<PAGE>
1994
--------------
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
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 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>
11
<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 1977 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.
14
<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.
ITEM 3 - LEGAL PROCEEDINGS
There is incorporated by reference the information regarding environmental
remediation reserves in Note 17 to the consolidated financial statements on page
49, the discussion thereof in the Environmental Matters section of Managements'
Discussion and Analysis, and the information regarding contingent liabilities in
Note 18 to the consolidated financial statements on pages 49 and 50 of this
report.
(1) Between August 22 and September 6, 1994, a chemical, known as
"Catacarb", was released into the atmosphere at the company's San Francisco
Refinery in Rodeo, California. Residents in the surrounding area were exposed to
the chemical in varying degrees. Seven lawsuits have been filed in the Superior
Court for Contra Costa County by persons claiming that they were affected by the
releases. Among them, Calli Santos, et al. v. Unocal Corporation, et al., Case
-------------------------------------------------
No. 94-04141, filed in September 1994, alleges damages on behalf of individuals
who were allegedly exposed to the releases and asserts more than $1 billion in
actual and compensatory damages and seeks punitive damages, as well as other
relief. Garbis, et al. v. Union Oil Company of California d/b/a Unocal, Case No.
--------------------------------------------------------------
C95-00894, filed in February 1995, seeks compensatory and punitive damages on
behalf of purported classes of property owners, catacarb class claimants and
hydrogen sulfide class claimants, all of whom claim exposure and injury from
toxic chemical releases. The Contra Costa County District Attorney and the Bay
Area Air Quality Management District have conducted investigations, and the
District Attorney is evaluating whether to file criminal charges against the
company or individuals, or both.
(2) In August 1994, the approximate $80 million judgment against the
company in Angelina Hardwood Lumber Company v. Prairie Producing Co., awarded in
--------------------------------------------------------
the District Court of Angelina County, Texas, was reversed and rendered by the
Court of Appeals, Ninth District of Texas at Beaumont (No. 09-93-184 CV). Under
the appellate court's decision, Angelina is not entitled to any recovery against
the company. The Texas Supreme Court denied Angelina's application for a writ of
error on March 23, 1995. Angelina has 15 days to petition for a rehearing. The
case involves factual and legal questions regarding a title dispute with respect
to natural gas producing properties in Louisiana.
(3) In March 1994, a civil suit seeking various forms of penalties,
restitution and remediation regarding contamination at the Guadalupe oil field
was filed against the company 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 (People v. Union Oil Company of
------------------------------
California, Superior Court for San Luis Obispo County, Civil No. 75194). 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, 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. Several related follow-on private civil
actions have been filed, including a purported class action, or threatened, each
seeking damages and various other forms of relief similar to those sought by the
Attorney General.
15
<PAGE>
(4) In September 1994, the U.S. Minerals Management Service (MMS) issued an
administrative compliance order assessing the company approximately $21 million
in royalty fees and interest associated with FERC Order No. 94. The company is
presently in informal negotiations with the MMS for a settlement of outstanding
issues which could include this MMS assessment.
(5) In June 1994, the EPA filed an administrative complaint against the
company seeking $252,000 in civil penalties for alleged late filing of certain
reports regarding gas processing plant inventories under the Toxic Substances
Control Act Inventory Update Rule. The company notified the EPA that no reports
for the gas processing facilities had been filed in 1991. Reports, due every
four years, were filed in March 1994. No public safety or environmental harm
could be associated with these delayed reports or any alleged technical
violation of the reporting rules, if the rules are applicable. The company has
appealed this complaint, and settlement discussions are ongoing.
(6) In April 1994, the State of Arizona filed suit against the company in
the Superior Court of Maricopa County, Arizona, seeking civil penalties of
$10,000 per day for each underground storage tank allegedly violating the
underground storage tank regulations. Such penalties could exceed $100,000.
(7) In February 1995, EPA Region X issued nine Administrative Complaints
against the company regarding alleged NPDES permit violations at platforms
operated by the company in the Cook Inlet, Alaska. Proposed penalties sought
total $800,000. The company has received from several environmental groups
statutory notices of intent to file citizens' actions with respect to these
alleged violations. One such action has been filed but not yet served on the
company.
(8) In November 1994, the company received notice of alleged violations
from the Colorado Department of Health relating to hazardous waste management at
its Parachute Creek Oil Shale facility in Colorado. Civil penalties in excess of
$100,000 are being discussed as part of the settlement negotiations.
(9) In December 1994, the company received notice of alleged violations
from the U.S. EPA, Region IX, relating to New Source Performance Standards of
its Los Angeles Refinery - Carson Plant. Civil penalties in excess of $100,000
could be imposed.
(10) The company and the State of Ohio negotiated an Agreed Addendum to the
Consent Order for further investigation and interim remedies at the Company's
former refinery site in Heath, Ohio (now an Ashland Petroleum terminal). The
Agreed Addendum to the Consent Order was entered effective in April 1994. The
State's complaint, filed in May 1991, also seeks past costs, damages, an
injunction ordering clean-up and civil penalties.
(11) In September 1994, the California Regional Water Quality Control Board
issued a Cleanup or Abatement Order relating to prior petroleum leaks along
Front Street and vicinity in the town of Avila Beach, California. In October
1994, the company initiated an administrative appeal proceeding and a related
civil suit in the California Superior Court for the County of San Luis Obispo
for declaratory and injunctive relief and writ of mandate with respect to the
soil and shallow ground water standard to be applied to the remediation. The
company has been working with local agencies for several years regarding the
hydrocarbon presence in this location, and with property owners. Various related
civil suits have been filed or threatened.
(12) In November 1993, the California EPA Department of Toxic Substances
Control (DTSC) filed a civil action (People of the State of California, et al v.
------------------------------------------
Molycorp, Inc. No. BC 093683) in the Superior Court for Los Angeles County
-------------
against Molycorp for alleged continuing hazardous waste permitting and
management violations at its plant at Mountain Pass, California. The parties
have agreed in principle to a settlement of this matter pursuant to which
Molycorp will treat, store and remove specific hazardous wastes from the plant
site and pay to the DTSC $510,000 in civil penalties and $180,000 for
administrative costs.
(13) In August 1994, the Mountain Pass facility and two of its current
employees received a misdemeanor criminal complaint from the District Attorney
of San Bernardino County, filed in the County Municipal Court, involving seven
alleged releases into the environment. The complaint contains nine counts
alleging the failure to timely report releases, the unlawful deposit of
hazardous materials into the
16
<PAGE>
environment, and violation of the Regional Water Quality Control Board Waste
Discharge Order. The parties have agreed in principle to a settlement of this
matter pursuant to which the misdemeanor charges against Molycorp and the
employees will be dismissed and Molycorp will pay to the County $95,000 in
civil penalties. (People of the State of California v. Molycorp, Inc., et
--------------------------------------------------------
al.,Case No. MSB 10746).
------------------------
(14) In January 1993, four California truckstop operators filed a complaint
captioned Forty-Niner Truck Plaza Inc., et al. v. Unocal Corporation, et al. in
-----------------------------------------------------------------
California Superior Court for Sacramento County. It alleged primarily that the
company had violated a franchise law by failing to offer each of the operators a
right of first refusal of a bona fide offer by National Auto Truckstops, Inc.
for the company's interests in the truckstops during the course of the sale of
the company's nationwide network of truckstops to National. The operators also
asserted various tort claims against the company and against National, seeking
compensatory and punitive damages and equitable relief. Under the terms of the
sale, National is indemnified by the company for certain such third-party
compensatory damages. The litigation has been resolved as to two of the
operators. Trial has begun as to the two remaining plaintiffs.
(15) In March, 1994, Citizens for a Better Environment, et al. v. Union Oil
-----------------------------------------------------
Company of California, No. C94-0712, was filed in the United States District
---------------------
Court for the Northern District of California, alleging that as of February 28,
1994, the company's refinery at Rodeo, California, was in violation of the
selenium limit in its NPDES permit. The company denied that violations had
occurred. By a prior Cease and Desist Order, issued after notice and hearing,
the permitting agency, the California Regional Water Quality Control Board,
deferred to July 1998 the effective date of the selenium limitation in question.
The company's motion to dismiss the action was denied by the trial court in July
1994. The company believes that the court's ruling is in error and that it
conflicts with precedent from two different federal circuits. The Ninth Circuit
Court of Appeals has accepted the company's appeal from the trial court's
decision. The appeal is pending.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Unocal Corporation as of March 1,
1995.
<TABLE>
<CAPTION>
Name, age and present
position with Unocal Business experience during past five years
--------------------- ------------------------------------------------------------------------------------
<S> <C>
ROGER C. BEACH, 58 Mr. Beach was named Chief Executive Officer in May 1994. He heads the Office of the Chief
Chief Executive Officer Executive Officer, formed in July 1994. He served as President and Chief Operating Officer
Director since 1988 from June 1992 until May 1994. Mr. Beach was appointed President of the Unocal Refining &
Chairman of Management and Marketing Division in April 1986, and from May 1987 also served as Senior Vice President
Executive Committees of the company.
JOHN F. IMLE, JR., 54 Mr. Imle was named President of the company in July 1994, and assigned to direct the
President corporation's growth activities and certain corporate staff groups in the newly
Director since 1988 created Office of the Chief Executive Officer. From June 1992 until July 1994 he
Member of Management Committee served as Executive Vice President of the company and President of the Energy Resources
Division, which encompassed the company's worldwide oil, gas, and geothermal businesses.
Mr. Imle was Senior Vice President from October 1988 until his appointment as Executive
Vice President.
NEAL E. SCHMALE, 48 Mr. Schmale was named Chief Financial Officer in July 1994, joining the newly created
Chief Financial Officer Office of the Chief Executive Officer. He served as Senior Vice President of the
Director since 1991 company from July 1988 to July 1994. Mr. Schmale was President of the Petroleum Products
Member of Management Committee & Chemicals Division (which encompassed refining and marketing and chemicals and minerals
operations) from June 1992 until July 1994. He was President of the Unocal Chemicals &
Minerals Division from May 1991 to June 1992.
LAWRENCE M. HIGBY, 49 Mr. Higby has been President of the 76 Products Company since July 1994. From
Group Vice President and President, 1992 until July 1994, he was Executive Vice President, Marketing for the Los
76 Products Company Angeles Times and Chairman for its Orange County Edition. In 1991, he was
Senior Vice President, Consumer Marketing for the Los Angeles Times and
President of its Orange County Edition. Prior to 1991, he was Senior Vice
President for Marketing, Programming and Sales for Times Mirror Cable
Television.
JOHN W. SCHANCK, 43 Mr. Schanck has been Group Vice President, Oil and Gas Operations, since July 1994. From
Group Vice President, Oil and Gas 1992 until July 1994, he was Vice President, Worldwide Exploration of the Energy
Operations Resources Division. From 1989 through 1991, he was President of Unocal Canada Limited.
DENNIS P.R. CODON, 46 Mr. Codon became Vice President, General Counsel, and Chief Legal Officer in December 1992.
Vice President, General Counsel, He has been Corporate Secretary since December 1990. He served as Deputy General
Chief Legal Officer, and Corporate Counsel in 1990 and various other positions in the Law Department prior thereto.
Secretary
CHARLES S. McDOWELL, 53 Mr. McDowell has been Vice President since May 1991 and Comptroller since 1986.
Vice President and Comptroller
</TABLE>
The bylaws of the company provide that each executive officer shall hold
office until the annual organizational meeting of the Board of Directors held
May 22, 1995 and until his successor shall be elected and qualified, unless he
shall resign or shall be removed or otherwise disqualified to serve.
18
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
1994 Quarters 1993 Quarters
------------------------------------- -----------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per common share - high $ 30 $29-1/4 $30-5/8 $29-5/8 $29-7/8 $32-5/8 $29-7/8 $30-1/8
- low 25-1/4 24-5/8 26-7/8 25-7/8 23-1/2 28-1/8 26-1/4 25-7/8
Cash dividends paid per common share .200 .200 .200 .200 .175 .175 .175 .200
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Prices in the foregoing table are from the New York Stock Exchange
Composite Transactions listing. On March 15, 1995, the high price per share was
$28-3/8 and the low price per share was $27-7/8.
Unocal common stock is listed for trading on the New York, Pacific and
Chicago stock exchanges in the United States, and on the Basel, Geneva and
Zurich stock exchanges in Switzerland.
As of March 15, 1995, the approximate number of holders of record of Unocal
common stock was 35,475 and the number of shares outstanding was 245,234,398.
Unocal's quarterly dividend rate declared has been $.20 per common share
since the third quarter of 1993. The previous quarterly dividend rate was $.175
per share since the third quarter of 1989. The company has paid a quarterly
dividend for 79 consecutive years.
ITEM 6 - SELECTED FINANCIAL DATA - see page 63.
19
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Consolidated Results
Unocal recorded a net loss for 1994 of $153 million, compared with earnings
of $213 million in 1993 and $220 million in 1992. The net results for the three
years included the following special items:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Special items:
Cumulative effect of accounting changes $(277) $(130) $ 24
Environmental remediation provision (99) (10) (13)
Provision for abandonment and remediation of
the Guadalupe oil field (16) - -
Litigation (43) (30) (44)
Write-downs of assets (44) (12) (20)
Restructuring costs (15) - (34)
Asset sales 8 66 29
Other 33 (18) 44
-----------------------------------------------------------------------
Total $(453) $(134) $ (14)
-----------------------
</TABLE>
Excluding the cumulative effect of accounting changes (see Note 2) and
other special items, net earnings were $300 million in 1994, $347 million in
1993 and $234 million in 1992. The reduction in 1994 operating earnings
reflected lower crude oil and natural gas prices, and lower margins in the West
Coast refining and marketing operations. These negative factors were partially
offset by higher natural gas production, higher foreign crude oil production,
stronger agricultural products earnings, and lower domestic oil and gas
operating and depreciation expenses.
Comparing 1993 results with 1992, the significant improvement in 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 1993 results benefited from cost
reductions as a result of restructuring efforts in 1992. These favorable factors
were partially offset by lower crude oil prices in the second half of 1993.
In the above special items table, the Other category for 1994 included a
$24 million gain from the settlement of a lawsuit against Mesa Petroleum and a
$9 million benefit related to the cancellation of the lease on the Unocal
headquarters building in downtown Los Angeles. For 1993, the amount included a
$14 million charge for the effect of the federal tax rate change on deferred
taxes and a $4 million provision for the closure of the company's credit card
center. The 1992 amount reflected a $44 million deferred tax benefit related to
foreign exploration expenses.
REVENUES
Consolidated sales and operating revenues continued to decline in 1994,
down by $280 million from 1993 and $2.1 billion from 1992. The decrease from
1993 was primarily due to lower refined product prices and volumes. The decline
from 1992 reflected the company's business and asset divestments in recent years
and the phase-out of its retail marketing operations in the southeastern United
States .
The phase-out of the retail marketing operations in the southeastern United
States should be completed in early 1995 as the last remaining supply contract
expires.
COSTS AND OTHER DEDUCTIONS
Adjusted for special items, crude oil and product purchases, operating
expense, and selling, administrative and general expense totaled $5.0 billion in
1994, compared with $5.3 billion in 1993 and $6.8 billion in 1992. The decline
mainly reflected business divestments, the phase-out of southeastern U.S. retail
marketing operations and general cost reductions.
20
<PAGE>
Higher dry hole costs in 1994 were primarily the result of higher costs
associated with exploratory drilling in the North Slope of Alaska and offshore
Louisiana. The company's interest expense declined in 1994 due primarily to
refinancing debt at lower interest rates.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings before special items $ 426 $ 432 $ 415
Special items (32) 15 47
-----------------------------------------------------------------------
Total $ 394 $ 447 $ 462
-----------------------
</TABLE>
The adjusted 1994 results reflected decreased worldwide natural gas and
crude oil prices and lower domestic crude oil production. The company's average
worldwide sales price for natural gas was $1.86 per thousand cubic feet, down
from $2.01 in 1993 and $1.91 in 1992. For crude oil, Unocal's average worldwide
sales price was $13.63 per barrel in 1994, down from $14.21 in 1993 and $15.99
in 1992. Domestic crude oil production in 1994 averaged 137,300 barrels per day,
down from 147,500 per day in 1993 and 151,300 per day in 1992. The decrease in
production was mainly due to asset sales and natural decline.
The positive factors in 1994 were higher natural gas production, higher
foreign crude oil production and lower domestic operating expense. Domestic
natural gas production averaged 1,095 million cubic feet per day in 1994, up
from 952 per day in 1993 and 933 per day in 1992. The increase was the result of
an accelerated development program initiated in 1993, primarily in the Gulf of
Mexico. However, due to lower natural gas prices, some domestic natural gas
production was curtailed toward the end of 1994. Foreign crude oil production
averaged 122,400 barrels per day in 1994, compared with 98,500 per day in 1993
and 100,000 per day in 1992. The increase was due to new production in Indonesia
and the Netherlands.
The 1994 results also benefited from a $38 million reduction in
depreciation and depletion expense as a result of the change in accounting
policy for recognizing the reduction in value of the company's producing
properties. The pro forma effect on prior-year results would have been increases
in 1993 and 1992 net earnings of $31 million and $27 million, respectively.
Special items for 1994 consisted primarily of the write-down of the
company's investment in, and provisions for the abandonment and remediation of,
the Guadalupe oil field on the central coast of California, while special items
for 1993 consisted primarily of gains from the sale of nonstrategic properties.
The 1992 special items included a $44 million deferred income tax benefit
related to foreign exploration expenses.
REFINING, MARKETING AND TRANSPORTATION
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings before special items $ 133 $ 175 $ 127
Special items (29) (9) (25)
-----------------------------------------------------------------------
Total $ 104 $ 166 $ 102
------------------------
</TABLE>
The earnings decrease in 1994 was principally due to lower margins in the
company's West Coast refining and marketing operations. The lower margins were
primarily due to weak selling prices for refined products, which were partially
offset by lower crude oil and product purchase costs.
Petroleum product sales volumes, including 50 percent of the volumes of The
UNO-VEN Company, were 316,000 barrels per day in 1994, down from 345,000 barrels
per day in 1993. The decline was mainly due to the sale of the auto/truckstop
system in 1993 and the continued phase-out of the southeastern marketing
operations. However, the company's West Coast petroleum product sales volumes in
1994 rose 6 percent from the prior year.
21
<PAGE>
Comparing 1993 results with 1992, the increase was due to improved West
Coast refining and marketing margins. While selling prices for refined products
were lower in 1993, the impact was more than offset by lower crude oil and
product purchase costs. The phase-out of the company's southeastern marketing
operations also had a favorable impact on the 1993 results.
The 1994 special items principally included write-downs of assets related
to marine transportation activities and provisions for environmental
remediation. Special items for 1993 principally included charges for asset
write-offs and deferred income taxes, 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.
CHEMICALS
Net earnings for this segment were $53 million in 1994, $42 million in 1993
and $23 million in 1992. With the sale of other chemical businesses in 1993 and
1992, this segment's primary sources of income are derived from its
manufacturing and wholesale marketing of nitrogen-based fertilizers and
petroleum cokes. The 1994 results reflected considerably higher margins on sales
of agricultural ammonia and urea products, particularly in the Asian markets.
This gain was partially offset by lower earnings from petroleum coke operations.
The lower 1992 earnings were principally caused by residual expenses associated
with the retail chemical distribution and polymer manufacturing businesses that
were sold in the first half of 1992.
Due to improved international market conditions for nitrogen-based
fertilizers, the company has decided to restart the ammonia plant located in
Finley, Washington. Plant improvements 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 output from the company's Kenai plant in
Alaska will target the Asian market.
GEOTHERMAL
Net earnings from geothermal energy operations were $33 million in 1994,
compared with $46 million in 1993, which included a $19 million gain from the
sale of the Imperial Valley operations. The 1994 results reflected higher
domestic earnings, primarily due to reduced depreciation expense at The Geysers
in Northern California, and the start-up of Indonesian operations. Net earnings
in 1992 were $38 million, which included Imperial Valley operating earnings of
$19 million.
In Indonesia, Unocal began supplying geothermal steam from the Gunung Salak
field to power two 55-megawatt power plants which began commercial operation
during the third quarter of 1994. The power plants are located on the island of
Java and are operated by Indonesia's state utility company.
CORPORATE AND OTHER
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Corporate expense $(164) $(124) $(116)
Other operations (5) (9) (15)
Net interest expense (174) (193) (246)
Special items (117) (32) (52)
-----------------------------------------------------------------------
Total $(460) $(358) $(429)
-------------------------
</TABLE>
Corporate expense includes general corporate overhead and other unallocated
items. Other operations principally include the results of mineral and real
estate businesses. Higher corporate expense in 1994 reflected a provision for
the initiation of a companywide pay-for-performance program. The program rewards
employees for helping to meet overall company cash flow targets, as well as
specific operational goals within each business unit. Since the cash flow
targets were met, a cash payment was made in March 1995. Corporate expense in
1993 included the favorable impact of various tax adjustments.
22
<PAGE>
Net interest expense represents interest income and expense, net of
capitalized interest. The decrease in 1994 reflected the benefit of refinancing
debt at lower interest rates. The decrease in 1993 reflected the full-year
impact of a $1 billion reduction in debt in 1992.
Special items in 1994 included provisions of $87 million for environmental
remediation and $30 million for litigation; and charges of $15 million for
restructuring costs and $9 million for the write-down of assets. Also included
was a $24 million gain from the settlement of a lawsuit against Mesa Petroleum.
The special items in 1993 consisted primarily of a $40 million provision for
litigation and environmental remediation. The 1992 special items included
provisions of $44 million for litigation and $13 million for environmental
remediation, and asset write-downs of $6 million.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
--------------------------------------------------------------------------
<S> <C> <C> <C>
Current ratio 1.2 1.3 1.2
Total debt $3,466 $3,522 $3,698
Equity $2,815 $3,129 $3,131
Total debt ratio 55% 53% 54%
Floating-rate debt / total debt 25% 16% 8%
--------------------------------------------------------------------------
</TABLE>
Cash flow from operating activities, including working capital and other
changes, was $1,299 million in 1994, $1,100 million in 1993 and $1,157 million
in 1992. The 1994 cash flow reflected lower operational earnings, which were
more than offset by decreased working capital requirements and a significant
amount of income tax refunds received during the year. Despite higher cash flow
from operational earnings than in 1992, the 1993 amount was adversely affected
by higher working capital requirements, significant payments for legal and tax
settlements, and an adjustment for a 1992 crude oil forward sale.
During 1994, the company generated $156 million in pretax proceeds from
asset sales, primarily nonstrategic oil and gas properties, compared with $586
million in 1993 and $469 million in 1992. The 1993 proceeds included $218
million from the sale of the Imperial Valley and other geothermal 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 1992 proceeds
primarily reflected the sale of the chemical distribution and polymer
businesses.
In 1994, the company also generated approximately $52 million in cash from
the sale of its common stock through the Dividend Reinvestment and Common Stock
Purchase Plan.
The company's total debt was reduced by $56 million from a year ago to
$3,466 million at year-end 1994. Total debt is not expected to change
significantly in 1995. In March 1995, the company redeemed early its $200
million floating-rate Eurodollar Notes. Floating-rate commercial paper was used
to refinance the callable debt.
For 1995, the company expects cash generated from operational earnings and
asset sales to be essentially adequate to meet its operating requirements,
capital spending and dividend payments. However, the company has substantial
borrowing capacity to meet unanticipated cash requirements. At December 31,
1994, the company had approximately $1.2 billion of undrawn commitments under
various credit facilities with major banks. In February 1995, the company
completed a shelf registration with the Securities and Exchange Commission which
permits the company to issue $1.2 billion of debt and equity securities for
general corporate purposes. In March 1995, the entire amount available was
dedicated to a new medium-term note program.
The company's foreign operations have a limited exposure to foreign
currency risks. In most countries, energy products are valued and sold in U.S.
dollars, and foreign currency operating cost exposures have not been
significant. In the Philippines and Thailand, the company is paid for product
deliveries in the local currencies, but at prices indexed to U.S. dollar
valuations. Such funds, less funds required for local currency-denominated
obligations, are converted to U.S. dollars as soon as practicable and
periodically remitted to the U.S. The company's Canadian subsidiary is paid in
Canadian dollars for its crude oil and natural gas sales. Excess Canadian funds
generally have been invested in other Unocal foreign operations rather than
converted to U.S. dollars and remitted to the U.S.
23
<PAGE>
The company has only limited involvement with derivative financial
instruments. The majority are debt-related and are used to manage interest rate
and foreign currency exchange rate risks. The company also uses futures
contracts to hedge its exposure to fluctuations in petroleum commodity prices.
Such contracts covered only a small percentage of the company's annual oil and
gas production.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
Estimated
Millions of Dollars 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exploration and Production
Domestic $ 450 $ 486 $ 562 $ 364
Foreign 405 310 330 275
----------------------------------------------------------------------------
Total 855 796 892 639
Refining, Marketing and Transportation 390 372 236 201
Chemicals 20 12 11 64
Geothermal 80 35 53 37
Other 55 57 57 18
----------------------------------------------------------------------------
Total $1,400 $1,272 $1,249 $ 959
------------------------------------
</TABLE>
Spending in 1994 on domestic oil and gas exploration and production was
down by 14 percent compared with 1993, primarily reflecting reduced activity due
to low natural gas and crude oil prices. The 6 percent decrease in foreign
spending was due to reduced activity in both the development of offshore gas
fields in Thailand and the new offshore oil field in the Netherlands which began
production in 1993.
The $372 million spent on refining, marketing and transportation operations
during 1994 primarily reflected refinery upgrades to meet environmental
requirements for reformulated gasoline and the addition of units to increase
production of higher value products. Capital spending on geothermal energy
projects in 1994 primarily included development work on the island of Java in
Indonesia.
Unocal expects its 1995 capital spending to total approximately $1.4
billion, a 10 percent increase over expenditures of $1.27 billion in 1994.
Actual spending for 1995 could range from $1.3 billion to $1.5 billion depending
upon the progress of various projects and oil and gas prices.
Approximately $855 million, or 61 percent of the 1995 capital spending
plan, is directed toward the company's worldwide petroleum exploration and
production. This plan includes nearly $200 million for worldwide exploration. Of
this, more than one-half is targeted for projects near existing operations that
have the potential for rapid development. The balance, about $90 million, is
slated for new trend exploration.
The total 1995 budget for domestic oil and gas activities included
approximately $360 million for development work. The Louisiana/Gulf of Mexico
area accounts for nearly 60 percent of the domestic budget as the company moves
ahead with development of various key projects, including natural gas
development in the Fresh Water Bayou field and offshore oil development on Ship
Shoal Block 208. In the Cook Inlet of Alaska, the company is in the first phase
of developing new oil production from the Anna platform in the Granite Point
field.
Of the total 1995 budget for foreign oil and gas activities, approximately
$240 million is dedicated to development work. Major projects include the
development of gas reserves in several fields offshore Thailand, as well as
further delineation of the Pailin field. Also included is development of the
Halfweg gas field on the Q1 block offshore the Netherlands. Another $50 million
is dedicated to development work on new, high potential, overseas oil and gas
ventures. These projects primarily include the Yadana natural gas project
offshore Myanmar and an oil project in the Caspian Sea offshore Azerbaijan.
24
<PAGE>
Refining, marketing and transportation capital spending is budgeted at $390
million in 1995, up from $372 million in 1994. The 1995 capital budget includes
approximately $305 million for West Coast refinery projects, of which $240
million is for refinery modifications to manufacture reformulated gasoline for
the California market in 1996 as mandated by the California Air Resources Board.
Another $25 million is for projects to enhance profitability in other refining
areas. The capital budget has approximately $50 million dedicated to the upgrade
of marketing facilities, mostly reformatting service stations in the western
United States. In 1995, the company expects to improve pumpability at about 120
retail sites by adding credit card readers at the dispensers and reconfiguring
pump islands. More than half of these projects include new formats, such as
convenience stores and fast food restaurants.
Planned 1995 capital spending for geothermal power projects totals $80
million, compared with $35 million in 1994. The higher spending focuses on
additional development of geothermal resources and construction of electrical
generating plants in the Gunung Salak field in Indonesia, which are expected to
come on-line in 1997.
The capital budget for chemicals and other businesses reflects planned
spending on various projects in the company's agricultural products and carbon
and minerals businesses, as well as environmental costs related to properties
held for sale.
ENVIRONMENTAL MATTERS
Unocal continues to make substantial capital and operating expenditures for
environmental protection and to comply with federal, state and local laws and
provisions regulating the discharge of materials into the environment. In many
cases, investigatory or remedial work is now required at various sites even
though past operations followed practices and procedures that were considered
acceptable under environmental laws and regulations, if any, existing at the
time.
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.
At December 31, 1994, the company's reserves for environmental remediation
obligations totaled $262 million, of which $97 million was included in other
current liabilities. The total reserve amount is broken down into five
categories and discussed below.
SUPERFUND AND SIMILAR SITES. At year-end 1994, Unocal had received
notification from the federal EPA that the company may be a potentially
responsible party (PRP) at 60 sites and may share certain liabilities at these
sites. In addition, various state agencies and private parties had identified 30
other sites that may require investigation and remediation. Of the total, the
company has denied responsibility at 30 sites and at another 13 sites the
company's liability, although unquantified, appears to be de minimis. The total
also includes 19 sites which are under investigation or in litigation, for which
the company's potential liability is not presently determinable. Of the
remaining 28 sites, where probable costs can be reasonably estimated, reserves
of $43 million have been established for future remediation and settlement
costs. Included in this amount is $15 million for the McColl site in Fullerton,
California, which reflects the company's share of the estimated costs of a
remedy proposed to the EPA in the fourth quarter of 1994 by the PRPs.
Unocal does not consider the number of sites for which it has been named as
a PRP as a relevant measure of liability. Although the liability of a PRP is
generally joint and several, the company is usually just one of several
companies designated as a PRP. The company's ultimate share of the remediation
costs at those sites often is not determinable due to many unknown factors as
discussed in Note 18 to the consolidated financial statements. The solvency of
other responsible parties and disputes regarding responsibilities may also
impact the company's ultimate costs.
25
<PAGE>
FORMER COMPANY-OPERATED SITES. Reserves of $35 million were established for
this category of sites. Of the total, $14 million was for approximately 170
service station sites on leased property at which operations have ceased and
which the company is obligated to remediate before returning them to current
landowners. Also included is a $12 million reserve for approximately 190 service
station sites that the company previously owned or leased, in many cases years
ago, where current owners of such properties are presently holding the company
responsible for environmental remediation costs.
COMPANY FACILITIES SOLD WITH RETAINED LIABILITIES. This category had
reserves of $88 million for accrued environmental liabilities related to major
company assets that were sold in recent years. Included are the company's former
auto/truckstop facilities, agricultural and industrial chemical sites, and
polymer sites. Also included are facilities which were transferred to The UNO-
VEN Company in 1989 in connection with its formation. In each sale, the company
retained a contractual remediation or indemnification obligation and is
responsible only for certain environmental problems associated with its past
operations. The current reserves represent presently estimated future costs for
investigation/feasibility studies and identify remediation work as a result of
claims made by buyers of the properties.
INACTIVE OR CLOSED COMPANY FACILITIES. Reserves of $74 million were
established for these types of facilities. Major sites included in this category
are the former Beaumont refinery in Texas, the Parachute Creek shale oil project
and a chemical facility in Colorado, the Questa molybdenum mine in New Mexico
and a related processing facility in Pennsylvania. Under various laws, including
the Resource Conservation and Recovery Act, remediation obligations arose when
the company ceased or suspended operations at these facilities. A provision of
$23 million was recorded in 1994 for remedial work at the Beaumont refinery,
principally due to increased cost estimates and the company's decision to
undertake the remediation of additional areas within the refinery. This category
also includes the beach cleanup at the Guadalupe oil field of underground
releases of a diesel-like additive formerly used to produce the field's heavy
crude oil. At year-end 1994, the remaining reserves for beach cleanup and
abandonment of wells and facilities at the field totaled $10 million. The
company expects to incur additional, but presently indeterminate, costs at this
site for the remediation of the inland portion of the field. A reserve of $8.9
million was provided for the Questa mine's estimated costs of
investigations and remedial activities covered under plans for both the mine
area and ponds proposed or expected to be proposed in 1995 to the State of New
Mexico Environmental Department. Additional work may be required following the
State's review of these plans. Reopening of the mine could also affect the
amount and/or timing of various costs.
ACTIVE COMPANY FACILITIES. The company provided $22 million for estimated
future costs of remedial orders, corrective actions and other investigation,
remediation and monitoring obligations at certain operating facilities and
producing oil and gas fields. The operating facilities primarily consist of
refineries, marketing terminals and bulk plants.
The total environmental remediation reserves recorded on the consolidated
balance sheet represent the company's estimate of assessment and remediation
costs based on currently available facts, existing technology, and presently
enacted laws and regulations. The remediation cost estimates, in many cases, are
based on plans recommended to the regulatory agencies for approval and are
subject to future revisions. The ultimate costs to be incurred will likely
exceed the total amounts reserved, since many of the sites are relatively early
in the remedial investigation or feasibility study phase. Additional liabilities
may be accrued as the assessment work is completed and formal remedial plans are
formulated.
In connection with the fourth quarter review of its reserves for
environmental remediation costs, the company also estimated, to the extent it
was able to do so, that it could incur approximately $120 million of additional
costs in excess of the $262 million accrued at December 31, 1994. The amount of
such possible additional costs reflects, in most cases, the high end of the
range of costs of feasible alternatives identified by the company for those
sites with respect to which investigation or feasibility studies have advanced
to the stage of analyzing such alternatives. However, such estimated possible
additional costs are not an estimate of the total remediation costs beyond the
amounts reserved, since at a large number of sites the company is not yet in a
position to estimate such possible additional costs.
26
<PAGE>
Both the amounts reserved and estimates of possible additional costs may
change, in some cases, substantially, as additional information becomes
available regarding the nature and extent of site contamination, required or
agreed upon remediation methods, and other actions by governmental agencies and
private parties.
See Notes 17 and 18 to the consolidated financial statements for additional
information.
REORGANIZATION
On June 27, 1994, Unocal's Board of Directors approved a major
reorganization of the company's management and formed the 76 Products Company.
Since then, divisions and departments have been realigned into four functions or
groups: operations, growth, finance and support.
The Operations Group consists of the company's worldwide oil and gas
producing activities, geothermal resource production and related power
operations, diversified businesses and the new 76 Products Company. The 76
Products Company encompasses Unocal's West Coast refining, marketing and
transportation activities. Petroleum coke sales from refineries in California
are also part of this company. On a pro forma basis, 76 Products earned $70
million (pretax) on revenues of $3.4 billion in 1994. Diversified businesses
consist principally of the company's agricultural chemicals, carbon products and
specialty minerals operations. Also included are real estate development, and
the company's investments in The UNO-VEN Company and various affiliated pipeline
companies outside California. On a pro forma basis, diversified businesses
earned $205 million (pretax) on revenues of $840 million in 1994.
The Growth Group principally includes worldwide petroleum exploration,
commercialization of oil, gas and power projects, joint ventures with other
firms, business development, and marketing of natural gas and other produced
hydrocarbons. Its primary function is to oversee the company's growth activities
related to finding new energy resources and exploring different business
opportunities.
Under the new structure, corporate staff functions have been divided into
two groups - Finance and Staff Support. The Finance Group conducts the company's
finance activities, which include the treasury, comptroller, tax and risk
management functions. The Staff Support Group consolidates activities related to
human resources, planning, health-environment-safety, and employee development.
However, the support personnel are primarily based at the business unit level to
achieve efficiency through centralized coordination and decentralized
implementation.
OUTLOOK
Unocal's financial results are sensitive to product prices. The company
does not expect significant improvements in prices or margins during 1995. Crude
oil prices are expected to remain at current levels and domestic natural gas
prices are expected to remain weak through much of 1995. On the West Coast,
intense competition and increased environmental compliance requirements will
continue to impact the company's margins for refined products. However, the
company's operating strategy is to increase cash flow from operations by
increasing resource production and continuing to emphasize cost control in all
areas.
In Thailand, the company plans continual increases in natural gas
production through early 1999. The development plan focuses on delineating and
developing the eight fields operated by Unocal under the existing gas sales
contracts and developing a new field. While the company's production is
currently constrained by pipeline capacity, a second major pipeline, scheduled
to begin operation in 1996, will increase capacity by 65 percent, thus expanding
gas sales potential.
In early 1995, the company signed an agreement to develop the Yadana
natural gas field offshore Myanmar. The contract calls for production to begin
in mid-1998, and the gas will be sold to Thailand, and potentially Myanmar, over
a 30-year period. Unocal holds a minimum interest of 28.26 percent in the
project, for which Total of France is the operator.
27
<PAGE>
In Indonesia, the company signed amended contracts with the state energy
company to develop and produce geothermal resources and build and operate three
new 55-megawatt electrical generating plants at the Gunung Salak geothermal
project. The three new power plants are expected to begin operation in the
second half of 1997. With the addition of the power plants plus another
plant to be built by the Indonesia state energy company, Unocal anticipates
supplying geothermal steam to power plants with an installed capacity of 330
megawatts by the end of 1997.
In addition to the above long-term projects in Southeast Asia, Unocal is
currently pursuing business opportunities in China, Vietnam and Pakistan.
The company's West Coast refining and marketing operations will continue to
focus on improving efficiencies to reduce operating costs. On the marketing
side, the company will continue to upgrade its retail outlets to increase
pumpability by installing credit card readers at the dispensers and
reconfiguring the service islands. Also, new lines of business will be
introduced at many locations to expand each site's potential revenue.
During the fourth quarter of 1994, the company completed a study of
overhead costs which resulted in a program to reduce its 1,540-person corporate
staff by 630 positions over the next two years. Additionally, another 126
positions in the operating groups will be eliminated. When the reductions are
complete, the company expects to realize pretax savings of approximately $50
million per year.
In early 1995, the company sold its process technology and licensing
business. The sale included approximately 200 U.S. patents and about 300
licenses with third parties who use various process technologies developed by
Unocal. A pretax gain of $26 million on net proceeds of $32 million will be
recorded in the first quarter of 1995.
In February 1994, the company was granted a United States patent for
reformulated gasolines that meet the 1996 California state standards for reduced
emissions. The company expects to announce terms of a licensing program in April
1995.
Unocal continues to evaluate the potential sale of the company's crude oil
and natural gas assets in California. The company expects to receive bids from
prospective buyers by mid-1995.
28
<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 30
Report of Independent Accountants 31
Financial Statements
Consolidated Earnings 32
Consolidated Balance Sheet 33
Consolidated Cash Flows 34
Consolidated Stockholder's Equity 35
Notes to Consolidated Financial Statements 36-55
Supplemental Information:
Oil and Gas Financial Data 56-57
Oil and Gas Reserve Data 58-59
Present Value of Future Net Cash Flow Related
to Proved Oil and Gas Reserves 60-61
Selected Quarterly Financial Data 62
Selected Financial Data 63
Supporting Financial Statement Schedules covered:
by the Foregoing Report of Independent Accountants:
Schedule II - Valuation and Qualifying Accounts and Reserves 68
</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.
29
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITIES
To the Stockholders of Unocal Corporation:
Unocal'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 L.L.P. Management has made available to Coopers &
Lybrand L.L.P. all the company's financial records and related data, minutes of
the company's executive and management 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 on 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.
Unocal 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, Unocal believes that, as of
December 31, 1994, its systems of internal controls over financial reporting met
those criteria.
Unocal's Accounting, Auditing and Ethics Committee, consisting solely of
directors who are not employees of Unocal, 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 the stockholders);
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.
<TABLE>
<S> <C> <C> <C>
/s/ ROGER C. BEACH /s/ JOHN F. IMLE, JR. /s/ NEAL E. SCHMALE /s/ CHARLES S. McDOWELL
----------------------- --------------------- ----------------------- -----------------------
Roger C. Beach John F. Imle, Jr. Neal E. Schmale Charles S. McDowell
Chief Executive Officer President Chief Financial Officer Vice President and
Comptroller
</TABLE>
February 14, 1995
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Unocal Corporation:
We have audited the accompanying consolidated balance sheets of Unocal
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1994 and the
related financial statement schedule. These financial statements and the related
financial statement schedule are the responsibility of Unocal Corporation'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 32 through 57 of this Annual Report on Form 10-K, present fairly, in all
material respects, the consolidated financial position of Unocal Corporation and
its subsidiaries as of December 31, 1994 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 2 to the consolidated financial statements, Unocal
Corporation and its subsidiaries changed their method of accounting for the
impairment of producing oil and gas properties in 1994; for postretirement
benefits other than pensions and for postemployment benefits in 1993; and for
income taxes in 1992.
/s/ COOPERS & LYBRAND LLP
Coopers & Lybrand L.L.P.
February 14, 1995
Los Angeles, California
31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
Years ended December 31
----------------------------
Dollars in millions except per share amounts 1994 1993 1992
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Sales and operating revenues * $7,797 $8,077 $ 9,887
Interest, dividends and miscellaneous income 84 67 53
Equity in earnings of affiliated companies 86 84 66
Gain (loss) on sales of assets (2) 116 55
------------------------------------------------------------------------------------------------
Total revenues 7,965 8,344 10,061
Costs and Other Deductions
Crude oil and product purchases 2,875 3,160 4,612
Operating expense 1,802 1,702 1,676
Selling, administrative and general expense 555 489 703
Depreciation, depletion and amortization 947 963 964
Dry hole costs 84 45 68
Exploration expense 116 119 170
Interest expense 275 304 379
Excise, property and other operating taxes * 1,017 951 1,140
------------------------------------------------------------------------------------------------
Total costs and other deductions 7,671 7,733 9,712
------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect of
accounting changes 294 611 349
Income taxes 170 268 153
------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting changes 124 343 196
Cumulative effect of accounting changes (277) (130) 24
------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ (153) $ 213 $ 220
------------------------------------------------------------------------------------------------
Dividends on preferred stock 36 36 17
------------------------------------------------------------------------------------------------
Net Earnings (Loss) Applicable to Common Stock $ (189) $ 177 $ 203
------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock:
Before cumulative effect of accounting changes $ .36 $ 1.27 $ .75
Cumulative effect of accounting changes (1.14) (.54) .10
------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ (.78) $ .73 $ .85
------------------------------------------------------------------------------------------------
* Includes consumer excise taxes of $ 893 $ 816 $ 992
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
At December 31
-------------------
Millions of Dollars 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 148 $ 205
Accounts and notes receivable
Trade 897 877
Refundable income taxes - 114
Inventories 341 326
Deferred income taxes 109 26
Other current assets 33 30
-------------------------------------------------------------------------------------
Total current assets 1,528 1,578
Investments and long-term receivables
Affiliated companies 445 443
Other 450 404
Properties - net 6,823 7,175
Deferred income taxes 30 30
Other assets 61 76
-------------------------------------------------------------------------------------
Total assets $9,337 $9,706
-------------------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable $ 688 $ 735
Taxes payable 226 208
Interest payable 87 92
Other current liabilities 256 161
-------------------------------------------------------------------------------------
Total current liabilities 1,257 1,196
Long-term debt and capital lease obligations 3,461 3,468
Deferred income taxes 643 875
Accrued abandonment, restoration and environmental liabilities 622 539
Other deferred credits and liabilitie 539 499
-------------------------------------------------------------------------------------
Total liabilities 6,522 6,577
-------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock ($0.10 par value, stated at liquidation value of $50 per share)
Shares authorized: 100,000,000
Shares outstanding: 10,250,000 in 1994 and 1993 513 513
Common stock ($1 par value)
Shares authorized: 750,000,000
Shares outstanding: 244,198,701 in 1994; 241,323,833 in 1993 244 241
Capital in excess of par value 237 163
Foreign currency translation adjustment (13) (5)
Unearned portion of restricted stock issued (13) (13)
Retained earnings 1,847 2,230
-------------------------------------------------------------------------------------
Total stockholders' equity 2,815 3,129
-------------------------------------------------------------------------------------
Total liabilities and stockholders' equit $9,337 $9,706
-------------------------------------------------------------------------------------
</TABLE>
The company follows the successful efforts method of accounting for its oil and
gas activities.
See Notes to Consolidated Financial Statements.
33
<PAGE>
<TABLE>
<capition>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
Years ended December 31
-----------------------------
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $ (153) $ 213 $ 220
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities
Cumulative effect of accounting changes 277 130 (24)
Depreciation, depletion and amortization 947 963 964
Dry hole costs 84 45 68
Deferred income taxes (118) 139 (114)
(Gain) loss on sales of assets (before-tax) 2 (116) (55)
Other 217 42 55
Working capital and other changes related to operations
Accounts and notes receivable 91 33 136
Inventories (10) (24) 55
Accounts payable (49) 25 (110)
Taxes payable 18 (52) 7
Other (7) (298) (45)
-----------------------------------------------------------------------------------------
Net cash provided by operating activities 1,299 1,100 1,157
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,272) (1,249) (959)
Proceeds from sales of assets 156 586 469
-----------------------------------------------------------------------------------------
Net cash used in investing activities (1,116) (663) (490)
Cash Flows from Financing Activities
Proceeds from issuance of common stock 54 6 2
Net proceeds from issuance of preferred stock - - 500
Long-term borrowings 732 543 401
Reduction of long-term debt and capital lease obligations (788) (718) (1,278)
Decrease in short-term notes payable - (1) (151)
Dividends paid on preferred stock (36) (36) (8)
Dividends paid on common stock (193) (175) (166)
Other (9) (8) 15
-----------------------------------------------------------------------------------------
Net cash used in financing activities (240) (389) (685)
Increase (decrease) in cash and cash equivalents (57) 48 (18)
Cash and cash equivalents at beginning of year 205 157 175
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 148 $ 205 $ 157
-----------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 263 $ 296 $ 377
Income taxes (net of refunds) $ 174 $ 291 $ 237
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STOCKHOLDERS' EQUITY UNOCAL CORPORATION
Millions of Dollars 1994 1993 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance at end of year $ 513 $ 513 $ 513
Common Stock
Balance at beginning of year 241 241 235
Issuance of common stock 3 - 6
---------------------------------------------------------------------------------
Balance at end of year 244 241 241
Capital in Excess of Par Value
Balance at beginning of year 163 149 15
Issuance of common stock 74 14 147
Preferred stock issuance costs - - (13)
---------------------------------------------------------------------------------
Balance at end of year 237 163 149
Foreign Currency Translation Adjustment
Balance at beginning of year (5) 5 27
Current year adjustment (8) (10) (22)
---------------------------------------------------------------------------------
Balance at end of year (13) (5) 5
Unearned Portion of Restricted Stock Issued
Balance at beginning of year (13) (11) (11)
Issuance of restricted stock (4) (5) (3)
Current year amortization 4 3 3
---------------------------------------------------------------------------------
Balance at end of year (13) (13) (11)
Retained Earnings
Balance at beginning of year 2,230 2,234 2,198
Net earnings (loss) for year (153) 213 220
Cash dividends declared
Preferred stock ($3.50 per share in 1994 and
1993; $1.62 per share in 1992) (36) (36) (17)
Common Stock ($0.80 per share in 1994; $0.75
per share in 1993; $0.70 per share in 1992) (194) (181) (167)
---------------------------------------------------------------------------------
Balance at end of year 1,847 2,230 2,234
---------------------------------------------------------------------------------
Total Stockholders' Equity $2,815 $3,129 $3,131
---------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiary, Union Oil Company of California (Union Oil) and its
consolidated subsidiaries, will be referred to as the company.
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.
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 such costs related to the portion of unproved properties 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, including unsuccessful development
wells, are capitalized. Proved producing properties are regularly assessed for
possible impairment on a field-by-field basis using the estimated undiscounted
future cash flows of each field. Impairment loss is recognized when the
estimated undiscounted future cash flows are less than the current net book
values of the properties. See Note 2 for additional information.
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.
Additional depreciation charges are made for the write-down of long-lived
assets when it is determined that the carrying value of assets may not be
recoverable. This determination is usually attributable to the occurrence of
events such as discontinued operations and project cancellations or when
expected future net cash flows become less than the carrying value of an asset.
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.
36
<PAGE>
RETIREMENT AND DISPOSAL OF PROPERTIES
Upon retirement of facilities depreciated on an individual basis, remaining
book values are charged to 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
The company uses 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. Future tax
benefits are recognized to the extent that realization of such benefits is more
likely than not.
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 9 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 stockholders' 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 EXPENDITURES
Environmental expenditures that create future benefits or contribute to
future revenue generation are capitalized. Expenditures that relate to existing
conditions caused by past operations are expensed.
Liabilities related to environmental assessment and future remediation
costs are recorded when such liabilities are probable and the amounts can be
reasonably estimated. The company considers a site to present a probable
liability when an investigation has identified environmental remediation
requirements for which the company is responsible. The timing of accruing for
remediation costs generally coincides with the company's completion of
investigation or feasibility work and its recommendation of a remedy or
commitment to an appropriate plan of action.
Environmental liabilities are not discounted or reduced by possible
recoveries from third parties. However, for Superfund and similar sites, accrued
liabilities reflect anticipated allocations of liabilities among settling
participants.
Environmental remediation expenditures required for properties held for
sale are capitalized. A valuation allowance is established when the aggregate
book values of the properties, including capitalized remediation costs, exceeds
net realizable values.
See Notes 17 and 18 for additional information.
FINANCIAL INSTRUMENTS
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate, foreign currency exchange rate and commodity price
risks.
See Note 16 for additional information.
37
<PAGE>
Other
Earnings per share of common stock are based on earnings less preferred
stock dividend requirements, divided by the weighted average shares of common
stock outstanding during each period.
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 1994 classification, including the accumulated reserves for
future abandonment and restoration costs which have been reclassified on the
consolidated balance sheet from the properties account to accrued abandonment,
restoration and environmental liabilities.
Note 2 - ACCOUNTING CHANGES
Effective January 1, 1994, the company changed its accounting policy for
recognizing the reduction in value of its producing oil and gas properties.
Under the new policy, the company evaluates properties for impairment on a
field-by-field basis instead of the country-by-country basis previously used. In
the opinion of management, the use of a lower level of aggregation for applying
the impairment test to producing oil and gas properties is preferable. The
cumulative effect of the accounting change resulted in a charge to earnings of
$447 million pretax ($277 million after tax or $1.14 per common share) in the
first quarter. The charge reflected the reduction in value of certain oil and
gas properties in the U.S. from which the estimated undiscounted future cash
flows are less than the current net book values of the properties. As a result
of the property write-downs, the company's depreciation and depletion expense in
1994 was reduced by approximately $61 million ($38 million after tax). On a pro
forma basis, net earnings for 1993 and 1992 would have increased by $31 million
and $27 million, respectively, as a result of the accounting change. Pro forma
net earnings would have been $244 million (86 cents per common share) in 1993
and $247 million (97 cents per common share) in 1992.
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 or 50
cents per common share).
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 or 4 cents per common share).
Effective January 1, 1992, the company adopted SFAS No. 109, "Accounting
for Income Taxes." 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, or 10 cents per
common share.
NOTE 3 - RESTRUCTURING COSTS
During the fourth quarter of 1994, as a result of an overhead study, the
company began a program to reduce its 1,540-person corporate staff by 630
positions and to eliminate another 126 positions in the operating groups over
the next two years. A pretax charge of $25 million was recorded in
administrative and general expense for net costs associated with the staff
reductions. This charge included $34 million of estimated benefits, primarily
termination allowance, to be paid to ex-employees over a period of time.
Partially offsetting this charge was an estimated credit of $9 million for
reduced pension obligations. At December 31, 1994, approximately 40 employees
were terminated as a result of the program, and the amount of unpaid benefits
remaining on the consolidated balance sheet was $33 million.
38
<PAGE>
In 1992, the company also underwent work force reductions and operational
changes as part of its efforts to improve cash flow and operating results.
Voluntary retirement and severance packages were accepted by 1,145 employees. A
pretax provision of $55 million, net of reduced pension obligations, was
included in administrative and general expense. The majority of the termination
benefits and the retirement benefits not covered by the pension plan have been
paid.
NOTE 4 - WRITE-DOWNS OF ASSETS
During 1994, the company recorded a pretax charge of $25 million to write
down the carrying value of the Guadalupe oil field due to its decision to shut
down the field for environmental reasons. The company also closed certain
facilities used in refining and marketing operations and research activities,
which resulted in an asset write-down of $39 million. Due to project
modifications, the company wrote off an additional $7 million in 1994 for costs
related to the reformulated fuels program at the company's Los Angeles Refinery.
The 1993 earnings 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.
The 1992 earnings included a pretax charge of $50 million for the write-
down of the company's interest in a Canadian partnership and various assets that
were shut down or sold.
NOTE 5 - DISPOSITIONS OF ASSETS
In 1994, asset sales generated total proceeds of $156 million with a pretax
loss of $2 million. Of the total proceeds, $118 million was from the sale of oil
and gas properties.
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.
NOTE 6 - 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 paid on taxable income from sales of assets are not included in
cash flows from investing activities.
In the consolidated statement of cash flows for 1994, the $217 million
adjustment to reconcile the net loss to net cash provided by operating
activities principally included noncash charges to earnings of $170 million for
future environmental remediation costs.
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.
39
<PAGE>
Excluded from the consolidated statement of cash flows for 1992 was 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 stockholders' equity by $173 million, $64
million and $142 million, respectively, and to decrease minority interest
liability by $33 million.
NOTE 7 - OTHER FINANCIAL INFORMATION
Consolidated earnings include the following:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 305 $ 334 $ 413
Less capitalized interest 30 30 34
------------------------------------------------------
Interest expense $ 275 $ 304 $ 379
Maintenance and repair costs $ 457 $ 442 $ 505
Research and development costs $ 20 $ 29 $ 50
------------------------------------------------------
</TABLE>
The consolidated balance sheet at December 31 includes the following:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Other deferred credits and liabilities:
Postretirement medical benefits obligation $ 206 $ 200
Reserve for litigation and other claims 204 153
Other employee benefits 54 52
Other 75 94
----------------------------------------------------------------------
Total $ 539 $ 499
----------------------------------------------------------------------
Allowances for doubtful accounts and notes receivable $ 15 $ 16
Allowances for investments and long-term receivables $ 3 $ 4
----------------------------------------------------------------------
</TABLE>
NOTE 8 - EXCISE, PROPERTY AND OTHER OPERATING TAXES
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Consumer excise taxes $ 893 $ 816 $ 992
Real and personal property taxes 68 68 78
Severance and other taxes on production 38 47 48
Other taxes and duties 18 20 22
-----------------------------------------------------------------
Total $1,017 $ 951 $1,140
-----------------------------------------------------------------
</TABLE>
In addition, social security and unemployment insurance taxes, which are
charged to earnings and included with salaries and wages, totaled $44 million in
1994 and 1993 and $48 million in 1992.
40
<PAGE>
NOTE 9 - INCOME TAXES
Unocal files a consolidated federal income tax return that includes
essentially all U.S. subsidiaries. The components of pretax earnings and the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) before income
taxes and cumulative
effect of accounting changes
United States $(176) $ 179 $ (85)
Foreign 470 432 434
------------------------------------------------------------------------
Total $ 294 $ 611 $ 349
------------------------------------------------------------------------
Income taxes
Current
Federal $ 25 $ (73) $ 20
State 17 (19) 13
Foreign 245 221 234
------------------------------------------------------------------------
Total 287 129 267
Deferred
Federal (120) 113 (97)
State (7) 14 (3)
Foreign 10 12 (14)
------------------------------------------------------------------------
Total (117) 139 (114)
------------------------------------------------------------------------
Total income taxes $ 170 $ 268 $ 153
------------------------------------------------------------------------
</TABLE>
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 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 34%
Taxes on book earnings computed at statutory rate $ 103 $ 214 $ 119
Foreign taxes in excess of statutory rate 75 66 75
Recorded benefits related to exploration costs - - (44)
Dividend exclusion (13) (13) (13)
Unused general business tax credits - (12) -
Effect of federal rate change on deferred taxes - 14 -
Other 5 (1) 16
-----------------------------------------------------------------------------
Total $ 170 $ 268 $ 153
-----------------------------------------------------------------------------
</TABLE>
41
<PAGE>
The significant components of deferred income tax assets and liabilities
included in the consolidated balance sheet at December 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities)
Depreciation and intangible drilling costs $(986) $(1,206)
Pension assets (135) (124)
Investments in affiliates (82) (86)
Other deferred tax liabilities (212) (186)
Depletion 145 130
Exploratory costs 155 162
Federal alternative minimum tax credits 143 108
Future abandonment costs 126 137
Postretirement benefit costs 78 74
Litigation/environmental costs 112 17
Other deferred tax assets 152 155
----------------------------------------------------------------------
Total $(504) $ (819)
----------------------------------------------------------------------
</TABLE>
No deferred U.S. income tax liability has been recognized on the
undistributed earnings of foreign subsidiaries 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 $470 million as
of December 31, 1994.
At year-end 1994, the company had $33 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 $15 million of business tax credit carryforwards that will expire
between 2003 and 2008.
42
<PAGE>
NOTE 10 - INVENTORIES
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
----------------------------------------------
<S> <C> <C>
Crude oil and condensate $ 31 $ 44
Refined products 161 146
Chemicals 46 55
Minerals 16 15
Supplies, merchandise and other 87 66
-----------------------------------------------
Total $ 341 $ 326
-----------------------------------------------
</TABLE>
The current cost of inventories exceeded the LIFO inventory value included
above by $142 million and $147 million at December 31, 1994 and 1993,
respectively.
NOTE 11 - PROPERTIES AND CAPITALIZED LEASES
Investments in owned and capitalized leased properties at December 31, 1994
and 1993 are set forth below. Total accumulated depreciation, depletion and
amortization was $11,096 million and $11,215 million at December 31, 1994 and
1993, respectively.
Capitalized leased properties principally consist of service stations and
petroleum facilities. Capital leases have expiration dates ranging from 1995 to
2009, and include purchase options and favorable renewal options.
<TABLE>
<CAPTION>
1994 1993
------------------------------------
Millions of Dollars Gross Net Gross Net
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned properties (at cost)
Petroleum operations:
Exploration
United States $ 167 $ 54 $ 200 $ 77
Foreign 124 71 119 59
Production
United States 7,926 2,707 7,896 3,197
Foreign 4,011 1,193 3,811 1,181
Refining, marketing and transportation 3,218 1,833 2,945 1,612
----------------------------------------------------------------------------------
Total 15,446 5,858 14,971 6,126
Chemical operations 663 208 679 220
Geothermal operations 967 380 940 378
Corporate and other * 825 371 1,778 443
----------------------------------------------------------------------------------
Total owned properties 17,901 6,817 18,368 7,167
Capitalized leased properties 18 6 22 8
----------------------------------------------------------------------------------
Total $17,919 $6,823 $18,390 $7,175
----------------------------------------------------------------------------------
</TABLE>
* Includes mineral and real estate assets.
43
<PAGE>
NOTE 12 - 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 1992 through 1994 as plan
assets substantially exceeded the pension obligations. At year-end 1994, plan
assets principally consisted 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 obligations for all foreign plans are insignificant.
Pension costs for the funded U.S. plans include the following components:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 24 $ 20 $ 27
Interest cost on projected benefit obligation 49 48 51
Actual return on plan assets 9 (125) (51)
Net amortization and deferral (109) 20 (57)
Net gain from partial settlement of obligation (4) (3) (22)
-------------------------------------------------------------------------
Net pension expense (income) $ (31) $ (40) $ (52)
-------------------------------------------------------------------------
</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, 1994 and 1993:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 885 $ 943
------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 484 556
Nonvested benefits 18 21
------------------------------------------------------------------------
Accumulated benefit obligation 502 577
Effect of projected future salary increases 101 119
------------------------------------------------------------------------
Projected benefit obligation 603 696
------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 282 247
Unrecognized net loss 152 164
Unrecognized net assets (86) (108)
Unrecognized prior service cost 13 27
------------------------------------------------------------------------
Prepaid pension cost $ 361 $ 330
------------------------------------------------------------------------
</TABLE>
44
<PAGE>
The assumed rates used to measure the projected benefit obligation and the
expected earnings on plan assets were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate 8.50% 7.25% 8.25%
Increase in future compensation levels 5.00% 5.00% 6.00%
Expected long-term return on plan assets 9.75% 10.50% 11.50%
</TABLE>
The amount of benefits which can be covered by the funded plans described
above are limited by the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. Therefore, the company has a supplemental retirement plan
designed to maintain benefits for all employees at the plan formula level. The
amounts expensed for this plan were $5 million, $2 million and $23 million in
1994, 1993 and 1992, 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, 1994
was $19 million.
The company has established a grantor trust to provide funding for the
benefits payable under the supplemental retirement plan. Total assets held in
the trust at December 31, 1994 amounted to $8 million.
NOTE 13 - 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.
The following table sets forth the postretirement benefit obligation
recognized in the consolidated balance sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 134 $ 146
Fully eligible active employees 20 21
Other active employees 29 35
-----------------------------------------------------------------
Total 183 202
Unrecognized gain (loss) and prior service cost 23 (2)
-----------------------------------------------------------------
Accrued postretirement benefit cost $ 206 $ 200
-----------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost is comprised of the following
components:
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Service cost $ 6 $ 5
Interest cost 15 17
-----------------------------------------------------------------
Total $ 21 $ 22
-----------------------------------------------------------------
</TABLE>
The pay-as-you-go cost for postretirement medical benefits was $13 million
in 1992.
The accumulated postretirement benefit obligation at December 31, 1994 was
determined using a discount rate of 8.5 percent. The health care cost trend
rates used in measuring the 1994 benefit obligations were 8 percent for under
age 65 and 6.6 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 of one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1994 by $17 million and net periodic benefits cost by $2 million.
The company also provides benefits such as workers' compensation and
disabled employees' medical care to former or inactive employees after
employment but before retirement. The accumulated postemployment benefit
obligation was $17 million as of December 31, 1994 and 1993.
45
<PAGE>
NOTE 14 - LONG-TERM DEBT AND CREDIT AGREEMENTS
The following table summarizes the company's long-term debt:
<TABLE>
<CAPTION>
At December 31
------------------
Millions of Dollars 1994 1993
-------------------------------------------------------------------------
<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 1998 to 2008 74 76
Swiss Franc Bonds due 1996, effective rate 9.69% 110 110
Deutsche Mark Bonds due 1998, effective rate 8.4% 110 110
Notes
Commercial paper (6.01%) * 456 537
Medium-term notes due 1995 to 2011 (8.54%) * 754 575
8-3/4% Notes due 1997 - 300
Bank Credit Agreement (6.5%) * 250 -
Revolving credit facilities (6.6%) * 135 41
9-3/4% Notes due 1994 - 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
6-3/8% Notes due 2004 200 -
8-1/2% Notes due 1994 - 150
Other miscellaneous debt 15 8
-------------------------------------------------------------------------
Total 3,454 3,507
Less current portion of long-term debt 2 52
-------------------------------------------------------------------------
Total long-term debt $3,452 $3,455
-------------------------------------------------------------------------
</TABLE>
* Weighted average interest rate at December 31, 1994
At December 31, 1994, the commercial paper, the 9-5/8% Notes due 1995, $29
million of medium-term notes due in 1995 and short-term borrowings under various
credit facilities due in 1995 were classified as long-term debt and included
with the 1999 maturity amount listed below. The company has the intent to
refinance these borrowings on a long-term basis and has the ability to do so, if
necessary, through existing lines of credit extending to 1999. The current
portion of long-term debt at year-end 1994 represents the net amount of debt
expected to be reduced in 1995. The amounts of long-term debt maturing in 1996,
1997, 1998 and 1999 are $318 million, $118 million, $330 million and $1,261
million, respectively.
In 1994, the company's new borrowings consisted of: (1) $179 million in
medium-term notes with interest rates ranging from 6.33% to 7.24% and maturity
dates ranging from February 1997 to March 2001; (2) $200 million of 6-3/8% notes
due 2004; (3) $250 million under the Bank Credit Agreement; and (4) $60 million
under an $85 million revolving credit facility. The proceeds were used
principally to refinance maturing and certain callable debt.
The company also borrowed $30 million under a $250 million revolving credit
facility that was established in 1993 for the purpose of funding its oil and gas
development program in Thailand. This credit facility terminates December 15,
1998. For the same purpose, the company has a $45 million revolving credit
facility through 1999 in the Netherlands. The entire commitment amount was
outstanding at year-end 1994. During 1994, the company arranged an $85 million
revolving credit facility with a Canadian bank. This facility has a perpetual
364 day maturity date. Borrowings under these three credit facilities bear
interest at different margins above London Interbank Offered Rates (LIBOR) and
the agreements call for facility fees on either the total or undrawn commitment.
46
<PAGE>
The Bank Credit Agreement provides a revolving credit of $1.2 billion
through 1999 at interest rates based on LIBOR and requires a facility fee on the
total commitments. Of the total, $250 million had been drawn at December 31,
1994. This agreement is available for general corporate purposes, including the
support of commercial paper. The company has other undrawn letters of credit for
approximately $176 million. The majority are maintained for operational needs.
NOTE 15 - 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>
1995 $ 70 $ 4
1996 48 4
1997 36 3
1998 28 1
1999 24 1
Balance 95 4
-------------------------------------------------------------------
Total minimum lease payments $301 $17
Less imputed interest 5
-------------------------------------------------------------------
Present value of net minimum lease payments * $12
-------------------------------------------------------------------
</TABLE>
* The current portion of these obligations amounted to $3 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 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed rentals $ 118 $ 129 $ 139
Contingent rentals (based primarily on sales and usage) 32 37 44
Sublease rental income (49) (51) (61)
----------------------------------------------------------------------------------
Net expense $ 101 $ 115 $ 122
----------------------------------------------------------------------------------
</TABLE>
NOTE 16 - FINANCIAL INSTRUMENTS
Unocal does not hold or issue financial instruments for trading purposes.
FOREIGN CURRENCY FORWARD AND SWAP CONTRACTS
Unocal enters into various foreign currency forward and swap contracts to
manage its exposure to adverse impacts of foreign currency fluctuations. Foreign
currency gains or losses on the outstanding contracts essentially offset the
foreign currency losses or gains of the debt obligations.
During 1986, the company entered into two currency swap agreements to hedge
foreign currency exchange exposure related to the interest and principal
payments of the company's Swiss Franc bonds due in 1996 and Deutsche Mark bonds
due in 1998. These instruments have the same maturity as the related underlying
debt. The aggregate notional principal amounts of these agreements were $220
million at December 31, 1994. At year-end 1994, these currency swap agreements
had an aggregate fair value of approximately $77 million in assets based on
dealer quotes.
In addition, the company had three currency swap agreements outstanding on
borrowings of its Canadian subsidiary, with notional amounts totaling $310
million at year-end 1994. The currency swap agreements entered into by the
subsidiary have the effect of changing the subsidiary's U.S. dollar denominated
borrowings into its functional Canadian currency. The objective of these
agreements is to limit the subsidiary's exposure to currency exchange gains and
losses. At the same time, the parent company entered into three currency swap
agreements to offset the subsidiary's currency swaps with the objective of
maintaining the underlying debt in U.S. dollars for reporting in the
consolidated financial statements. The maturities of the agreements range from
1995 to 1999,
47
<PAGE>
which correspond to the related debt obligations. The net fair value of the
currency swap agreements at year-end 1994 was approximately zero.
During 1994, the company entered into eight currency forward contracts to
purchase 17 million Pounds Sterling for $25 million U.S. dollars. The objective
is to hedge a series of known obligations denominated in Pound Sterling which
will come due during the period from January 1995 to October 1996. The fair
value of these currency forward contracts at December 31, 1994, was
approximately $1.4 million in assets.
INTEREST RATE SWAPS
Unocal enters into interest rate swap agreements to manage its floating-
rate debt with the objective of minimizing the company's borrowing costs. Net
payments or receipts under the agreements are recorded in interest expense on
a current basis. The following interest rate swap agreements were entered
into at the time the debt obligations were issued, and have the same maturity
as the underlying debt. At year-end 1994, the interest rate swap agreements
had an aggregate fair value of approximately $15 million in liabilities based
on quoted market prices of comparable instruments.
In 1986, the company entered into an interest rate swap agreement with a
notional amount of $200 million. The agreement converts the interest rate on
the floating-rate Eurodollar notes due 1996 to an effective interest rate of
9.77 percent. The company pays interest at the fixed rate of 9.28 percent and
receives interest at a floating rate based on LIBOR. At year-end 1994, the
floating interest rate was 5.56 percent.
During 1994, the company entered into a $25 million, three-year interest
rate swap agreement. Under this agreement, the company pays interest at a
floating rate based on LIBOR and receives interest at a fixed rate of 6.7
percent. At year-end 1994, the floating interest rate was 6.0 percent.
The counterparties to the company's financial instruments are major
international financial institutions with high credit ratings. Even though the
company may be exposed to losses in the event of non-performance by these
counterparties, it does not anticipate losses due to non-performance by the
counterparties. In the opinion of management, the off-balance-sheet risk
associated with these instruments is minimal and immaterial.
OTHER
The company uses commodity future contracts with maturities of one year
or less to hedge the impact of fluctuations in prices of crude oil, natural gas
and refined products. The resulting gains or losses are recorded as part of the
transactions being hedged. At December 31, 1994, the company had outstanding
contracts covering 419 thousand barrels of crude oil and 9 billion cubic feet of
natural gas with notional amounts totaling $7 million for crude oil and $16
million for natural gas. At December 31, 1993, the company had outstanding
contracts covering 988 thousand barrels of crude oil with notional amounts
totaling $15 million. The fair values of the contracts, based on quoted market
prices, were insignificant at year-end 1994 and 1993.
The company had $148 million in cash and cash equivalents at year-end 1994,
which approximates fair value because of the short maturity of these
investments.
The estimated fair value of the company's long-term debt was $3,541 million
at year-end 1994. The fair value of debt instruments was based on the discounted
amount of future cash outflows using the rates offered to the company for debt
of the same remaining maturities.
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 risk
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, 1994, the company had no significant
concentrations of credit risk.
48
<PAGE>
NOTE 17 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES
At December 31, 1994, the company had accrued $457 million for the
estimated future costs to abandon and remove wells and production facilities,
primarily related to worldwide offshore operations. The total costs for
abandonments are estimated to be $850 million to $990 million, of which the
lower end of the range is used to calculate the amount to be amortized.
At December 31, 1994, the company's reserves for environmental remediation
obligations totaled $262 million, of which $97 million was included in other
current liabilities. The reserve included estimated probable future costs of $43
million for federal Superfund and comparable state-managed multiparty disposal
sites; $35 million for formerly-operated sites for which the company has
remediation obligations; $88 million for sites related to businesses or
operations that have been sold with contractual remediation or indemnification
obligations; $74 million for company-owned or controlled sites where facilities
have been closed or operations shut down; and $22 million for sites owned and/or
controlled by the company and utilized in its ongoing operations.
NOTE 18 - CONTINGENT LIABILITIES
The company has certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings, including those
involving environmental, tax and other matters, certain of which are discussed
more specifically below. The company accrues liabilities when it is probable
that future costs will be incurred and such costs can be reasonably estimated.
Such accruals are based on developments to date, the company's estimates of the
outcomes of these matters and its experience in contesting, litigating and
settling other matters. As the scope of the liabilities becomes better defined,
there will be changes in the estimates of future costs, which could have a
material effect on the company's future results of operations and financial
condition or liquidity.
ENVIRONMENTAL MATTERS
The company is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include existing and possible
future obligations to investigate the effects of the release or disposal of
certain petroleum, chemical and mineral substances at various sites; to
remediate or restore these sites; to compensate others for damage to property
and natural resources, for remediation and restoration costs and for personal
injuries; and to pay civil penalties and, in some cases, criminal penalties and
punitive damages. These obligations relate to sites owned by the company or
others and associated with past and present operations, including sites at which
the company has been identified as a potentially responsible party (PRP) under
the federal Superfund laws and comparable state laws. Liabilities are accrued
when it is probable that future costs will be incurred and such costs can be
reasonably estimated. However, in many cases, investigations are not yet at a
stage where the company is able to determine whether it is liable or, if
liability is probable, to quantify the liability or estimate a range of possible
exposure. In such cases, the amount of the company's liabilities is
indeterminate due to the potentially large number of claimants for any given
site or exposure, the unknown magnitude of possible contamination, the imprecise
and conflicting engineering evaluations and estimates of proper cleanup methods
and costs, the unknown timing and extent of the corrective actions that may be
required, the uncertainty attendant to the possible award of punitive damages,
the recent judicial recognition of new causes of action, the present state of
the law, which often imposes joint and several and retroactive liabilities on
PRPs, and the fact that the company is usually just one of a number of companies
identified as a PRP.
As disclosed in Note 17, at year-end 1994, the company had accrued $262
million for estimated future environmental assessment and remediation costs at
various sites where liability for such costs is probable. At those sites where
investigations or feasibility studies have advanced to the stage of analyzing
feasible alternative remedies and/or ranges of costs, the company estimates that
it could incur additional remediation costs aggregating approximately $120
million.
49
<PAGE>
TAX MATTERS
The company has received a Notice of Proposed Deficiency from the Internal
Revenue Service (IRS) related to a 1985 takeover attempt and efforts undertaken
to defeat it. The proposed deficiency, if sustained, would increase the
company's 1985 taxable income by up to $607 million, of which $201 million would
result in decreases in taxable income in subsequent years. The company believes
it has substantial legal defenses to the proposed deficiency. In February 1995,
the company filed a protest of the proposed deficiency with the Appeals section
of the IRS. In the opinion of management, a successful outcome in these disputes
is reasonably likely. Although considered unlikely, substantial adverse
decisions could have a material effect on the company's financial condition or
operating results in a given year or quarter when such matters are resolved.
OTHER MATTERS
The company also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. Although these contingencies could result in expenses or judgments
that could be material to the company's results of operations for a given
reporting period, on the basis of management's best assessment of the ultimate
amount and timing of these events, such expenses or judgments are not expected
to have a material adverse effect on the company's consolidated financial
condition or liquidity.
NOTE 19 - CAPITAL STOCK
COMMON STOCK
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------
Authorized - 750,000,000 Shares Thousands of Shares
------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 241,324 240,671 234,605
Issuance of common stock 2,875 653 6,066
------------------------------------------------------------------
Outstanding at end of year 244,199 241,324 240,671
------------------------------------------------------------------
Par value per authorized share $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------
</TABLE>
At December 31, 1994, there were reserved approximately 16.7 million shares
for the conversion of preferred stock, 14.1 million shares for the company's
employee benefit plans and Directors' Restricted Stock Plan and 2.1 million
shares for the company's Dividend Reinvestment and Common Stock Purchase Plan.
PREFERRED STOCK
The company has authorized 100,000,000 shares of preferred stock with a par
value of $0.10 per share. In July 1992, the company issued 10,250,000 shares of
$3.50 convertible preferred stock. The convertible preferred stock is redeemable
on and after July 15, 1996, in whole or in part, at the option of the company,
at a redemption price of $52.10 per share declining to $50 per share on and
after July 15, 2002, together with accumulated but unpaid dividends. The
convertible preferred stock has a liquidation value of $50 per share and is
convertible at the option of the holder into common stock of the company at a
conversion price of $30.75 per share, subject to adjustment in certain events.
Dividends on the preferred stock at an annual rate of $3.50 per share are
cumulative and are payable quarterly in arrears, when and as declared by
Unocal's Board of Directors (the Board). Holders of the preferred stock have no
voting rights. However, there are certain exceptions including the right to
elect two additional directors if the equivalent of six quarterly dividends
payable on the preferred stock are in default.
50
<PAGE>
Stockholder Rights Plan
In January 1990, the Board adopted a stockholder rights plan (Rights Plan)
and declared a dividend of one preferred stock purchase right (Right) for each
share of common stock outstanding. The Board also authorized the issuance of one
Right for each common share issued after February 12, 1990, and prior to the
earlier of the date on which the rights become exercisable, the redemption date,
or the expiration date.
The Board has designated 3,000,000 shares of preferred stock as Series A
Junior Participating Cumulative Preferred Stock (Series A Preferred Stock) in
connection with the Rights Plan. The Rights Plan provides that in the event any
person, or group of affiliated persons, becomes, or commences a tender offer or
exchange offer pursuant to which such person or group would become, the
beneficial owner of 15 percent or more of the outstanding common shares, each
Right (other than Rights held by the 15 percent stockholder) will be
exercisable, on and after the close of business on the tenth business day
following such event, unless the Rights are redeemed by the Board of Directors
of the company, to purchase units of Series A Preferred Stock (each consisting
of one one-hundredth of a share) having a market value equal to two times the
then-current exercise price (initially $75). The Rights Plan further provides
that if, on or after the occurrence of such event, the company is merged into
any other corporation or 50 percent or more of the company's assets or earning
power are sold, each Right (other than Rights held by the 15 percent
stockholder) will be exercised to purchase shares of the acquiring corporation
having a market value equal to two times the exercise price.
The Rights expire on January 29, 2000, unless previously redeemed by the
Board. The Rights do not have voting or dividend rights and, until they become
exercisable, have no diluting effect on the earnings of the company. As of
December 31, 1994, none of the Series A Preferred Stock had been issued nor had
the Rights become exercisable.
NOTE 20 - STOCK OPTION PLANS
Under the company's Long-Term Incentive Plans of 1991 and 1985, stock
options are granted to executives and key employees to purchase shares of the
company's common stock. The option price per share will not be less than the
fair market value of a share of common stock on the date granted. No options
will be exercisable more than 10 years after the date of grant. Restrictions may
be imposed for a period of five years on certain shares acquired through
exercise of options granted after 1990.
The following is a summary of stock option transactions for 1992, 1993 and
1994:
<TABLE>
<CAPTION>
Weighted Average
1985 Plan Shares Under Option Price per Share
---------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1992 2,681,556 $23.19
Exercised (182,946) 14.22
Canceled (268,319) 21.51
---------------------------------------------------------------------------------
Outstanding, December 31, 1992 2,230,291 24.12
Exercised (266,693) 19.20
Canceled (119,428) 24.41
---------------------------------------------------------------------------------
Outstanding, December 31, 1993 1,844,170 24.82
Exercised (95,505) 20.10
Canceled (33,735) 30.07
---------------------------------------------------------------------------------
Outstanding, December 31, 1994 1,714,930 24.98
Exercisable, December 31, 1994 1,714,930 24.98
---------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
NOTE 20 - STOCK OPTION PLANS (CONTINUED)
<TABLE>
<CAPTION>
Weighted Average
1991 Plan Shares Under Option Price per Share
------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1992 - -
Granted 1,166,605 $20.94
Exercised (2,368) 20.94
Canceled (165,674) 20.94
------------------------------------------------------------------------------
Outstanding, December 31, 1992 998,563 20.94
Granted 762,528 29.69
Exercised (80,099) 20.94
Canceled (44,723) 21.68
------------------------------------------------------------------------------
Outstanding, December 31, 1993 1,636,269 25.00
Granted 819,628 26.38
Exercised (28,384) 20.94
Canceled (98,226) 26.02
------------------------------------------------------------------------------
Outstanding, December 31, 1994 2,329,287 25.49
Exercisable, December 31, 1994 1,213,601 24.59
</TABLE>
Under the Long-Term Incentive Plan of 1991, there were 6,434,825 shares
available at year-end 1994 for stock option awards as well as other awards. No
additional shares will be granted under the 1985 Plan.
NOTE 21 - SUMMARIZED FINANCIAL DATA OF UNION OIL
Unocal Corporation is the parent of Union Oil Company of California, a
fully integrated energy resources company. Virtually all operations are
conducted by Union Oil and its subsidiaries. Summarized financial
information for Union Oil and its consolidated subsidiaries is presented below:
<TABLE>
<CAPTION>
For Years Ended
--------------------------
Millions of Dollars 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $7,965 $8,344 $10,061
Total costs and other deductions, including income taxes 7,840 8,000 9,864
Earnings before cumulative effect of accounting changes 125 344 197
Cumulative effect of accounting changes (277) (130) 24
Net earnings (loss) (152) 214 221
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31
---------------
Millions of Dollars 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Current assets $1,528 $1,578
Noncurrent assets 7,822 8,141
Current liabilities 1,275 1,221
Noncurrent liabilities 5,264 5,381
Shareholder's equity 2,811 3,117
---------------------------------------------------------------------------
</TABLE>
52
<PAGE>
NOTE 22 - INVESTMENTS IN AFFILIATES
Investments in affiliated companies accounted for by the equity method were
$391 million, $389 million and $387 million at December 31, 1994, 1993 and 1992,
respectively. Dividends or cash distributions received from these affiliates
were $88 million, $80 million and $74 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, 1994 was $110 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 being amortized on a straight-line basis over a period of 25
years. The remaining unamortized balance at December 31, 1994 was $60 million.
Summarized financial information for these equity investees is shown below.
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------
Unocal's Unocal's Unocal's
Millions of Dollars Total Share Total Share Total Share
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $2,144 $ 829 $2,257 $857 $2,421 $929
Costs and other deductions 1,809 743 1,903 773 2,125 863
Net earnings 335 86 354 84 296 66
---------------------------------------------------------------------------------
Current assets $ 440 $ 178 $ 452 $178 $ 480 $183
Noncurrent assets 2,121 597 2,081 564 2,124 556
Current liabilities 383 152 317 111 337 107
Noncurrent liabilities 1,038 291 1,068 301 1,066 301
Net equity 1,140 332 1,148 330 1,201 331
---------------------------------------------------------------------------------
</TABLE>
NOTE 23 - SEGMENT AND GEOGRAPHIC DATA
The company is engaged principally in petroleum, chemical and geothermal
operations. Petroleum involves 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. Chemicals involves
the manufacture, transportation and marketing of chemicals for agricultural and
industrial uses. Geothermal involves the exploration for, and the production and
sale of, geothermal resources. Other business activities currently include the
production and marketing of specialty minerals, and real estate development and
sales.
Financial data by business segments and geographic areas 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.
53
<PAGE>
BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:(d)
Petroleum
Exploration and Production $ 2,641 $ 2,739 $ 2,865 $ 2,954 $ 3,256
Refining, Marketing and Transportation 5,766 6,118 7,650 7,972 8,704
Chemicals 484 460 732 1,213 1,236
Geothermal 139 186 203 203 210
Corporate and Other 198 135 120 177 234
Intersegment Eliminations (1,263) (1,294) (1,509) (1,624) (1,832)
-----------------------------------------------------------------------------------------------------------------------------------
Total $7,965 $ 8,344 $10,061 $10,895 $11,808
Earnings:
Petroleum
Exploration and Production (e) $ 719 $ 782 $ 730 $ 757 $ 980
Refining, Marketing and Transportation (a)(f) 144 256 139 93 128
Chemicals (g) 81 65 37 71 68
Geothermal(h) 58 83 65 65 49
Corporate and Other (c)(i) (708) (575) (622) (774) (740)
------------------------------------------------------------------------------------------------------------------------------------
Pretax earnings before cumulative effect of
accounting changes 294 611 349 212 485
Income taxes (170) (268) (153) (139) (84)
Cumulative effect of accounting changes (277) (130) 24 - -
------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (153) $ 213 $ 220 $ 73 $ 401
Assets - December 31:
Petroleum
Exploration and Production (j) $ 4,413 $4,954 $ 4,894 $ 5,205 $ 5,221
Refining, Marketing and Transportation (b) 2,935 2,657 2,803 2,624 2,471
Chemicals 372 387 458 662 671
Geothermal 456 436 652 670 687
Corporate and Other 1,161 1,272 1,085 1,184 1,107
------------------------------------------------------------------------------------------------------------------------------------
Total $9,337 $9,706 $ 9,892 $10,345 $10,157
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) Includes equity in earnings of affiliates of $ 72 $ 69 $ 76 $ 52 $ 78
(b) Includes equity in affiliates of $ 299 $ 287 $ 283 $ 261 $ 256
(c) Includes net interest expense of $ 255 $ 279 $ 356 $ 357 $ 355
</TABLE>
(d) The recent decline generally reflects the effects of asset sales which
began in 1992.
(e) 1990 includes a gain of $128 million on the sale of the company's Norwegian
oil and gas subsidiary.
(f) The 1991 write-down of the Los Angeles Refinery for $73 million is included
in Corporate and Other.
(g) The 1991 write-down of the West Sacramento fertilizer manufacturing plant
for $25 million is included in Corporate and Other.
(h) 1993 includes a gain of $40 million from the sale of the company's Imperial
Valley geothermal operations and other exploration assets.
(i) 1994 includes a $161 million provision for environmental remediation
costs and 1990 includes a $127 million writedown of molybdenum assets.
(j) The decline in 1994 is primarily due to the write-down of impaired
producing oil and gas properties as discussed in Note 2.
54
<PAGE>
BUSINESS SEGMENT DATA (Continued)
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital expenditures:
Petroleum
Exploration and Production (a) $ 796 $ 892 $ 639 $ 857 $ 994
Refining, Marketing and Transportation 372 236 201 479 146
Chemicals 12 11 64 86 84
Geothermal 35 53 37 24 46
Corporate and Other 57 57 18 24 46
-------------------------------------------------------------------------------------------
Total $1,272 $1,249 $ 959 $1,470 $1,316
Depreciation, depletion and amortization:
Petroleum
Exploration and Production $ 696 $ 727 $ 729 $ 677 $ 674
Refining, Marketing and Transportation 142 120 111 100 93
Chemicals 23 21 24 37 43
Geothermal 28 52 58 59 59
Corporate and Other (b) 58 43 42 132 155
--------------------------------------------------------------------------------------------
Total $ 947 $ 963 $ 964 $1,005 $1,024
--------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC AREAS OF OPERATIONS
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
United States $6,533 $7,071 $ 8,578 $ 9,522 $10,515
Foreign 1,342 1,241 1,457 1,449 1,607
Corporate 90 55 40 25 54
Intersegment Eliminations - (23) (14) (101) (368)
--------------------------------------------------------------------------------------------
Total $7,965 $8,344 $10,061 $10,895 $11,808
Earnings:
United States $ 522 $ 737 $ 512 $ 456 $ 682
Foreign 470 432 434 475 520
Corporate (698) (558) (597) (719) (717)
--------------------------------------------------------------------------------------------
Pretax earnings before cumulative
effect of accounting changes 294 611 349 212 485
Income taxes (170) (268) (153) (139) (84)
Cumulative effect of accounting changes (277) (130) 24 - -
--------------------------------------------------------------------------------------------
Net earnings (loss) $ (153) $ 213 $ 220 $ 73 $ 401
Assets - December 31:
United States $6,777 $7,036 $ 7,324 $ 7,694 $ 7,785
Foreign 1,723 1,700 1,715 1,736 1,575
Corporate 837 970 853 915 797
--------------------------------------------------------------------------------------------
Total $9,337 $9,706 $ 9,892 $10,345 $10,157
</TABLE>
(a) 1990 excludes the acquisition of Prairie Producing Company valued at
approximately $340 million.
(b) Includes asset write-downs as described in the footnotes (f), (g), and (i)
on the previous page.
55
<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 or losses on sales of oil and gas
properties and miscellaneous rental income.
Production costs include lifting costs and taxes other than income.
Exploration expenses consist of geological and geophysical costs, leasehold
rentals and dry hole costs. Other operating expenses primarily include
administrative and general expense. 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 1994
Sales
To public $ 639 $495 $198 $1,332
Intercompany 749 263 14 1,026
Other revenues 4 - 42 46
--------------------------------------------------------------------------------
Total 1,392 758 254 2,404
Production costs 420 108 76 604
Exploration expenses 69 67 56 192
Depreciation, depletion and amortization 462 165 69 696
Other operating expenses 142 39 12 193
--------------------------------------------------------------------------------
Net 299 379 41 719
Income tax expense 113 194 18 325
--------------------------------------------------------------------------------
Results of operations $ 186 $185 $ 23 $ 394
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
</TABLE>
56
<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 11.
<TABLE>
<CAPTION>
United Far Other
Millions of Dollars States East Foreign Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Property acquisition
Proved $ 5 $ - $ - $ 5
Unproved 4 - 7 11
Exploration 115 94 58 267
Development 398 189 62 649
---------------------------------------------------------
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
---------------------------------------------------------
</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>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------
1994
Average sales price:
Crude oil and condensate - per barrel $13.06 $14.55 $14.36 $13.63
Natural gas - per MCF 1.78 2.01 1.76 1.86
Natural gas liquids - per barrel 11.38 8.32 8.31 10.60
Average production costs per barrel 3.35 1.44 4.66 2.79
--------------------------------------------------------------------------
1993
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
--------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Oil and Gas Reserve Data (Unaudited)
Estimates of physical quantities of oil and gas reserves, determined by
company engineers, for the years 1994, 1993 and 1992 are 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, however, foreign reserves held under certain
production sharing agreements, principally Indonesia, are reported on a gross
basis. The gross basis includes the company's net working interest and host
country's interest. Unocal's estimated net worldwide reserves, excluding the
host country's share under these production sharing agreements, would have been
628 million barrels of crude oil and 6,525 billion cubic feet of natural gas at
December 31, 1994.
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 91, 95 and 97 million barrels at December 31, 1994, 1993 and
1992, respectively. They are derived from the natural gas reserves by applying a
national average shrinkage factor obtained from the Department of Energy
published statistics. Foreign natural gas liquids reserves were insignificant
for the above periods.
<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 January 1, 1992 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)(a) - (8) (20)
Production (47)(b) (25) (12) (84)
----------------------------------------------------------------------------------------------
As of December 31, 1992 506 189 99 794
Revisions of estimates (6) - 2 (4)
Improved recovery 6 - - 6
Discoveries and extensions 27 5 25 57
Purchases 4 - - 4
Sales (6) - (3) (9)
Production (48)(c) (25) (11) (84)
----------------------------------------------------------------------------------------------
As of December 31, 1993 483 169 112 764
Revisions of estimates (7) 6 3 2
Improved recovery 2 - - 2
Discoveries and extensions 9 28 7 44
Sales (18) - (2) (20)
Production (50) (32) (13) (95)
----------------------------------------------------------------------------------------------
As of December 31, 1994 419 171 107 697
----------------------------------------------------------------------------------------------
Proved Developed Reserves
December 31, 1991 397 103 66 566
December 31, 1992 388 107 57 552
December 31, 1993 360 98 78 536
December 31, 1994 318 103 69 490
</TABLE>
(a) Includes the sale of 7 million barrels of future production under forward
contracts.
(b) Excludes 8 million barrels produced in 1992 but sold under forward contracts
in 1991.
(c) Excludes 7 million barrels produced in 1993 but sold under forward contracts
in 1992.
58
<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, 1992 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
Revisions of estimates 3 (2) (16) (15)
Discoveries and extensions 282 624 88 994
Purchases 117(a) - - 117
Sales (128)(b) - (3) (131)
Production (421) (243) (22) (686)
-----------------------------------------------------------------------------------------
As of December 31, 1994 3,580 3,048 283 6,911
-----------------------------------------------------------------------------------------
Proved Developed Reserves
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
December 31, 1994 2,437 1,768 127 4,332
</TABLE>
(a) Includes 115 billion cubic feet due to property exchanges.
(b) Includes 105 billion cubic feet due to property exchanges.
59
<PAGE>
Present Value of Future Net Cash Flow (Unaudited)
The present value of future net cash flows from proved oil and gas reserves
for the years 1994, 1993 and 1992 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>
1994
Revenues (a) $11,291 $6,610 $1,798 $19,699
Production costs 4,829 1,321 890 7,040
Development costs (b) 1,835 1,122 217 3,174
Income tax expense 1,189 1,729 290 3,208
-------------------------------------------------------------------------------------------------------------
Future net cash flow 3,438 2,438 401 6,277
10% annual discount 1,141 858 128 2,127
-------------------------------------------------------------------------------------------------------------
Present value of future net cash flow $ 2,297 $1,580 $ 273 $ 4,150
-------------------------------------------------------------------------------------------------------------
1993
Revenues (a) $12,260 $6,049 $1,467 $19,776
Production costs 5,114 1,192 640 6,946
Development costs (b) 1,980 1,006 201 3,187
Income tax expense 1,172 1,788 263 3,223
-------------------------------------------------------------------------------------------------------------
Future net 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 (a) $16,222 $6,907 $1,999 $25,128
Production costs 5,841 1,419 891 8,151
Development costs (b) 2,303 1,227 275 3,805
Income tax expense 2,295 2,011 385 4,691
-------------------------------------------------------------------------------------------------------------
Future net 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
-------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average prices at year end used in this calculation are as follows:
<TABLE>
<S> <C> <C> <C>
Crude oil per barrel
1994 $13.26 $16.84 $14.81
1993 10.08 14.96 11.78
1992 14.70 18.97 16.44
Natural gas per mcf
1994 $ 1.62 $ 1.88 $ 1.28
1993 2.05 1.99 1.62
1992 2.35 1.87 1.48
</TABLE>
(b) Includes dismantlement and abandonment costs.
60
<PAGE>
Changes in Present Value of Future Net Cash Flow (Unaudited) (Continued)
<TABLE>
<CAPTION>
Millions of Dollars 1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Present value at beginning of year $ 4,417 $ 5,425 $5,428
Discoveries and extensions, net of estimated future costs 602 626 807
Net purchases and sales of proved reserves (a) (22) (52) (119)
Revisions to prior estimates:
Prices net of estimated changes in production costs 83 (2,026) 170
Future development costs (164) 92 (262)
Quantity estimates (88) (403) (230)
Production schedules and other 39 91 262
Accretion of discount 543 741 688
Development costs related to beginning of year reserves 646 764 531
Sales of oil and gas, net of production costs of $604 million
in 1994, $634 million in 1993 and $655 million in 1992 (1,754) (1,653)(b) (1,709)(c)
Net change in income taxes (152) 812 (141)
-------------------------------------------------------------------------------------------------------
Present value at end of year $ 4,150 $ 4,417 $5,425
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Purchases of reserves were valued at $26 million, $39 million and $56
million in 1994, 1993 and 1992, respectively. Sales of reserves, including
the sale of future production, were valued at $48 million, $91 million and
$175 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.
61
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
1994 Quarters
------------------------------------------
Dollars in millions except per share amounts 1st 2nd 3rd 4th
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues (a) $1,916 $2,045 $2,020 $1,984
Total costs and other deductions, including income taxes (b) 1,862 1,995 1,960 2,052
----------------------------------------------------------------------------------------------------------
Net earnings (loss) as reported 54 50 60 (68)
Net adjustment for D, D & A due to accounting change 9 9 10 -
----------------------------------------------------------------------------------------------------------
Restated net earnings (loss) before cumulative effect
of accounting change 63 59 70 (68)
Cumulative effect of accounting change (277) - - -
----------------------------------------------------------------------------------------------------------
Restated net earnings (loss) $ (214) $ 59 $ 70 $ (68)
----------------------------------------------------------------------------------------------------------
Restated earnings (loss) per common share:
Before cumulative effect of accounting change $ .22 $ .21 $ .25 $ (.32)
Cumulative effect of accounting change (1.14) - - -
----------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (.92) $ .21 $ .25 $ (.32)
----------------------------------------------------------------------------------------------------------
Gross margin (c) $ 145 $ 201 $ 217 $ 30
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) Includes sales and operating revenues of $1,829 $2,023 $1,989 $1,955
(b) Includes special items of $ 58 $ 13 $ 17 $ 229
</TABLE>
(c) Gross margin equals sales and operating revenues less crude oil and product
purchases, operating and selling expenses, depreciation, depletion and
amortization, dry hole costs, exploration expense, consumer excise taxes and
other operating taxes.
Net earnings for the fourth quarter of 1994 included charges of $94 million
($152 million pretax) for environmental remediation costs, $22 million ($35
million pretax) for litigation expenses, $22 million ($35 million pretax) for
asset write-downs and $15 million ($25 million pretax) for restructuring costs.
Fourth quarter charges for environmental remediation and litigation are
principally due to changes in estimates. Included in the $94 million for
environmental remediation costs was $16 million ($26 million pretax) which
relates to incremental obligations incurred over a number of prior periods but
which would not have been material to any such period.
<TABLE>
<CAPTION>
1993 Quarters
-------------------------------------------
Dollars in millions except per share amounts 1st 2nd 3rd 4th
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues (a) 2,318 $2,098 $1,963 $1,965
Total costs and other deductions, including income taxes (b) 2,177 2,010 1,893 1,921
------------------------------------------------------------------------------------------------------------
Net earnings before accounting changes 141 88 70 44
Cumulative effect of accounting changes (130) - - -
------------------------------------------------------------------------------------------------------------
Net earnings as reported 11 88 70 44
Pro forma effect of the 1994 accounting change 8 8 7 8
------------------------------------------------------------------------------------------------------------
Pro forma net earnings 19 $ 96 $ 77 $ 52
------------------------------------------------------------------------------------------------------------
Pro forma earnings per common share:
Before cumulative effect of accounting changes $ .58 $ .36 $ .28 $ .18
Cumulative effect of accounting changes (.54) - - -
------------------------------------------------------------------------------------------------------------
Net earnings per common share .04 $ .36 $ .28 $ .18
------------------------------------------------------------------------------------------------------------
Gross margin (c) 247 $ 215 $ 186 $ 124
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) Includes sales and operating revenues of $2,204 $2,041 $1,907 $1,925
(b) Includes special items of $ 5 $ 17 $ 24 $ 35
</TABLE>
(c) Gross margin equals sales and operating revenues less crude oil and product
purchases, operating and selling expenses, depreciation, depletion and
amortization, dry hole costs, exploration expense, consumer excise taxes and
other operating taxes.
62
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in millions except per share amounts 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and Earnings Data
Sales revenues
Petroleum products $ 2,457 $ 2,895 $ 3,710 $ 3,759 $ 4,461
Crude oil and condensate 2,314 2,264 2,754 3,027 3,282
Chemicals 462 431 702 1,168 1,204
Natural gas 1,109 1,104 1,033 954 939
Geothermal 135 145 197 204 210
Natural gas liquids 96 101 116 117 103
Minerals 79 62 80 92 93
Other 30 36 47 55 78
Consumer excise taxes 893 816 992 1,050 863
-------------------------------------------------------------------------------------------------------------------
Total 7,575 7,854 9,631 10,426 11,233
Operating revenues 222 223 256 309 275
Other revenues 168 267 174 160 300
-------------------------------------------------------------------------------------------------------------------
Total revenues 7,965 8,344 10,061 10,895 11,808
Earnings before cumulative effect of accounting changes 124 343 196 73 401
Per common share .36 1.27 .75 .31 1.71
Net earnings (loss) (a) (153) 213 220 73 401
Per common share (.78) .73 .85 .31 1.71
-------------------------------------------------------------------------------------------------------------------
Share Data
Cash dividends declared on preferred stock $ 36 $ 36 $ 17 $ - $ -
Per share 3.50 3.50 1.62 - -
Cash dividends declared on common stock 194 181 167 164 164
Per share .80 .75 .70 .70 .70
Number of common stockholders of record at year end 37,622 41,682 44,870 43,591 44,466
Weighted average common shares-thousands 242,640 241,114 238,278 234,594 234,132
-------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Current assets $ 1,528 $ 1,578 $ 1,660 $ 1,978 $ 2,071
Current liabilities 1,257 1,196 1,436 1,524 1,846
Working capital 271 382 224 454 225
Ratio of current assets to current liabilities 1.2:1 1.3:1 1.2:1 1.3:1 1.1:1
Total assets (b) 9,337 9,706 9,892 10,345 10,157
Long-term debt 3,452 3,455 3,530 4,543 4,025
Capital lease obligations 9 13 16 20 22
Total stockholders' equity 2,815 3,129 3,131 2,464 2,550
Per common share 9.54 10.90 10.93 10.50 10.87
Return on average stockholders' equity (5.1)% 6.8% 7.9% 2.9% 16.5%
-------------------------------------------------------------------------------------------------------------------
General Data
Salaries, wages and employee benefits (c) $ 811 $ 744 $ 817 $ 843 $ 773
Number of regular employees at year end 13,127 13,613 14,687 17,248 17,518
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net earnings (loss) include the cumulative effect of accounting changes
which consisted of a charge of $277 million ($1.14 per common share) in
1994, a charge of $130 million ($.54 per common share) in 1993 and a gain
of $24 million ($.10 per common share) in 1992.
(b) Total assets prior to 1994 have been restated to classify the accumulated
reserve for future abandonment costs to a liability account rather than as
a reduction of the properties.
(c) Employee benefits are net of pension income recognized in accordance with
current accounting standards for pension costs. For years 1994 and 1993,
such benefits also include the accrued postretirement medical benefits
cost.
63
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE: None
---------------------
PART III
The information required by Items 10 through 12 (except for information
regarding the company's executive officers) is incorporated by reference from
Unocal's Proxy Statement for its 1995 Annual Meeting of Stockholders (the "1995
Proxy Statement") (File No. 1-8483), as indicated below. The Proxy Statement
will be filed with the Securities and Exchange Commission on or about April 11,
1995.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information regarding Unocal's directors and nominees for election
as directors to appear under the caption "Item 1. Election of Directors" in the
1995 Proxy Statement. See also the list of Unocal's executive officers and
related information under the caption "Executive Officers of the Registrant" in
Part I of this report on page 18.
ITEM 11 - EXECUTIVE COMPENSATION
See the information regarding executive compensation to appear under the
captions "Summary Compensation Table", "Option Grants in 1994", "Aggregated
Option/SAR Exercises in 1994 and December 31, 1994 Option Values", "Long-Term
Incentive Plans -- Awards in 1994", "Pension Plan Benefits" and "Employment and
Change of Control Agreements" and the information regarding directors'
compensation to appear under the caption "Directors' Compensation" in the 1995
Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information regarding security ownership to appear under the
captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the 1995 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Not required.
---------------------
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 the Index to Consolidated Financial
Statements and Financial Statement Schedules under Item 8 on
page 29 of this report.
(2) Financial Statement Schedules: See the Index to Consolidated
Financial Statements and Financial Statement Schedules under
Item 8 on page 29 of this report.
(3) Exhibits: The Exhibit Index on pages 69 and 70 of this report
lists the exhibits that are filed as part of this report.
64
<PAGE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(continued)
(b) Reports filed on Form 8-K:
During the fourth quarter of 1994:
(1) Current Report on Form 8-K dated and filed October 31, 1994, for
the purpose of reporting, under item 5, third quarter and year-to-
date earnings.
(2) Current Report on Form 8-K dated and filed November 2, 1994, for
the purpose of reporting, under item 5, a reduction in corporate
staff.
(3) Current Report on Form 8-K dated and filed December 5, 1994, for
the purpose of reporting, under item 5, a change in accounting
policy and various anticipated charges to the fourth quarter
earnings.
During the first quarter of 1995 to the date hereof:
(1) Current Report on Form 8-K dated and filed January 30, 1995, for
the purpose of reporting, under item 5, the company's fourth
quarter and full-year 1994 earnings.
(2) Current Report on Form 8-K dated and filed January 31, 1995, for
the purpose of reporting, under item 5, the granting to the company
of a patent for certain reformulated gasolines.
65
<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.
UNOCAL CORPORATION
(Registrant)
Date: March 27, 1995 By /s/ NEAL E. SCHMALE
-----------------------
Neal E. Schmale
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 27, 1995.
Signature Title
-------------------------- ---------------------------------
/s/ RICHARD J. STEGEMEIER Chairman of the Board
-------------------------
Richard J. Stegemeier
/s/ ROGER C. BEACH Director, and Chief Executive
------------------------- Officer
Roger C. Beach
/s/ JOHN F. IMLE, JR. Director, and President
-------------------------
John F. Imle, Jr.
/s/ NEAL E. SCHMALE Director, and Chief Financial
------------------------- Officer
Neal E. Schmale
/s/ CHARLES S. McDOWELL Vice President and Comptroller
------------------------- (Principal Accounting Officer)
Charles S. McDowell
66
<PAGE>
Signature Title
-------------------------- ---------------------------------
/s/ JOHN W. AMERMAN Director
--------------------------
John W. Amerman
/s/ MacDONALD G. BECKET Director
--------------------------
MacDonald G. Becket
/s/ CLAUDE S. BRINEGAR Vice Chairman of the Board
--------------------------
Claude S. Brinegar
/s/ MALCOLM R. CURRIE Director
--------------------------
Malcolm R. Currie
/s/ FRANK C. HERRINGER Director
--------------------------
Frank C. Herringer
/s/ DONALD P. JACOBS Director
--------------------------
Donald P. Jacobs
/s/ CHARLES R. WEAVER Director
--------------------------
Charles R. Weaver
/s/ MARINA v.N. WHITMAN Director
--------------------------
Marina v.N. Whitman
67
<PAGE>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - 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 1994
Amounts deducted from
applicable assets:
Accounts and notes receivable $ 16 $ 10 $ 1 $ (12) $15
Investments and long-term receivables $ 4 $ (1) $ - $ - $ 3
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
</TABLE>
----------------------
(a) Represents receivables written off, net of recoveries, reinstatements,
and losses sustained.
68
<PAGE>
UNOCAL CORPORATION
EXHIBIT INDEX
Exhibit 3.1 Certificate of Incorporation of Unocal, as amended through July
23, 1992, and currently in effect (incorporated by reference to
Exhibit 3.1 to Amendment No. 2 on Form 10-K/A to Unocal's Annual
Report on Form 10-K for the year ended December 31, 1993, File
No. 1-8483).
Exhibit 3.2 Bylaws of Unocal, as amended though July 25, 1994, and currently
in effect (incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-3 of Union Oil Company of
California and Unocal, Nos. 33-54861 and 33-54861-01.
Exhibit 4 Instruments Defining the Rights of Security Holders, Including
Indentures.
Exhibit 10.1 Rights Agreement, dated as of January 29, 1990, between the
Unocal and Chemical Trust Company of California, as Rights Agent
(incorporated by reference to Exhibit 1 to Unocal's Current
Report on Form 8-K dated January 29, 1990, File No. 1-8483).
The following Exhibits 10.2 through 10.9 are management contracts or
compensatory plans, contracts or arrangements required to be filed by Item 601
(b) (10) (iii) (A) of Regulation S-K.
Exhibit 10.2 Management Incentive Program (incorporated by reference to
Exhibit A to Unocal's Proxy Statement dated March 18, 1991 for
its 1991 Annual Meeting of Stockholders, File No. 1-8483).
Exhibit 10.3 Long-Term Incentive Plan of 1985 (incorporated by reference to
Unocal's Proxy Statement dated March 24, 1984 for its 1984
Annual Meeting of Stockholders, File No. 1-8483).
Exhibit 10.4 Supplemental Retirement Plan for Key Management Personnel, as
amended and effective January 1, 1989 (incorporated by reference
to Exhibit 10.3 to Unocal's Annual Report on Form 10-K for the
year ended December 31, 1990, File No. 1-8483).
Exhibit 10.5 Other Compensatory Arrangements (incorporated by reference to
Exhibit 10.4 to Unocal's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 1-8483).
Exhibit 10.6 Directors' Restricted Stock Plan of 1991 (incorporated by
reference to Exhibit B to Unocal's Proxy Statement dated
March 18, 1991 for its 1991 Annual Meeting of Stockholders, File
No. 1-8483).
Exhibit 10.7 Form of Indemnity Agreement between Unocal and each of its
directors (incorporated by reference to Exhibit A to Unocal's
Proxy Statement dated March 20, 1987 for its 1987 Annual Meeting
of Stockholders, File No. 1-8483).
Exhibit 10.8 Compensation and perquisites for R. J. Stegemeier as nonemployee
Chairman of the Board (incorporated by reference to Exhibit 10
to Unocal's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994, File No. 1-8483).
Exhibit 10.9 Employment Agreement, effective July 1, 1994, between Union Oil
Company of California and Lawrence M. Higby (incorporated by
reference to Exhibit 10 to Unocal's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, File No. 1-8483).
Exhibit 11 Statement regarding computation of earnings per common share for
the five years ended December 31, 1994.
69
<PAGE>
UNOCAL CORPORATION
EXHIBIT INDEX (continued)
Exhibit 12.1 Statement regarding computation of ratio of earnings to fixed
charges of Unocal for the five years ended December 31, 1994.
Exhibit 12.2 Statement regarding computation of ratio of earnings to combined
fixed charges and preferred stock dividends of Unocal for the
five years ended December 31, 1994.
Exhibit 12.3 Statement regarding computation of ratio of earnings to fixed
charges of Union Oil Company of California for the five years
ended December 31, 1994.
Exhibit 18 Letter from Coopers & Lybrand L.L.P. regarding change in
accounting policy.
Exhibit 21 Subsidiaries of Unocal Corporation.
Exhibit 23 Consent of Coopers & Lybrand L.L.P.
Exhibit 27 Financial data schedule for the year ended December 31, 1994
(included only in the copy of this report filed electronically
with the Commission).
70
<PAGE>
EXHIBIT 4
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
Documents incorporated by reference:
<TABLE>
<S> <C>
Common Stock, par value Certificate of Incorporation and Bylaws. See Exhibits
$1.00 per share 3.1 and 3.2, respectively, on the Exhibit Index.
Stock Purchase Rights Filed in Unocal's Current Report on Form 8-K
dated January 29, 1990.
Shelf registration statement Filed in Union Oil Company of California and
Unocal Corporation Form S-3, Nos. 33-1924 and
33-1924-01, Exhibit 4.1, dated December 11, 1985.
8-3/4% Notes due 1997 Filed in Union Oil Company of California and
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, Nos. 33-21825
and 33-21825-01, dated May 13, 1988. Also,
constitutes Post-effective Amendment No. 2
with respect to above Form S-3, Nos. 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.
Shelf registration statement Filed in Union Oil Company of California and
Unocal Corporation Form S-3, Nos. 33-38505
and 33-38505-01, dated January 2, 1991. Also,
constitutes Post-effective Amendment No. 1
with respect to above Form S-3, Nos. 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.
</TABLE>
<PAGE>
EXHIBIT 4
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(continued)
<TABLE>
<S> <C>
Documents incorporated by reference:
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.
Shelf registration statement Filed in Union Oil Company of California and
Unocal Corporation Form S-3, Nos. 33-54861 and
33-54861-01, dated August 2, 1994, as amended
by Amendment No. 1 dated February 3, 1995.
Also constitutes Post-Amendments No. 1 and 2,
respectively, to above Form S-3, Nos. 33-38505
and 33-28505-01.
Medium-Term Notes, Series C Filed in Union Oil Company of California and
Unocal Corporation Prospectus Supplements to
above Form S-3, dated March 8, 1995.
</TABLE>
Instruments defining the rights of holders of other long-term debt of
Unocal and its subsidiaries are not being filed since the total amount of
securities authorized under each of such instruments does not exceed 10 percent
of the total assets of the company and its subsidiaries on a consolidated basis.
Unocal agrees to furnish a copy of any such instrument to the Commission upon
request.
<PAGE>
EXHIBIT 11
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars and Shares in Thousands,
Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assuming No Dilution:
Net earnings before cumulative effect of
accounting changes $ 124,094 $ 342,461 $196,113 $ 72,545 $401,225
Preferred stock dividend (35,875) (35,875) (16,642) -- --
Cumulative effect of accounting change (277,468) (129,594) 23,900 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common
stock $(189,249) $ 176,992 $203,371 $ 72,545 $401,225
-----------------------------------------------------------------------------------------------------------------------------------
Weighted average common stock outstanding 242,640 241,114 238,278 234,594 234,132
Net earnings (loss) per common share:
Before cumulative effective of accounting
changes $ .36 $ 1.27 $ .75 $ .31 $ 1.71
Cumulative effect of accounting change (1.14) (.54) .10 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (.78) $ .73 $ .85 $ .31 $ 1.71
-----------------------------------------------------------------------------------------------------------------------------------
Assuming Full Dilution:
Net earnings (loss) before cumulative effect of
accounting changes $ 124,094 $ 342,461 $196,113 $ 72,545 $401,225
Cumulative effect of accounting change (277,468) (129,594) 23,900 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(153,374) $ 212,867 $220,013 $ 72,545 $401,225
-----------------------------------------------------------------------------------------------------------------------------------
Fully diluted shares of common stock (a) 261,021 259,524 256,506 235,223 234,519
Net earnings (loss) per common share:
Before cumulative effective of accounting
changes $ .48 $ 1.32 $ .77 $ .31 $ 1.71
Cumulative effect of accounting change (1.06) (.50) .09 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (.58) $ .82 $ .86 $ .31 $ 1.71
-----------------------------------------------------------------------------------------------------------------------------------
(a) Weighted average common stock outstanding 242,640 241,114 238,278 234,594 234,132
Common stock equivalents:
Stock option & performance shares 1,714 1,743 1,561 629 387
Convertible preferred stock 16,667 16,667 16,667 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total 261,021 259,524 256,506 235,223 234,519
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options above exclude those at exercise prices in excess of market value
at year end.
<PAGE>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings before cumulative effect of
accounting changes $124 $343 $196 $ 73 $401
Provision for income taxes 170 268 153 139 84
Minority interest -- -- 5 6 21
---- ---- ---- ---- ----
Earnings subtotal (a) 294 611 354 218 506
Fixed charges included in earnings:
Interest expense 275 304 379 395 419
Interest portion of rentals (b) 50 55 61 67 60
---- ---- ---- ---- ----
Subtotal 325 359 440 462 479
Earnings available before fixed charges $619 $970 $794 $680 $985
==== ==== ==== ==== ====
Fixed charges:
Fixed charges included
in earnings $325 $359 $440 $462 $479
Capitalized interest 30 30 34 40 10
---- ---- ---- ---- ----
Total fixed charges $355 $389 $474 $502 $489
==== ==== ==== ==== ====
Ratio of earnings to fixed charges (a) 1.7 2.5 1.7 1.4 2.0
-----------------------------------
(a) Includes pretax asset write-downs of: $ 71 $ 19 $ 50 $106 $127
The ratio of earnings, excluding asset
write-downs, to fixed charges would be: 1.9 2.5 1.8 1.6 2.3
</TABLE>
(b) Calculated as one-third of operating rental expense.
<PAGE>
EXHIBIT 12.2
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings before cumulative effect of
accounting changes $124 $343 $196 $ 73 $401
Provision for income taxes 170 268 153 139 84
Minority interest -- -- 5 6 21
---- ---- ---- ---- ----
Earnings subtotal (a) 294 611 354 218 506
Fixed charges included in earnings:
Interest expense 275 304 379 395 419
Interest portion of rentals (b) 50 55 61 67 60
---- ---- ---- ---- ----
Subtotal 325 359 440 462 479
Earnings available before fixed charges $619 $970 $794 $680 $985
==== ==== ==== ==== ====
Fixed charges and preferred stock
dividends:
Fixed charges included
in earnings $325 $359 $440 $462 $479
Capitalized interest 30 30 34 40 10
Preferred stock dividends, pre-tax basis 58 58 26 -- --
---- ---- ---- ---- ----
Total fixed charges and preferred stock
dividends $413 $447 $500 $502 $489
==== ==== ==== ==== ====
Ratio of earnings to combined fixed charges
and preferred stock dividends (a) 1.5 2.2 1.6 1.4 2.0
-----------------------------------------
(a) Includes pretax asset write-downs of: $ 71 $ 19 $ 50 $106 $127
The ratio of earnings, excluding asset
write-downs, to combined fixed charges
and preferred stock dividends would be: 1.7 2.2 1.7 1.6 2.3
</TABLE>
(b) Calculated as one-third of operating rental expense.
<PAGE>
EXHIBIT 12.3
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
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings before cumulative effect of
accounting changes $ 125 $ 344 $ 197 $ 75 $491
Provision for income taxes 170 268 153 139 84
Minority interest -- -- 5 6 26
---- ---- ---- ---- ----
Earnings subtotal (a) 295 612 355 220 601
Fixed charges included in earnings:
Interest expense 275 304 379 395 419
Interest portion of rentals (b) 50 55 61 67 60
---- ---- ---- ---- ----
Subtotal 325 359 440 462 479
Earnings available before fixed charges $620 $971 $795 $682 $1,080
==== ==== ==== ==== ======
Fixed charges dividends:
Fixed charges included
in earnings $325 $359 $440 $462 $ 479
Capitalized interest 30 30 34 40 10
---- ---- ---- ---- ------
Total fixed charges $355 $389 $474 $502 $ 489
==== ==== ==== ==== ======
Ratio of earnings to combined fixed
charges(a) 1.7 2.5 1.7 1.4 2.2
________________________________________
(a) Includes pretax asset write-downs of: $ 71 $ 19 $ 50 $106 $ 127
The ratio of earnings, excluding asset
write-downs, to fixed charges would be: 1.9 2.5 1.8 1.6 2.5
</TABLE>
(b) Calculated as one-third of operating rental expense.
<PAGE>
EXHIBIT 18
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
February 14, 1995
Unocal Corporation
1201 West Fifth Street
Los Angeles, California 90017
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing for the year ended December 31, 1994, pursuant to Item 601 of
Regulation S-K.
We have read management's justification for the change in the accounting policy
for assessing the impairment of producing oil and gas properties from an
aggregated country-wide basis to a field-by-field basis contained in the
company's Form 10-K for the year ended December 31, 1994. Based on our reading
of the data and discussions with company officials of the business judgment and
business planning factors relating to the change, we believe management's
justification to be reasonable. Accordingly, in reliance on management's
determination as regards elements of business judgment and business planning,
we concur that the newly adopted accounting principle described above is
preferable in the company's circumstances to the method previously applied.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
LOS ANGELES, CALIFORNIA
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNOCAL CORPORATION
<TABLE>
<CAPTION>
Organized
under
Name of Company law of
--------------- ------
<S> <C>
Union Oil Company of California, dba "UNOCAL" California
Philippine Geothermal, Incorporated California
Unocal International Corporation Nevada
Unocal Canada Limited Alberta
Unocal Indonesia, Limited Bermuda
Unocal Netherlands B.V. Netherlands
Unocal Thailand, Limited Bermuda
</TABLE>
The indented companies are subsidiaries of Union Oil Company of California.
The names of 140 subsidiaries are omitted inasmuch as such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of Unocal Corporation, Registration Statements on Form S-8 (Nos.
33-65576, 33-43231 and 33-43232) and Registration Statements on Form S-3 (Nos.
33-38505-01, 33-54861-01 and 33-50555) of our report, dated February 14, 1995,
which appears on page 31 of this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated earnings statement and consolidated balance sheet and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 148
<SECURITIES> 0
<RECEIVABLES> 897
<ALLOWANCES> 0
<INVENTORY> 341
<CURRENT-ASSETS> 1,528
<PP&E> 17,919
<DEPRECIATION> 11,096
<TOTAL-ASSETS> 9,337
<CURRENT-LIABILITIES> 1,257
<BONDS> 3,461
<COMMON> 244
0
513
<OTHER-SE> 2,058
<TOTAL-LIABILITY-AND-EQUITY> 9,337
<SALES> 7,797
<TOTAL-REVENUES> 7,965
<CGS> 2,875
<TOTAL-COSTS> 4,677
<OTHER-EXPENSES> 2,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> 294
<INCOME-TAX> 170
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (277)
<NET-INCOME> (153)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> 0
</TABLE>
