-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, X2pggoEXYFqFt66tTobzjDGMpOWctKjGbgoPPVIBrpM2PKRHYqursDejfEXi/kCD UF7qYdNx+tO4ksTqVxivXQ== 0000898430-95-000580.txt : 19950419 0000898430-95-000580.hdr.sgml : 19950419 ACCESSION NUMBER: 0000898430-95-000580 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950418 SROS: MSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-08483 FILM NUMBER: 95529454 BUSINESS ADDRESS: STREET 1: 1201 W FIFTH ST CITY: LOS ANGELES STATE: CA ZIP: 90017 BUSINESS PHONE: 2139777600 10-K405/A 1 AMENDMENT #1 TO 10-K405 1994 -------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K405/A (Amendment No. 1) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 ----------------- Commission file number 1-8483 UNOCAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3825062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1201 West 5th Street, Los Angeles, California 90017 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 977-7600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $1.00 per share New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Common Stock held by non-affiliates of the registrant as of March 15, 1995 (based upon the average of the high and low prices of these shares on the New York Stock Exchange Composite Transactions listing) was $6,884 million. Shares of Common Stock outstanding as of March 15, 1995: 245,234,398 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for its 1995 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or about April 11, 1995) are incorporated by reference into Part III. 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 PETROLEUM OPERATIONS OIL AND GAS PRODUCTION ACTIVITIES UNITED STATES The company holds approximately 921,000 net acres of proven lands in 20 states. Most of these lands are located in Texas, Louisiana, California, Alaska, Oklahoma, and New Mexico. Proven acreage in federal offshore exploration and production areas are included in the contiguous states. Unocal's domestic crude oil production comes principally from fields in Alaska (30%), California (24%), Texas (20%) and Louisiana (18%). Approximately 40% of domestic natural gas production is from offshore and onshore fields in Louisiana, with most of the balance coming from Texas (27%), Alaska (12%), California (7%), and New Mexico (4%). Unocal has varying ownership interests in 26 natural gas processing plants located near major gas fields in the United States. The company operates 14 of these plants and has full ownership in five. All 26 of the processing plants were active in 1994. In 1994, the company's natural gas production in the U.S. averaged 1,095 million cubic feet per day, a 15 percent increase from 1993. This reflects the results of a three-year accelerated drilling program initiated in 1993 to increase production of the company's extensive inventory of proved undeveloped oil and gas resources, primarily in the Gulf of Mexico area. Average crude oil production in 1994 was 137,300 barrels per day, down seven percent from 1993, primarily reflecting the sale of nonstrategic producing properties and natural decline in the fields. The company expects no additional oil and gas production increases before 1996. Most of the company's crude oil produced in the United States is either delivered to the company's West Coast refineries or sold to third parties. A substantial portion of the natural gas produced domestically is sold to third parties under contracts having terms of less than two years. The company believes that it has sufficient production capacity in the U.S. to meet the deliveries. Another large portion of the domestic gas production is sold to third parties in the spot market. The remainder is primarily used in the company's chemicals operations or as fuel in its refineries. While Unocal's domestic natural gas production in 1995 is expected to stay at about the same level as in 1994, production in the Gulf of Mexico could rise. Three fields alone--Mobil Block 916 offshore Alabama, the Fresh Water Bayou field onshore Louisiana, and Ship Shoal 253 F offshore Louisiana--are expected to provide 75 million cubic feet per day of additional production in 1995. At Mobil Block 916, offshore Alabama, a deep gas development project, Unocal drilled and completed two gas wells in 1994. Production from these and two shallower wells were placed on production in early 1995. The four wells are currently producing 50 million cubic feet of gas per day. Unocal has a 46 percent working interest. At the Fresh Water Bayou field in Vermilion Parish, Louisiana, the first two wells in the field were placed on production in 1994 and another began production in 1995. The wells are currently producing at a combined rate of 115 million cubic feet of natural gas per day. Two additional wells are planned for 1995. Unocal is the operator of the Fresh Water Bayou field and holds a 50 percent working interest. Unocal has a 50 percent working interest in Ship Shoal 253 F offshore Louisiana. Three wells were drilled in 1994. Production is expected to peak at about 45 million cubic feet of gas per day in 1995. Offshore Louisiana, Unocal has an 87 percent working interest in Ship Shoal 208. The company plans to drill five development wells in 1995 and expects additional crude production of two thousand barrels per day from the five wells. In the Cook Inlet of Alaska, additional drilling has increased production from the Chakachatna platforms. The net increase from inception of the development program in mid-1993 through December 31, 1994, amounted to about 2,100 barrels per day of oil equivalent. The 1995 drilling program includes eight additional development wells. In July 1994, Unocal sold its interest in the Point Pedernales Unit, offshore California, and related onshore fields and facilities. Unocal's net daily production from the properties was approximately 2,700 barrels of crude oil and 1.3 million cubic feet of natural gas. This amounted to about five percent of Unocal's net daily production of its California operations. The company continues to evaluate the potential sale of its remaining California oil and gas assets. 2 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 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 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 Operating and Reserve Statistics Set forth below are consolidated oil and gas reserve and operating data:
1994 1993 1992 ---- ---- ---- 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
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 Oil and Gas Acreage
As of December 31, 1994 (thousands of acres) --------------------------------------------- Proven Acreage Prospective Acreage -------------- ------------------- Gross Net Gross Net ----- --- ----- --- 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 ===== ===== ====== ======
Producible Oil and Gas Wells
As of December 31, 1994 ---------------------------------------------- Oil Gas -------------- -------------------- Gross Net Gross Net ----- --- ----- --- 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 ===== ===== ===== =====
The company had 171 gross and 114 net producible wells with multiple completions. Drilling in Progress
As of December 31, 1994 ----------------------- Oil and Gas Wells ----------------------- Gross Net ----- --- United States 23 12 Far East 40 26 Other Foreign 4 2 -- -- Total 67 40 == ==
The company had two waterflood projects in process of installation at December 31, 1994. Net Oil and Gas Wells Completed and Dry Holes
Productive Dry ---------------- ---------------- 1994 1993 1992 1994 1993 1992 ---- ---- ---- ---- ---- ---- 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 === === === === === ===
7 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.
Refinery Barrels Per Day -------- --------------- California Los Angeles-Wilmington and Carson plants 125,000 San Francisco 77,000 Santa Maria * 44,000 Illinois Chicago (50 percent) 73,500
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
1994 1993 1992 ------------------------------ Thousand Barrels per day ------------------------------ 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 === === ===
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:
1994 1993 1992 ---------------------------------- Thousand Barrels Per Day ---------------------------------- 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
9 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 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:
1994 1993 1992 ---------------------------- 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
11 GEOTHERMAL OPERATIONS Unocal is the world's largest supplier of geothermal energy for power generation, with major operations in California, the Philippines and Indonesia. The production of geothermal resources for power generation has been a core business for Unocal for more than 20 years. The company's total reserves of 143 million megawatt-hours, which are equivalent to 215 million barrels of oil, constituted nearly 10 percent of Unocal's energy reserves. In 1994, net geothermal electricity production from worldwide operations was 7.5 million megawatt-hours, enough to supply the residential electricity needs for a U.S. city with a population of more than two million people. Due to an abundant supply of low cost hydro power available from record rainfalls, the company's geothermal operations at The Geysers in northern California have been experiencing curtailed generation from the public utility since January 1995. In November, 1994, Unocal signed amended agreements with PERTAMINA, the Indonesian state energy company, and PLN, Indonesia's state utility, to develop and produce the Gunung Salak geothermal resource and to build and operate three new 55-megawatt electrical generating plants at the field on Java. When combined with two existing plants and a third new plant to be built by PLN, the Salak project by 1997 will have a combined capacity of 330 megawatts (100 million barrels of oil equivalent over a project life of 30 years). Unocal will provide steam to all six power plants. At the Sarulla Block on Sumatra, preliminary test results from the second exploratory well confirmed the existence of a high temperature resource, and additional wells are being drilled to evaluate the potential for commercial production. Exploration of the 240,000-acre tract is being conducted under a contract signed with PERTAMINA in 1993. The contract calls for Unocal to explore for, appraise and develop geothermal resources of up to 1,000 megawatts (315 million barrels of oil equivalent over a project life of 30 years). If further drilling confirms the existence of commercially exploitable resources, Unocal will also build and operate power plants, with the first of these scheduled to begin power generation in 1999 under an energy sales contract with PLN. Unocal operates two geothermal projects (Tiwi and Mak-Ban) in the Philippines. During 1994, the company added about 12 million megawatt-hours (18 million barrels of oil equivalent) to its reserves at the Mak-Ban project. The increase in booked reserves resulted from the addition of binary units with a capacity of 15 megawatts and the construction of two, 40-megawatt power plants that will be operational later this year. With the addition of these new units, the combined installed generating capacity of the two fields wil be 755 megawatts. Below are geothermal reserves and operating data:
1994 1993 1992 ---------------------------------- 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
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 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 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 In 1994, the company recorded approximately $228 million in environment- related capital expenditures, compared with an average of approximately $120 million per year for the prior three years. The higher expenditures in 1994 primarily reflected costs related to refinery projects to produce reformulated fuels mandated by government agencies. Estimated 1995 capital expenditures for environment-related costs are $340 million. The amount charged to 1994 earnings for remediation costs and for operating, maintenance and administrative costs to maintain environmental compliance was approximately $370 million, and such costs averaged approximately $240 million per year for the prior three years. Included in the amount for 1994 were provisions of $187 million for certain known future environmental assessment/remediation costs, of which $152 million was recorded in the fourth quarter. The fourth quarter provision was primarily the result of an extensive and ongoing review by the company of its reserves for environmental assessment/remediation costs and its procedures for monitoring such reserves. For information on the company's environmental exposure, see Legal Proceedings below and the Environmental Matters section of Management's Discussion and Analysis on pages 25 through 27 of this report. 15 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to report to be signed on its behalf by the undersigned, thereunto duly authorized. UNOCAL CORPORATION (Registrant) Date: April 18, 1995 By: /s/ CHARLES S. MCDOWELL ------------------------------ Charles S. McDowell Vice President and Comptroller -----END PRIVACY-ENHANCED MESSAGE-----