Restructuring brings Unocal trim, focused profile.

It continues to whack debt, sell off tangential assets

Unocal Corp. announced last month it reached an agreement to sell its national auto/truckstop system, the latest in a long line of assets the company has sold as part of a long-term restructuring.

Unocal Corp. is emerging from its restructuring effort as an attractive natural gas producer, well-positioned to profit from its oil refining and marketing operations, and better able to keep its head above water in tough times for the energy industry, analysts say.

Downtown Los Angeles-based Unocal started its restructuring program after fighting off a 1985 takeover attempt by T. Boone Pickens -- and incurring a heavy debt load in the battle.

The company also had its hands in too many pies, said Mary Anne Sudol, senior vice president at Fitch Investors Service, a New York-based credit rating agency.

At the end of 1987 Unocal had $4.9 billion of debt on its balance sheet. Richard Stegemeier was the president and chief operating officer in 1985 but traded in his COO title for that of chief executive officer in 1988.

Stegemeier launched the restructuring in an effort to provide the company with some discipline and focus, Sudol said.

Stegemeier took a look at what assets were profitable and which weren't, she said.

By the end of this year, the company will have reduced its debt to $3.8 billion and streamlined operations into three core categories. These are oil and gas exploration and production, wholesale agriculture and chemical products, and refining and marketing on the West Coast, said Unocal spokesman Jim Bray.

In the process, the company has unloaded everything from service stations in Washington and Idaho to distribution terminal operations in the Southeast, as well as eliminated 1,145 jobs through a voluntary separation and early retirement program.

Asset divestitures taken so far have been a very positive move for the company, said Paul Ting, an oil and gas analyst with New York-based Oppenheimer & Co. Inc., a brokerage firm.

Unocal now has a "premiere position" as a natural gas producer in the United States, said Alvin Silber, an analyst with Herzog, Heine Geduld Inc., a New York-based securities firm.

Natural gas is being used more and more, and demand is expected to grow in the next several years. Institutional investors should be attracted to Unocal stock as the prospect for natural gas improves, Silber said.

Unocal's short-term prospects for big profits in its U.S. natural gas production are questionable, but the long-term outlook is bullish, Ting said. Unocal also produces natural gas in Southeast Asia, particularly in Thailand, and the long-term profit prospects there are good, Ting added.

Unocal is also better positioned now as an oil refiner and marketer on the West Coast, Silber said. In the past four years it has sold its refinery and marketing operations in both the West and Southeast.

The company lost market share on the West Coast during the past five years, and has had to comply with extensive federal and state environmental regulations, but now the worst is behind the company and it is better positioned, he said.

Unocal announced in 1991 it would close 300 under-performing stations in California over three years. Half of these have been shut down so far, Bray said.

This move helps Unocal's position in the marketplace, Silber said.

Unocal also bought part of Shell Oil Co.'s refinery in Carson during 1991. This technologically advanced refinery allows Unocal to process heavy crude into fuel, and heavy crude is cheaper to process than light crude, Ting said.

However, the future of refining and marketing on the West Coast is up in the air for all the players, Ting said, because of upcoming environmental regulations and the incremental costs of complying with them.

There is also "very good" competition in the region between Unocal and the other major players, particularly downtown Los Angeles-based Atlantic Richfield Co. and San Francisco-based Chevron Corp.

Amid the tough competition for gasoline retailers and stringent regulatory requirements, only the major gasoline retailers will probably survive, but Unocal will probably be one of these, Silber predicted.

But oil and gas prices are weak right now, obscuring some benefits in profits Unocal might otherwise be reaping from its restructuring, Sudol said.

Unocal has bolstered its bottom line by paying off so much debt, but it has not been helped by the weak prices, she said. However, the company is better equipped to deal with the rough climate than if it hadn't restructured.

Unocal earned $16 million on revenues of $2.4 billion during third quarter 1992. These results followed $66 million in profits on revenues of $2.7 billion during the second quarter and profits of $11 million on revenues of $2.5 billion during the first quarter.

During 1991, the company earned $73 million on revenues of $10.9 billion.

In comparison, Unocal earned $181 million on revenues of $9.4 billion during 1987.

Unocal's earnings have not been terrific during the past 12 months, but they should improve as the restructuring falls even more in line, Silber said.