EARNINGS / Union Pacific Resources Group Inc. Announces Record 1998
Growth in Production and Reserves, $899 Million Loss After Writedown
- Projects Profitable 1999 in Low-Price Environment
UNION PACIFIC RESOURCES GROUP INC. ANNOUNCES RECORD 1998 GROWTH IN
PRODUCTION AND RESERVES, $899 MILLION LOSS AFTER WRITEDOWN
Date: 1/25/99 9:20:45 PM
Dateline: FORT WORTH, TEXAS
Stock Symbol: UPR
Union Pacific Resources Group Inc. (NYSE: UPR) today announced
that the oil price collapse of 1998 led to a loss for the year of
$899 million, or $3.63 per share, despite a 53 percent increase
in production and a 49 percent increase in proved reserves.
The 1998 financial results were strongly affected by a number of
one-time items, most notably a previously announced $760 million
after-tax, non-cash, asset impairment charge.
Discretionary cash flow totaled $922 million, or $3.72 per share,
a 17 percent decrease from 1997. Crude oil prices averaged $10.48
per barrel, down 43 percent from the 1997 average of $18.36.
Producing property volumes averaged 2.467 billion cubic feet of
gas equivalent per day (Bcfed), a 53 percent increase over the
previous year.
Capital investment of $1.2 billion in 1998, excluding the
purchase of Norcen Energy Resources, was essentially the same as
that of 1997. UPR was the No. 1 domestic driller for the seventh
consecutive year, averaging 27 operated rigs.
Reserves increased by 49 percent, to a year-end total of 6.124
trillion cubic feet of gas equivalent (Tcfe), up from the 1997
year-end total of 4.100 Tcfe. Including the Norcen acquisition,
the Company achieved a reserve replacement rate of 403 percent,
with finding and development costs of $1.27 per million cubic
feet on a gas equivalent basis.
"For UPR, 1998 was a 'planned transition' year," Chairman and CEO
Jack Messman said. "After our acquisition of Norcen, we laid out
our plans to integrate our new assets with UPR's already strong
domestic portfolio by year end, and to reduce debt by selling
non-core assets within 18-24 months. Despite the unexpected jolt
caused by the oil price collapse that began almost immediately
after our acquisition was completed, we have successfully
completed the integration of the Norcen assets and we are on
schedule with our debt reduction efforts.
"We have assembled a formidable portfolio of domestic, Canadian
and Latin American assets," Messman added, "with an enviable mix
of both low-risk development opportunities and high-potential
exploration prospects.
"We made great strides in 1998 in deleveraging, restructuring and
reducing costs. The oil price collapse presented us with a
required and unanticipated asset impairment, and forced a painful
workforce reduction," Messman said. "We still have a tough job
ahead. We have programs in place for continued cost and debt
reductions, a careful plan for capital spending to maximize
returns on investment, and an inventory of attractive drilling
opportunities to draw on when the price picture changes for the
better," Messman said.
FOURTH QUARTER
In the fourth quarter, discretionary cash flow decreased 45
percent to $181 million, or $0.73 per share, compared to $328
million, or $1.31 per share for the same period in 1997. A net
income decline from a profit of $74 million in the same quarter
last year to a loss of $895 million, or $3.61 per share, is
attributable primarily to lower hydrocarbon prices and the
consequent asset impairment. Volumes averaged 2.399Bcfed compared
to 1.621Bcfed in the same period last year. Oil prices were off
46 percent compared to fourth quarter 1997.
Fourth quarter results included several non-recurring items, the
majority of which are non-cash, that collectively reduced net
income by $822 million.
1999 OUTLOOK
"We intend to earn a profit in 1999, assuming prices of $13.50
NYMEX for oil and $2.05 NYMEX for gas," Messman said of the
Company's 1999 plan. "With 1999 capital spending reduced by
almost 60 percent from last year, we expect slight declines in
production rates and reserve replacement. If prices and,
therefore, cash flow improve, we will devote more capital to
keeping these important operational measures at least even with
last year's results. Strengthening the Company's balance sheet,
by lowering costs and reducing debt, is also among UPR's highest
priorities."
The Company is concentrating its energies on two strategies:
developing natural gas opportunities in North America, and
increasing the contribution of its new Latin American interests
by rapid exploitation through the drill bit. With a three-year
inventory of high-return projects, UPR is well situated to
operate at a high level of productivity, even at today's prices.
The Company expects to reduce finding and development costs to
well under $1.00 per million cubic feet on a gas equivalent basis
this year, while preserving most of its exploration drilling
inventory for the future.
"When prices recover, I believe UPR, due to its superior asset
base and cash flow, will emerge as one of the strongest
competitors among the independents. Our goal, first and always,
is to increase shareholder value," Messman concluded.
Union Pacific Resources is one of the nation's largest
independent oil and gas exploration and production companies.
Based in Fort Worth, Texas, UPR has been the No. 1 domestic
driller for the past seven years and was the No. 1 gas producer
in the state of Texas in 1997.
DISCONTINUED OPERATIONS
The pending sale of UPR's gas gathering, processing and marketing
(GPM) operations requires reclassification of results and,
therefore, the GPM results are now reported separately as
Discontinued Operations. With the exception of net income, all
the amounts reported in this announcement are for Continuing
Operations. Please refer to the attached tables for complete
information.
This press release, other than historical financial information,
contains forward looking statements that involve risks and
uncertainties including planned construction and drilling
activity, expected production efforts and volumes and budgeted
capital expenditures and other risks and uncertainties detailed
in the Company's SEC reports, including the report on Form 10-Q
for the quarter ended September 30, 1998. Actual results may vary
materially.
-0-
*T
Union Pacific Resources Group Inc.
Statements of Income
For the Period Ended December 31, 1998
(Dollars in Millions, Except Per Share Figures)
Fourth Quarter Twelve Months
1998 1997(2) 1998 1997 (2)
Operating revenues: ----------------------------------------
Oil and gas
operations:
Producing
properties $347.1 $317.1 $1,539.2 $1,293.5
Other oil and
gas revenues 0.2 41.8 160.7 84.7
------------------- --------------------
Total oil and
gas operations 347.3 358.9 1,699.9 1,378.2
Minerals 25.6 34.6 141.1 139.8
------------------- --------------------
Total operating
revenues 372.9 393.5 1,841.0 1,518.0
------------------- --------------------
Operating expenses:
Production 107 77.9 444.3 300.8
Exploration 109.4 54.1 339 204.7
Minerals 1.8 (0.40) 3.5 3.4
Depreciation,
depletion
and amortization 1,423.3 144.6 2,125.6 504
General and
administrative 36.8 16.3 104.8 71.2
Restructuring
charge 17 -- 17 --
------------------- --------------------
Total operating
expenses 1,695.3 292.5 3,034.2 1,084.1
------------------- --------------------
Operating
income (loss) (1,322.4) 101 (1,193.2) 433.9
Other income
(expense) - net (12.4) 14.8 (45.3) 24.5
Interest expense (70.3) (14.2) (249.8) (39.5)
------------------- --------------------
Income (loss)
before income
taxes (1,405.1) 101.6 (1,488.3) 418.9
Income (taxes)
benefit 544.2 (24.1) 605.2 (115.8)
------------------- --------------------
Income (loss) from
continuing
operations (860.9) 77.5 (883.1) 303.1
Income (loss) from
discontinued
operations
- net of tax (34.5) (3.3) (15.6) 29.9
------------------- --------------------
Net income(loss) ($895.4) $74.2 ($898.7) $333.0
=================== ====================
Discretionary
cash flow (1) $181.0 $328.4 $922.2 $1,122.7
=================== ====================
Per Share:
Income (loss)
from continuing
operations
-basic ($3.48) $0.31 ($3.57) $1.21
Income (loss)
from continuing
operations
-diluted ($3.48) $0.31 ($3.57) $1.21
Net Income
(loss) - basic ($3.61) $0.30 ($3.63) $1.33
Net Income
(loss) - diluted ($3.61) $0.30 ($3.63) $1.33
Discretionary cash
flow per share $0.73 $1.31 $3.72 $4.47
Average shares
outstanding
(millions) basic 247.7 249.7 247.7 250.1
Average shares
outstanding
(millions) diluted 247.7 250.5 247.7 250.9
(1) Discretionary cash flow for any period means the sum of
income from continuing operations; depreciation, depletion
and amortization; exploration expenses; and deferred taxes.
(2) Amounts have been reclassified in connection with the
reporting of discontinued operations to conform with current
presentation.
Union Pacific Resources Group Inc.
Operating Statistics
For the Period Ended December 31
Fourth Quarter Twelve Months
1998 1997(1) 1998 1997(1)
---------------- ----------------
Producing properties
average daily production:
Natural Gas:
United States
(MMcfd) 1,101.1 1,067.5 1,152.8 1,090.9
Canada (MMcfd) 299.5 16.8 281.2 17.6
Other International
(MMcfd) 6.2 -- 7.1 --
------- ------- ------- -------
Total (MMcfd) 1,406.8 1,084.3 1,441.1 1,108.5
Natural Gas Liquids:
United States
(MBbld) 23.7 30.3 28.8 30.0
Canada (MBbld) 4.5 1.7 4.3 1.7
------- ------- ------- -------
Total (MBbld) 28.2 32.0 33.1 31.7
Crude Oil:
United States (MBbld) 53.7 54.0 61.0 49.2
Canada (MBbld) 36.7 1.7 35.4 1.7
Heavy Oil (MBbld) 15.0 -- 14.0 --
Light Oil (MBbld) 21.7 1.7 21.4 1.7
Guatemala (MBbld) 22.2 -- 20.8 --
Venezuela (MBbld) 21.1 -- 16.8 --
Other International
(MBbld) 3.5 1.7 3.9 2.0
------- ------- ------- -------
Total (MBbld) 137.2 57.4 137.9 52.9
------- ------- ------- -------
Total production
(MMcfed) 2,399.4 1,620.8 2,467.0 1,615.7
Producing Properties
average sales prices:
Natural Gas:
United States
(per Mcf) $ 1.63 $ 1.91 $ 1.84 $ 2.01
Canada (per Mcf) 1.49 1.32 1.35 1.58
Other International
(per Mcf) 1.16 -- 1.39 --
Total (per Mcf) 1.60 1.90 1.74 2.00
Natural Gas Liquids:
United States
(per Bbl) $ 7.10 $ 11.63 $ 8.14 $ 11.57
Canada (per Bbl) 7.03 6.40 6.12 5.41
Total (per Bbl) 7.09 11.35 7.88 11.23
Crude Oil:
United States
(per Bbl) $ 13.23 $ 17.93 $ 13.23 $ 18.37
Canada (per Bbl) 7.31 19.74 8.55 19.85
Heavy Oil (per Bbl) 6.82 -- 5.82 --
Light Oil (per Bbl) 7.65 19.74 10.33 19.85
Guatemala (per Bbl) 6.14 -- 6.95 --
Venezuela (per Bbl) 8.55 -- 8.75 --
Other International
(per Bbl) 8.76 15.00 11.37 16.90
Total (per Bbl) 9.66 17.89 10.48 18.36
Total sales price
(MMcfed) $ 1.57 $ 2.13 $ 1.71 $ 2.19
Total Company average
costs:
Production costs
(per Mcfe) $ 0.48 $ 0.52 $ 0.49 $ 0.51
DD&A (per Mcfe) 6.45 0.97 2.36 0.85
DD&A without
impairment (per Mcfe) 1.13 0.97 1.06 0.85
General and
administrative without
Restructuring Charge
(per Mcfe) 0.17 0.11 0.12 0.12
Debt as a percent of
total capitalization -- -- 86.3% 41.1%
(1) Amounts have been reclassified in connection with the
reporting of discontinued operations to conform with current
presentation.
Union Pacific Resources Group Inc.
Statements of Cash Flows
For the Period Ended December 31
(Dollars in Millions)
Fourth Quarter Twelve Months
1998 1997(1) 1998 1997(1)
------------------ --------------------
Cash provided by
operations:
Net income(loss)
from continuing
operations ($860.9) $77.5 ($883.1) $303.1
Depreciation,
depletion and
amortization 1,423.3 144.6 2,125.6 504
Exploration
expenses 109.4 54.1 339 204.7
Deferred taxes -490.8 52.2 -659.3 110.9
-------- -------- -------- --------
Discretionary
cash flow 181 328.4 922.2 1,122.7
Working capital
changes and
other -185.3 -172.4 91.5 -266.5
-------- -------- -------- --------
Cash provided
(used) by
operations -4.3 156 1,013.7 856.2
-------- -------- -------- --------
Cash used by
investing
activities:
Capital and
exploratory
expenditures -76.5 -317 -1,194.5 -1,188.4
Acquisition
of Norcen -- -- -2,634.3 --
Proceeds from
sales of assets 174.5 22.3 436.6 37.3
Proceeds from
sales of
investments -- -- 48.4 --
Cash provided
(used) by
discontinued
operations -126.5 -17.8 50.4 -221.8
Other investing
activities - net -- -11.3 -- -17.7
-------- -------- -------- --------
Cash used by
investing
activities -28.5 -323.8 -3,293.4 -1,390.6
-------- -------- -------- --------
Financing
activities:
Dividends paid -12.4 -12.5 -49.6 -50
Debt financing
(net) -3.7 252.6 2,319.5 559.6
Purchase of
treasury stock -4.6 -49.9 -26.7 -52.3
Other financings
- net 23.4 5.4 -21.8 30.4
-------- -------- -------- --------
Cash provided
by financing
activities 2.7 195.6 2,221.4 487.7
-------- -------- -------- --------
Net change in
cash and
temporary
investments ($30.10) $27.80 ($58.3) ($46.7)
======== ======== ======== ========
(1) Amounts have been reclassified in connection with the
reporting of discontinued operations to conform with current
presentation.
Union Pacific Resources Group Inc.
Statements of Financial Position
As of December 31
(Dollars in Millions)
1998 1997(1)
Assets: --------- ---------
Current assets $441.4 $396.6
Properties - net 6,093.3 2,901.1
Intangible and Other assets 180.8 138.2
Net assets of discontinued operations 926.9 877.8
--------- ---------
Total $7,642.4 $4,313.7
========= =========
Liabilities and shareholders' equity:
Current liabilities $495.9 $402.5
Debt due within one year 851.9 --
Debt due after one year 3,729.4 1,230.6
Deferred income taxes 1,291.6 552.9
Other liabilities 545.4 367
Shareholders' equity 728.2 1,760.7
--------- ---------
Total
$7,642.4 $4,313.7
========= =========
(1) Amounts have been reclassified in connection with the
reporting of discontinued operations to conform with current
presentation.
Union Pacific Resources Group Inc.
Supplemental Financial Information(3)
For the Period Ended December 31, 1998
Exploration and Production Capital and Costs ($MM)
Norcen's E&P Assets $3,425
Exploration and Production Capital 1,159
Exploration Overhead and Delay Rentals 36
-------
Total 4,620
=======
Proved Reserves (Bcfe)
Beginning of Year 4,100
Revisions of Previous Estimates 18
Extensions, Discoveries and Other Additions 608
Norcen Reserves-in-Place 2,885
Purchases of Reserves-in-Place 118
Sales of Reserves-in-Place (704)
Production (901)
-------
End of Year 6,124
=======
Proved Developed 4,956
=======
403%
Finding and Development Costs ($/Mcfe) $1.27
Non-recurring Items in 4th Quarter 1998
Net Income
Impact ($MM)
-------
FAS 121 Impairment (760)
Restructuring Charge (11)
Gas Transportation Mark to Market (23)
Loss on Producing Property Sales (8)
Interest Lock-in Write Off (9)
Other (11)
-------
Total (822)
=======
(3) For more detail and final numbers and calculations, refer to
our Annual Report on Form 10-K for the year ended
December 31, 1998.
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