B) Is UCL crying uncle?
Rated a BUY
Reason for DD
I saw a few weeks ago that they won the patent suit for reformulated gasoline. News analyst on the radio said probably would add $95M to yearly revenue.
Business
Unocal Corporation is an independent oil and gas exploration and production company, with major activities in Asia and the United States Gulf of Mexico. The Company is also a producer of geothermal energy in Asia, a provider of electrical power and a manufacturer and marketer of nitrogen-based fertilizers, petroleum coke, graphites and specialty minerals. Other activities include project development, ownership in proprietary and common carrier pipelines, the marketing and trading of hydrocarbon commodities and real estate.
Competitors
All the major oil companies. In the midwest, UCL competes XOM, BPA, Shell, Marathon, Clark.
News
Thursday May 18 8:29 PM ET
U.S. Court Defends Unocal Gasoline Patent
By Timna Tanners
LOS ANGELES (Reuters) - Unocal Corp. (NYSE:UCL - news) said on Thursday that a federal appeals court denied an appeal against a patent for its clean-burning, reformulated gasoline, paving the way for the oil company to begin collecting millions from its rivals.
The federal Circuit Court in Washington denied a petition by six major oil companies for the court to consider its March decision to validate Unocal's reformulated gasoline patent, and a jury decision to award 5-3/4 cents per gallon (3.8 liters) for patent infringement damages.
``Now that the Circuit Court has entered the order and finalized its decision, we expect to collect damages from the defendants,'' Unocal Chairman and Chief Executive Officer Roger Beach said in a news release.
The El Segundo, Calif.-based company estimated it could collect at least $95 million in damages, interest and attorney's fees for reformulated gasoline produced from March through July 1996.
Unocal said it will now ask a Los Angeles District Court to require the six defendants to reveal the extent to which they infringed on Unocal's gasoline patents since July 1996. That court had issued a stay on the patent infringement after July, pending a decision on the appeal.
The oil companies that had sued Unocal were: Atlantic Richfield Co., since taken over by BP Amoco Plc (NYSE:BPA - news); Chevron Corp. (NYSE:CHV - news); Exxon Corp and Mobil Corp (NYSE:XOM - news), now merged; Royal Dutch/Shell Oil (RD.AS)(SHEL.L) and Texaco Inc. (NYSE:TX - news).
Unocal has five patents for clean-burning gasoline.
Some East and Gulf coast refiners have said the threat of Unocal imposing licensing fees has inhibited them from producing a new reformulated gasoline required in a third of cities outside of California, which already uses a special cleaner-burning blend.
Beach reiterated that Unocal would be open to negotiating, ''fair and appropriate licensing terms with refiners, blenders and importers.''
Unocal scores 82% success rate in worldwide
shelf and onshore exploration drilling program
El Segundo, Calif., May 22, 2000 -- Unocal Corporation today said it has been highly successful in its shelf and onshore oil and gas exploration drilling program so far this year, with 27 successes out of 33 wells completed.
The exploration drilling success includes 16 successful wells in Asia (84% success rate) and 11 successful exploration wells in the Gulf of Mexico region (79% success rate).
"Our shelf and onshore resources are the company's bread and butter, providing the cash flow and earnings necessary to fund the exploration of our highly promising deepwater prospects," said Roger C. Beach, Unocal chairman and chief executive officer. "The successes we've recorded this year can generally be developed at low cost and brought on line relatively quickly to generate cash flow for the company."
Analysts and Others
From CBS MarketWatch 5/7/00
Gasoline supplies pressured
Concern over an increase in gasoline output grew out of "Unocal's announcement last night that it would be willing to negotiate on its patent fees, thereby increasing the likelihood that refiners will use the process and make more gasoline," Yu said.
Late Thursday, Unocal said it's open to negotiate deals with other refiners that want to use its patented systems. The Wall Street Journal reported Monday that some gasoline providers are worried about penalties for violating one of Unocal's five patents. In March, a judgement awarded Unocal $69 million from several major producers, including Texaco (TX: news, msgs) and Exxon-Mobil (XOM: news, msgs) for patent violation.
Unocal RFG Suit Affects Financials, Not Gasoline Supply
Wednesday, April 19, 2000 04:34 PM
By Kristina Schurr
NEW YORK (Dow Jones)--A recent appeals court decision on Unocal Corp.'s (UCL, news, msgs) reformulated gasoline formulation is expected to have a greater impact on suppliers' bottom line than on the supplies themselves.
However, refiners and blenders who make Phase II reformulated gasoline say they're worried about the implications for their operations and their liability.
Some are acting on their concerns. On Wednesday, a major products trader in the New York Harbor sold an imported cargo of regular octane reformulated gasoline at a discount to the going rate reportedly because he was nervous about his company's liability, a market source said.
It's too early to say exactly what impact the late March patent infringement decision from the U.S. Court of Appeals for the Federal Circuit will have, but it isn't likely to affect supplies in most of the country at least for this summer's driving season, industry sources say.
That's because RFG producers aren't likely to stop making the fuel, even if they're ultimately found liable for future royalties or back payments and interest to Unocal for patent infringement. The court has said Unocal can collect 5.75 cents for each gallon of gasoline produced in infringement.
At the initial trial, a jury awarded Unocal $91 million for a total of 1.19 billion gallons of reformulated gasoline in California produced by five companies during a six-month period in 1996. It's impossible, however, to say how many more gallons could be implicated or what the total costs will be.
Atlantic Richfield Co. (ARC, news, msgs), Chevron USA Inc. (CHV, news, msgs), ExxonMobil Corp. (XOM, news, msgs), Shell Oil Products Co. (RD, news, msgs) and Texaco Refining and Marketing Inc. (TX, news, msgs) challenged Unocal in court as early as 1995, arguing the company had no right to try to enforce the patent.
Producers could decide to keep using the formulation and negotiate licensing fees with Unocal, or they could change the way they make RFG.
"Refiners have the option of blending around the patent. They don't have to use Unocal's formulations," Unocal spokesman Mike Thacher said.
"Unocal feels it's given refiners and blenders an economical way to make it, but there are other ways to make it...There isn't some technical or economical reason that there should be an impediment to making RFG because of the patent," Thacher said.
Refiners and blenders still are worried about the decision, said Ed Murphy, director of downstream operations for the American Petroleum Institute, an industry trade group.
"They're worried because it becomes more of a concern as the environmental specifications for gasoline tighten, it gets more and more difficult to blend around the patent. The 5.75-cent fee is a pretty hefty penalty. There's a lot of dismay that the court found the way it did," Murphy said.
He noted that California's fuel specifications make it more difficult to blend gasoline for that market than for other U.S. markets. But he said that as options for blending gasoline decrease, it becomes more difficult to produce it in any market.
Unocal's patent, issued in 1994 for a formulation created by two scientists in 1990, creates a kind of recipe for a cleaner-burning gasoline by varying certain components within unleaded gasoline, namely Reid Vapor Pressure, octane, olefins, paraffins and aromatics.
The patent calls for a gasoline octane level of at least 90, so the patent would affect mostly premium-grade RFG. And the recommended RVP level is 7.0 pounds per square inch or lower, meaning the fuel is supposed to be used in warmer areas during the summer months.
But the formulation is still pretty similar to the way in which non-patented reformulated gasoline is produced, especially in California.
Fuel experts say they won't be surprised to hear that what's coming out of at least some refiner and blender tanks in the form of Phase II RFG (which requires a reduction in smog-forming Volatile Organic Compounds and nitrogen oxide levels) is a formulation that's pretty similar to Unocal's patent.
Though Chevron has said it has modified its manufacturing process to minimize making the patented formulations, it told shareholders in its annual report it expected to take a first-quarter charge of some $75 million for royalties and interest for gasoline produced in infringement since 1996.
So it's a price issue more than a production issue. Expect some complaining from the refiners and blenders, fuel experts say.
"The fact is, at this point they don't have to make other investments, the royalty would be like paying a tax. But they're still going to worry whether they'll recover that extra money, especially in a business where there isn't such a good return on investment, especially for environmental expenses," one source said.
In the near term, RFG supplies only would be affected if a producer decided to reduce its financial exposure by pulling back on production.
24-Mar-00 12:00 -- 13:00 ET
Unocal Corp (UCL) 27 5/8 +1/8: Fahnestock reiterates BUY rating with a price target of $35 citing attractive valuation and possible takeover candidate.
13-Mar-00 12:00 -- 13:00 ET
Unocal Corp (UCL) 28 7/16 +7/16: ING Barings downgrades to HOLD from BUY; cites a less robust worldwide oil and gas production outlook.
15-Feb-00 BEFORE THE OPEN
Unocal (UCL) 27 1/8: Bear Stearns upgrades from ATTRACTIVE to BUY. Recent price decline in UCL shares at a time when oil prices are at their highest levels of the past nine years and the company's prospects for earnings growth are especially strong, we see upside potential of 44%, to $39 per share, in the next 12 months.
18-Jan-00 10:00 -- 11:00 ET
Unocal (UCL) 31 7/16 +7/16: JP Morgan upgrades oil and gas company from "market perform" to "buy" based on stocks recent weakness relative to its peers and attractiveness of its current valuation; upside of its global deep water exploration programrenewed investment discipline and a more conservative bias; 12-month target price remains $40.....
Numbers
Revs 1,189.0M to 1,495.0M to 1,546.0M to 1,612.0M to 1,827.0M Mar00
EPS 0.03 to 0.04 to 0.10 to 0.39 to 0.51 Mar00 per Hoovers
Jun00 est is 0.54 per Zacks
Sep00 est is 0.43 per Zacks
FYDec00 EPS est is 2.03
FYDec01 EPS est is 2.01
52-Week Low on 28-Feb-2000 $25.00
Recent Price $35.875
52-Week High on 19-Aug-1999 $44.375
Market Capitalization $8.71B
Shares Outstanding 242.9M
Float 240.4M
Annual Dividend (indicated) $0.80
Dividend Yield 2.23%
Price/Book (mrq) 3.88
Price/Earnings (ttm) 39.55
Price/Sales (ttm) 1.35
Insiders
Nine buys, no sells in 2000!
All at the $25-30 range.
Institutional holds 73-76% for last four quarters
Internet Posts of Note
For years Beach preached (return on shareholder value), Mr. Beach where is the increase in shareholder value? Beach is not totally responsible for his bunglings, a major amount of blame MUST be given to McKinzie (?) Management. This group of idiots have done more damage to the american oil industry than the arabs ever dreamed of doing. A big part of the blame for the current sorry state that Unocal is in MUST rest on Steigameyer's shoulders for picking Roger in the first place. Now to EdBlow and SixPack, Unocal has some extremely talented people with them right now but they totally wasted the talent, brains and experience of a very large number of highly intelliegent professionals in needless layoffs. I guarantee that these people know the oil industry a whole lot better than you two jerkoffs. 2/25/00 on yahoo
Bonus: if any giant steps up to sign RFG license. Could draw a large momentum contingent based on story alone.
5/9/00 on Yahoo
I've not heard or seen anything show up, although constantly searching the media and other sources. Appears none of the ref players are ready to step up to the table or sign a license. Their strategy seems to be to wait and play the political card (especially effective in an election year) to force a lower award as in CA. UCL has to avoid offending the States and large players yet holds the desirable patents. Even a penny a gallon would be nice infusion of cash. 5/12/00
One highlight that stands out is that the lawsuit granted UCL 5c / gal in compensation. This analyst assumes that they see just 1c / gal and that would add 260 million dollars per year for the next 20 years. Not bad for free money. 5/13/00 on yahoo
Why is it acceptable for Biotech to claim patents on molecules and earn a billion $ a year while Unocal had the foresight to develop a cleaner gas ahead of the majors and now can't patent ? Intellectual property is patentable. Researching further, their extended 393 patent, known as patent '126' issued in 1998 is the "killer threat" patent. Quote: "Unocal's research recognized that emissions of nitrogen oxide, carbon monoxide and hydrocarbons can be reduced by altering distillation boiling points, Reid Vapor pressure, or the olefin, aromatic or paraffin content of the gasoline. The new patent outlines 66 additional claims regarding combinations of these properties and production and distribution methods. Neither patent requires nor excludes the use of MTBE". If anything it appears the majors and API were lead to believe (by ?) that the case would be thrown out of appeals court. Consequently refiners, country and state/fed governments are now in a quandary with both gas and oil prices escalating daily.
A thought: one way out might be for the Fed to step in here to subsidize the use of Unocal's patent. Give some kind of gas tax break to refiners so they can fund royalties whithout hurting their margins. 6/11/00 on Yahoo
Charts
Nice 10/50/200 stack. Appears to be consolidation before the next move. MACD still positive.
Links
unocal.com
Summary
An ordinary oil company that won a major lawsuit. A penny a gallon is huge to bottom line. Downside is 52wkLO of $25. Upside is busting the new high. The rev and earnings growth are great and high oil prices will only add to bottom line. Alot of momo players in it watching this flatness means a bailout could occur. I can accept a 30% hit for a potential double in a year.
Jack |
