Unocal cuts may hurt office project, help sports arena.

Might oil giant be leaving L.A. -- or downtown area?

No office development at the Los Angeles Center project in downtown L.A.'s Central City West is likely until well into the 21st Century and the construction of a sports arena there has been fast-tracked, now that Unocal Corp. is reducing its presence there.

Unocal announced last week that it will cut its corporate staff by 40 percent -- including at least 300 jobs at its downtown L.A. headquarters over the next two years. That announcement was seen as a major blow to the largest remaining planned office center in the Central City West district, just west of the Harbor (110) Freeway.

The oil giant's announcement, coupled with word that it is "modifying" its commitment to the planned office building, fueled speculation that Unocal may leave downtown or L.A. entirely.

The company's downsizing is also intensifying efforts toward an alternative development plan in the area -- including a major sports arena and "entertainment complex" -- for the multi-block "Unocal property."

Los Angeles Center Director of Marketing John Semcken said his team has set its near-term sights on a sports arena/entertainment complex on the property -- roughly bounded by 6th, Bixel and 4th streets and Beaudry Avenue. Office buildings could still be built on adjacent land when market conditions improve, he added.

"It's another punch in the gut for downtown," said Jack Kyser, chief economist for the Economic Development Corp. of L.A. County. Kyser added that he has heard rumors that Unocal -- "one of downtown's largest private sector employers" -- may be looking to relocate its headquarters out of downtown but it was not too late for city officials and business leaders to try to "woo" Unocal into keeping a presence in L.A.

The City Center West district's flagship Los Angeles Center redevelopment project is entitled for more than 5 million square feet of office development over the next two decades on and around Unocal's historic headquarters property.

While the would-be developers have sought a loan to finance Los Angeles Center project's first office tower -- where Unocal has "pre-leased" about 450,000 square feet -- the oil company has continued to occupy its aging landmark building at 1201 W. 5th St.

Unocal gets good deal

The Los Angeles Center team has reportedly leased the historic building back to Unocal on highly favorable terms as the search for construction financing continues.

But in the wake of the downsizing announcement -- along with a Unocal spokesman's acknowledgement that the firm is negotiating to "modify" the lease at the planned tower -- the Los Angeles Center team is conceding that no office development is likely until well into the next century.

Knowledgeable sources said the downsizing oil firm's brain trust actually intends to terminate the long-term lease arrangement entirely -- possibly signaling the ultimate end of the petroleum giant's headquarters in the city.

Semcken wouldn't comment on those negotiations, and Unocal's chief spokesman said no such decision has yet been made. Unocal spokesman Barry Lane would only confirm that the firm is negotiating a "modification" of the $300 million long-term lease at Los Angeles Center's planned first tower.

"No decision has been made about moving (Unocal's) corporate headquarters out of the city or out of downtown," Lane stated. "I can't speculate about alternatives" to the planned Los Angeles Center headquarters tower, he added.

However, a well-placed source acknowledged that Unocal has quietly approached Brea city officials about the potential timetable for approving additional office space at Unocal's Fred M. Hartley Research Center on Imperial Highway. While city officials there wouldn't confirm the informal inquiry, the expansion query was said to have been placed despite the pending relocation of a Hartley-housed research unit Unocal is negotiating to sell.

Unocal, which boasts about $10 billion in annual worldwide sales, has been "outsourcing," its research functions and focusing on international oil and gas exploration. The firm is also thought to be attempting to sell its California oil and gas holdings. The job cuts announced last week are expected to slash $50 million a year from Unocal's $200 million annual operating expenses.

Rumors about a potential corporate move to Houston, where the firm's operations have grown in recent years, also persist within real estate circles there and here. A division recently relocated when a major lease expired at another downtown L.A. office building was said to have been split between Brea and Houston.

Historic building sold

In late 1988, Unocal sold the headquarters building it has occupied for three decades and the surrounding property to the Los Angeles Center team -- a partnership including Pittsburgh's Hillman Properties and downtown's Smith & Hricik Urban Developments. In 1991, the petrochemical firm signed a lease for about 450,000 square feet in the planned first building.

Since then, Unocal has reportedly been paying just operating expenses while continuing to occupy the historic headquarters building, which is often characterized as obsolete.

At the time the lease was signed, Unocal maintained about 1,200 downtown-area jobs, Lane specified. The current downtown work force is about 900, representing the majority of the firm's 1,540 corporate employees, he added. "About half" of the 630 planned job cuts -- most of which would take place within a year -- will occur within the downtown L.A. staff, Lane noted.

Hence, Unocal's headquarters office-space "requirements have changed," Lane continued. And that change certainly dims the L.A. Center team's prospects for financing the project's would-be inaugural office tower.

Semcken noted that the L.A. Center team is focusing its near-term marketing efforts from the planned office buildings to a 22,000-seat sports arena and adjacent entertainment center.

Early last year, the development partnership reportedly purchased its $200 million-plus mortgage debt obligation -- stemming from its purchase of the Unocal property for about $30 million.

Presumably, the debt-free ownership situation gives the Hillman/Smith & Hricik team substantial flexibility in targeting some of L.A.'s major professional sports franchises -- most notably the basketball Clippers and Lakers and hockey Kings -- as tenants at the Ellerbe-Becket-designed arena.

Semcken said the L.A. Center team is hoping to privately finance the sports and special-events arena, which would be complemented by an adjacent entertainment-oriented complex.

Job cuts 'overdue'

The goal is to attract downtown's 350,000 workers as well as other Angelenos heading downtown during "reverse commute" hours.

Of course, he acknowledged, the enigmatic owners of the franchises in questions will ultimately call the arena-location shots.

Oil analyst John Turo of Chicago investment firm Rodman & Renshaw Inc. characterized Unocal's job-paring move as "long overdue." Unocal said it will take a one-time $25 million charge against fourth-quarter 1994 earnings to pay for employee severance packages and other costs associated with the job cuts.

Michael Young, an oil analyst with New York investment firm Smith Barney Inc., said Unocal was "definitely under pressure" from shareholders and Wall Street analyst to cut costs.

"Annual earnings have been stuck at about $1 a share and that's just not acceptable," he said. "It's a positive development for shareholders that they are backing away from that (lease) because Unocal is not generating a sufficient return on their asset base to be spending large sums on a new office headquarters."

Unocal posts 14% third-quarter profit decline while Oxy's earnings plummet

Unocal Corp., suffering from a slide in natural gas prices, reported third-quarter earnings that were 14 percent lower than last year's and on the low end of Wall Street projections.

Downtown L.A.-based Unocal reported net earnings fell to $60 million, or 21 cents a share, from $70 million, or 25 cents a share, the year before. Operating earnings were down 35 percent.

Unocal's quarterly earnings came in 2 cents below the Wall Street consensus of 23 cents a share, said Barry Lane, Unocal spokesman.

Unocal's stock closed down 37 cents at $29.25 a share on Oct. 31, the day earnings were released.

Alvin Silber, an oil analyst with New York-based investment firm Herzog, Heine, Geduld Inc., said it was "not surprising" Unocal's earnings were below expectations, considering natural gas prices have fallen this year.

Unocal's average worldwide price of natural gas was $1.76 for 1,000 cubic feet in the latest quarter, compared with $2.04 cents a year earlier.

Steven Pfeifer, analyst with CJ Lawrence/Deutsche Bank Securities Corp., reduced his fourth-quarter estimate of Unocal earnings from 35 cents a share to 27 cents because of "ongoing weakness in natural gas prices."

But Pfeifer added, in a report issued last week, that Unocal shares might benefit in the future from "the recovery we foresee in oil and gas prices."

Demand falls

Lane said the natural gas price has fallen with slackened demand caused by warm weather and over-supply resulting from utility companies having "stocked up" after last year's cold winter.

Natural gas makes up 56 percent of Unocal's total energy production, Lane said. The rest is crude oil.

Unocal's average worldwide crude oil sales price was $14.95 a barrel in the third quarter, compared with $13.76 a year before.

Roger C. Beach, Unocal's chief executive officer, said in a statement that earnings were down as a result of lower natural gas prices and also because of reduced margins from refining and marketing operations.

Analyst Silber said profit margins were hurt partly because crude oil prices increased and Unocal did not "get a complete pass-through" of those increases to the pump.

Meanwhile, Westwood-based Occidental Petroleum Corp. announced third-quarter net earnings of $23 million, or 1 cent a share, compared with the year-earlier $71 million, or 20 cents a share.

In announcing the results, Occidental stated, "We are greatly encouraged by the impact of increased prices in several of our chemical businesses. ... Much of the benefit of the recent chemical price increase is expected in later quarters... ."