VEN COMPANY (UNO-VEN)
UNO-VEN, a refining and marketing partnership in the Midwest, owns the
Chicago Refinery, 11 product terminals, two 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 crude as feedstock for the refinery through the year 2009.
The purchase prices of crude oil are tied to refined product prices at the time
of delivery. While this arrangement limits UNO-VEN's refining margins, it has
provided UNO-VEN with earnings stability. All products produced from its
refinery operations are marketed under the "76" trade name. UNO-VEN supplies,
directly or through jobbers and marketers, approximately 2,500 service stations.
UNO-VEN's wholesale marketing and bulk distribution network consists of 250
stations.
A major turnaround was conducted at the UNO-VEN refinery in 1994. In
addition to normal inspection and maintenance, the work included significant
safety enhancements at the hydrofluoric alkylation unit and other projects
expected to improve efficiency and product yields.
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 PDV America Corp., (Petroleos de Venezuela America Corp.). PDV America
Corp. is a wholly owned indirect subsidiary of PDVSA.
CHEMICALS, CARBON AND MINERALS OPERATIONS
Unocal is involved in the production and marketing of agricultural, carbon
and mineral products.
AGRICULTURAL PRODUCTS. The company manufactures and markets nitrogen-based
fertilizers for wholesale markets. Unocal is a major fertilizer supplier for
U.S. farmers west of the Rockies and to the Pacific Rim markets.
10
<PAGE>
Unocal's primary fertilizer manufacturing plants, located in Kenai, Alaska,
produce ammonia and urea for agricultural applications using natural gas as
feedstock. The natural gas comes primarily from nearby Unocal-operated fields.
This manufacturing operation is supported by a system of West Coast terminals
and product upgrading plants in Kennewick, Washington, and West Sacramento,
California.
Due to improved international market conditions for nitrogen-based
fertilizers, the company has decided to restart the ammonia plant located in
Finley, Washington; the plant has been idle since 1992. Improvements to the
plant are expected to be completed in the fourth quarter of 1995. By then,
estimated production of 165,000 tons per year will go to domestic markets while
an equal amount of output from the company's Kenai plant in Alaska will be
targeted for the Asian market.
Profits from agricultural products rose sharply in 1994, with fertilizer
production at or near record levels throughout the year. This performance
reflects strong worldwide prices for ammonia and urea.
CARBON PRODUCTS. Green petroleum coke, a by-product of refining operations,
is calcined for use in aluminum production and other industrial applications.
Green sponge coke is also sold in the United States and overseas as fuel.
Calcining plants are located adjacent to Unocal's Santa Maria and San Francisco
refineries and UNO-VEN's Chicago Refinery.
The Needle Coker Company, a joint venture equally owned by Unocal and UNO-
VEN, produces calcined needle coke at facilities adjacent to UNO-VEN's Chicago
Refinery. Needle coke is a high quality petroleum coke used to make graphite
electrodes for the production of steel in electric arc furnaces.
Through its wholly owned subsidiary, Poco Graphite, Inc., the company
manufactures premium graphite materials for use in electrodes, semiconductors,
biomedical products and other advanced technologies. The subsidiary experienced
its eighth consecutive year of sales growth.
MINERAL PRODUCTS. Unocal's mineral operations are carried out by Molycorp,
Inc., a wholly owned subsidiary, which mines, processes and markets lanthanides.
It operates a lanthanide mine and mill, and a chemical plant at Mountain Pass,
California. Lanthanides 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 cerium of which demand is
growing for use in automobile catalytic converters and glass to help filter
ultraviolet radiation and polishing powders.
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.
Operations have been suspended at Molycorp's molybdenum mine and mill in
Questa, New Mexico, its molybdenum roasting facility in Washington,
Pennsylvania, and its lanthanide processing facilities in Washington and York,
Pennsylvania and Louviers, Colorado. Because of the rapid increase in the price
of molybdenum, Molycorp may resume mine operations in Questa later this year.
The company's production of ammonia, processed sponge coke and lanthanides
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Ammonia - tons daily 3,495 3,510 3,452
Processed sponge coke - tons daily 1,255 1,398 1,727
Lanthanide concentrates - million pounds 46 39 47
</TABLE>
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<PAGE>
GEOTHERMAL OPERATIONS
Unocal is the world's largest supplier of geothermal energy for power
generation, with major operations in California, the Philippines and Indonesia.
The production of geothermal resources for power generation has been a core
business for Unocal for more than 20 years. The company's total reserves of 143
million megawatt-hours, which are equivalent to 215 million barrels of oil,
constituted nearly 10 percent of Unocal's energy reserves. In 1994, net
geothermal electricity production from worldwide operations was 7.5 million
megawatt-hours, enough to supply the residential electricity needs for a U.S.
city with a population of more than two million people.
Due to an abundant supply of low cost hydro power available from record
rainfalls, the company's geothermal operations at The Geysers in northern
California have been experiencing curtailed generation from the public utility
since January 1995.
In November, 1994, Unocal signed amended agreements with PERTAMINA, the
Indonesian state energy company, and PLN, Indonesia's state utility, to develop
and produce the Gunung Salak geothermal resource and to build and operate three
new 55-megawatt electrical generating plants at the field on Java. When combined
with two existing plants and a third new plant to be built by PLN, the Salak
project by 1997 will have a combined capacity of 330 megawatts (100 million
barrels of oil equivalent over a project life of 30 years). Unocal will provide
steam to all six power plants.
At the Sarulla Block on Sumatra, preliminary test results from the second
exploratory well confirmed the existence of a high temperature resource, and
additional wells are being drilled to evaluate the potential for commercial
production. Exploration of the 240,000-acre tract is being conducted under a
contract signed with PERTAMINA in 1993. The contract calls for Unocal to explore
for, appraise and develop geothermal resources of up to 1,000 megawatts (315
million barrels of oil equivalent over a project life of 30 years). If further
drilling confirms the existence of commercially exploitable resources, Unocal
will also build and operate power plants, with the first of these scheduled to
begin power generation in 1999 under an energy sales contract with PLN.
Unocal operates two geothermal projects (Tiwi and Mak-Ban) in the
Philippines. During 1994, the company added about 12 million megawatt-hours (18
million barrels of oil equivalent) to its reserves at the Mak-Ban project.
The increase in booked reserves resulted from the addition of binary units with
a capacity of 15 megawatts and the construction of two, 40-megawatt power plants
that will be operational later this year. With the addition of these new units,
the combined installed generating capacity of the two fields wil be 755
megawatts.
Below are geothermal reserves and operating data:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Net proved geothermal reserves at year end:
- billion kilowatt-hours 143 125 128
- million equivalent oil barrels 215 188 192
Net daily production - million kilowatt-hours 21 20 23
- thousand equivalent oil barrels 31 30 34
Net geothermal lands in acres - proven 20,240 20,249 34,931
- prospective 457,380 457,943 359,016
Net producible geothermal wells 261 266 268
</TABLE>
The present value of future net cash flows from proven geothermal reserves
at year-end 1994 was $613 million. The net future cash flows are based on
estimated future revenues less future development and production costs and
income taxes. A 10 percent discount factor was used in calculating the present
value. Estimated future revenues are based on estimated generation of
electricity from proved reserves from existing and new facilities under
development and on actual prices for geothermal steam pursuant to long-term
service and energy sales contracts 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 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 flows of geothermal 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 geothermal reserves, power plant efficiency factors, minimum
contract purchase quantities, 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
geothermal reserves.
12
<PAGE>
OTHER OPERATIONS
Real Estate
Unocal's real estate activities include the development and sale of certain
real estate assets for industrial, commercial and residential purposes, and the
disposal of surplus company-owned properties.
RESEARCH
In 1995, the company sold its process technology and licensing (PTL)
business to UOP Inc. The sale includes 200 U. S. patents and about 300 licenses
with third parties who use various process technologies developed by Unocal.
Chief among the licensed processes are Unicracking, a hydrocracking technology,
and Unionfining, a hydrotreating technology. Unocal and UOP have marketed and
licensed the Unicracking technology jointly since 1990.
The company's total research and development expenditures were $20 million
in 1994, $29 million in 1993 and $50 million in 1992. Expenditures for technical
services were $60 million, $57 million and $44 million for the years 1994, 1993
and 1992, respectively.
In 1995, the company began outsourcing routine laboratory operations and
seismic data processing. The decision to outsource was based on projected cost
savings. Selected research activities will be handled by the operating groups.
As a result, the company's research activities are being phased-out at its Brea
facility in California.
COMPETITION
The petroleum industry is highly competitive. Unocal competes with numerous
companies in all phases of its petroleum operations. The company is also in
competition with other producers and marketers of non-petroleum energy.
Competition for finding, developing and producing oil and gas resources
occurs in bidding for domestic prospective leases or foreign exploration rights,
acquisition of geological, geophysical and engineering knowledge, and the cost-
efficient development and production of proved oil and gas reserves. The future
availability of prospective domestic leases is subject to competing land uses
and federal, state and local statutes and policies. The company's geothermal
operations are in competition with producers of other energy resources.
Competition also exists in the manufacture, distribution and marketing of
petroleum products. In the refining segment, the ability to produce high-value
products at a competitive cost, while meeting regulatory standards, is of
primary importance. On the marketing side, price, customer service, advertising
and new product development are the major factors affecting competition. In the
chemical businesses, the key competitive factors for the company's fertilizer
products are prices, cost and availability of gas supplies; and for petroleum
coke, product quality and prices.
EMPLOYEES
As of December 31, 1994, Unocal had 13,127 employees compared with 13,613 a
year ago. The decrease principally reflects the impact of business divestments.
Of the total employees, 2,207 were represented by various labor unions.
Collective bargaining agreements covering represented employees at Unocal's
refineries and various other facilities were entered into during February of
1993. Most of these new labor agreements are for three-year terms. See page 63
of this report for information on total payroll and employee benefits costs.
13
<PAGE>
GOVERNMENT REGULATION
Certain interstate crude oil pipeline subsidiaries of Unocal are regulated
(as common carriers) by the Federal Energy Regulatory Commission. As lessee from
the United States government, Unocal is subject to Department of the Interior
regulations covering activities on the Outer Continental Shelf (OCS), and on
onshore lands. In addition, state regulations impose strict controls on both
state-owned and privately-owned lands.
Some federal and state bills would, if enacted, significantly and adversely
affect Unocal and the petroleum industry. These include the imposition of
additional taxes, divestiture of certain operations, land use controls and
restrictions on development of the OCS.
Regulations promulgated by the Environmental Protection Agency (EPA), the
Department of the Interior, the Department of Energy, the State Department, the
Department of Commerce and other government agencies are complex and subject to
change. New regulations may be adopted. The company cannot predict how existing
regulations may be interpreted by enforcement agencies or court rulings, whether
amendments or additional regulations will be adopted, or 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; 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
required the manufacture and sale of reformulated gasolines in areas not meeting
specified air quality standards commencing 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 gasolines are to become effective for fuel production at refineries
commencing March 1, 1996 and for retail sales commencing on June 1, 1996. The
company expects to spend approximately $240 million in 1995 and $50 million in
1996 to continue the modification of 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 variances 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.
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<PAGE>
In 1994, the company recorded approximately $228 million in environment-
related capital expenditures, compared with an average of approximately $120
million per year for the prior three years. The higher expenditures in 1994
primarily reflected costs related to refinery projects to produce reformulated
fuels mandated by government agencies. Estimated 1995 capital expenditures for
environment-related costs are $340 million. The amount charged to 1994 earnings
for remediation costs and for operating, maintenance and administrative costs to
maintain environmental compliance was approximately $370 million, and such costs
averaged approximately $240 million per year for the prior three years. Included
in the amount for 1994 were provisions of $187 million for certain known future
environmental assessment/remediation costs, of which $152 million was recorded
in the fourth quarter. The fourth quarter provision was primarily the result of
an extensive and ongoing review by the company of its reserves for environmental
assessment/remediation costs and its procedures for monitoring such reserves.
For information on the company's environmental exposure, see Legal
Proceedings below and the Environmental Matters section of Management's
Discussion and Analysis on pages 25 through 27 of this report.
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Date: April 18, 1995 By: /s/ CHARLES S. MCDOWELL
------------------------------
Charles S. McDowell
Vice President and Comptroller
