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Providing coverage of Alaska and northern Canada's oil and gas industry
October 2003

Vol. 8, No. 42 Week of October 19, 2003

U.S., Canada gas production could drop in ’03

Lehman survey indicates industrial, utility consumers may have to reduce consumption

Petroleum News

Investment bank Lehman Brothers, in a wide ranging survey of North American producers, has confirmed what analysts have suspected: natural gas production is on the decline with little hope for a significant rebound anytime soon.

In its survey of 49 producers representing 70 percent of North American gas production, Lehman found that combined U.S-Canada volumes in the 2003 third quarter fell 1.5-to 2 percent from the previous quarter and 2.5-to 3 percent from the year-ago quarter.

In the United States alone, Lehman estimated 2003 third-quarter gas production decreased 2-to 2.5 percent from the previous quarter and 3-to 3.5 percent from a year ago. In Canada, Lehman estimated third-quarter volumes were flat sequentially and down 2.5-to 3 percent from a year ago.

Compared to last year, full-year 2003 gas production is expected to fall 1-to 3 percent in the U.S. and 2-to 4 percent in Canada, according to Lehman.

“We believe a 2-to 3 percent North American gas production volume decline in 2003 will force industrial and perhaps utility consumers to reduce gas consumption in 2003,” Lehman analyst Tom Driscoll said in a report to investors.

The Lehman survey included majors, integrated energy companies and exploration and production independents. Of the 49 companies surveyed, 65.4 percent were expected to post lower natural gas production in the 2003 third quarter than in the second quarter, while 67.4 percent expected lower volumes in the third quarter compared to a year earlier.

Among the biggest production losers year-over-year: ATP Oil & Gas, down 43 percent; Amerada Hess, down 39 percent; Nuevo Energy, down 28 percent; El Paso, down 17 percent; Swift Energy, down 16 percent; Williams and Kerr-McGee, down 14 percent; National Fuel Gas and Spinnaker Exploration, down 13 percent; Unocal, Shell and Canadian Natural Resources, down 12 percent; ChevronTexaco and Noble Energy, down 11 percent; and BP, ConocoPhillips and Stone Energy, down 10 percent.

And despite the sharp volume decreases among some companies, there are a few big winners. For example, Pioneer Natural Resources is expected to weigh in with third-quarter production 109 percent above the same period last year, while Apache was looking at a 56 percent increase. Other gainers included Westport Resources, up 45 percent; Chesapeake Energy and EnCana, up 31 percent; XTO Energy, up 21 percent; Burlington Resources, up 13 percent; and Comstock Resources, up 10 percent.

Analysts pointed out that at least some of the steep year-over-year production declines, as well as sharp increases, can be attributed to property divestitures and acquisitions. Nevertheless, it's clear from Lehman's survey that many North American gas producers are having a tough time growing production through the drillbit.

“The U.S. is maturing and on a rapid decline,” one analyst noted. “Fundamentally, we're seeing a decline and increased competition for the good prospects.”

In addition to a general lack of good prospects, companies are facing raising operational costs, particularly in the Gulf of Mexico, according to Ziff Energy Group. From 1999 to 2002, natural gas fields on the Gulf's continental shelf showed unit operating increases of about 20 percent, Ziff said, adding that oil fields showed increases twice as high, about 40 percent per barrel of equivalent.






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