SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) December 26, 2002
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UNOCAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-8483 95-3825062
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(Commission File Number) (I.R.S. Employer Identification No.)
2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245
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(Address of Principal Executive Offices) (Zip Code)
(310) 726-7600
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(Registrant's Telephone Number, Including Area Code)
Item 5. Other Events.
Fourth Quarter and Full Year 2002 Outlook Revised
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Unocal Corporation ("Unocal", the "Company") is revising its fourth quarter 2002
net earnings per share estimate to be between 30 and 35 cents (diluted). This
estimate revision reflects various factors. The most significant, which are
detailed in the following paragraphs, are revised prices for crude oil and
natural gas, environmental remediation provisions and expense related to the
Company's Pure Resources, Inc. ("Pure") subsidiary's stock option plan. The
Company now estimates that net earnings per share for the full year 2002 will be
between $1.26 and $1.31 (diluted).
Commodity Prices
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The fourth quarter forecast assumes average NYMEX benchmark prices of $28.10 per
barrel of crude oil, which is $1.65 lower than the $29.75 per barrel in the
previous forecast. The Company is also forecasting the price for North America
natural gas to be $3.90 per million British thermal units ("MMBtu"), which is 20
cents lower than the $4.10 per MMBtu in the previous forecast. The revised price
estimates are expected to lower net earnings by approximately 11 cents per share
(diluted). The fourth quarter forecasted earnings are expected to change 4 cents
per share for every $1 change in its average worldwide realized price for crude
oil and 2 cents per share for every 10-cent change in the Company's average
realized North America natural gas price.
Provision for Environmental Remediation
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The Company anticipates that its fourth quarter 2002 reported net earnings will
include a provision of approximately $35 million to $40 million pre-tax ($22
million to $25 million after-tax), or 9 cents to 10 cents per share (diluted),
for additional reserves for environmental remediation. The anticipated provision
is being estimated as part of the Company's regular quarterly review of
remediation obligations which is currently in progress.
The anticipated provision reflects an estimated $30 million increase in costs
for sites included in the "Company facilities sold with retained liabilities and
former Company-operated sites" category. This amount primarily consists of
revised remediation cost estimates that the Company has received in the fourth
quarter from the purchaser of service stations, bulk plants, terminals,
refineries and pipelines that were part of the Company's "downstream" business
sold in 1997. The anticipated provision for this category of sites also includes
additional cost estimates related to former Company-operated oil and gas fields
located in California and Michigan. These costs are for remediation of areas
where recent assessments have determined that remediation is required.
The anticipated provision also reflects an estimated $5 million to $10 million
increase in remediation costs for sites included in the Company's "Active
Company facilities" category. This additional amount is primarily for studies,
investigations and remediation activities at a molybdenum mine located in
Questa, New Mexico, that is owned by the Company's Molycorp, Inc. ("Molycorp")
subsidiary. Molycorp has been working cooperatively with the State of New Mexico
and the U.S. Environmental Protection Agency to determine if past mining
operations have had an adverse ecological impact on surface water and
groundwater and to identify remedial alternatives to mitigate any impact
identified. Through the collaborative effort described above, it was determined
that the scope of the environmental studies and investigations for the site
needs to be expanded.
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Most of the estimated $35 million to $40 million anticipated fourth quarter
provision was included in the Company's reported September 30, 2002 estimate of
$245 million for possible additional remediation costs not yet reserved. An
estimated $25 million in new possible additional costs is expected to be
included in the December 31, 2002 aggregate, primarily for sites included in the
"Company facilities sold with retained liabilities and former Company-operated
sites" category. Most of the $25 million in new possible additional costs is due
to estimated costs associated with possible additional remediation work that may
be required for sites associated with the Company's former downstream business
referred to above. These cost estimates are based on information received in the
fourth quarter from the purchaser of these sites. Consequently, the Company
anticipates that possible additional costs in total will remain essentially
unchanged at December 31, 2002.
Pure Resources, Inc. Stock Option Plan
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When Unocal completed the acquisition of the minority interest portion of Pure
at the end of October, outstanding stock options under the Pure option plan were
converted to options for Unocal stock. Because of the conversion, the accounting
treatment for certain of these options changed from fixed compensation to
variable compensation accounting. Variable compensation accounting requires an
increase in compensation expense if and to the extent the Unocal stock price at
the end of a reporting period increases above the Unocal stock price at the
conversion date, which was $27.64 per share, times the number of Unocal shares
subject to outstanding vested Pure options. Compensation expense will be reduced
in a future reporting period if and to the extent the Unocal stock price at the
end of such period decreases from its price at the end of the preceding
reporting period to, but not below, the strike prices for the outstanding vested
Pure options times the number of Unocal shares remaining subject to the options.
Currently, there are approximately 4.3 million Unocal shares covered by
outstanding vested Pure options subject to variable compensation accounting.
Since the end of October, when the acquisition of Pure's minority interest was
completed, the price of Unocal stock has increased approximately $4.01 per
share. It is estimated that the increase in compensation expense for the fourth
quarter relating to these Pure options will be approximately $17 million pre-tax
($11 million after-tax), or 4 cents per share (diluted).
This filing contains certain forward-looking statements about Unocal's expected
earnings and commodity prices. These statements are not guarantees of future
performance. The statements are based upon Unocal's current expectations and
beliefs and are subject to a number of known and unknown risks and uncertainties
that could cause actual results to differ materially from those described in the
forward looking statements. Actual results could differ materially as a result
of factors discussed in Unocal's amended 2001 Annual Report on Form 10-K/A and
subsequent reports.
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Pursuant to the requirements 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
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(Registrant)
Date: December 26, 2002 By: /s/ JOHN A. BRIFFETT
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John A. Briffett
Assistant Comptroller
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