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Vol. 10, No. 6 Week of February 06, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Big independents weigh in

Unocal, Burlington, Anadarko, Kerr-McGee, Devon earnings outlook bright

Ray Tyson

Petroleum News Houston Correspondent

With oil and gas prices at unprecedented levels, the good times continue to roll for U.S.-based exploration and production companies, including major independents Unocal, Burlington Resources, Anadarko Petroleum, Apache, Kerr-McGee and Devon Energy.

In fact, Unocal stepped out with a bold earnings forecast of $1.20-$1.35 per share for the 2005 first quarter, surpassing the $1 per share reported Feb. 1 for the 2004 fourth quarter and blowing away the Thomson/First Call mean forecast of $1.09 per share for the 2005 first quarter.

“Our earnings continue to be driven by strong crude oil and natural gas prices,” Charles Williamson, Unocal’s chief executive officer, said, adding that an upturn in Unocal’s international liquids and natural gas production more than offset overall production declines in North America.

Unocal’s worldwide hydrocarbon liquids and natural gas production for the fourth quarter 2004 averaged 428,000 barrels of oil equivalent per day, up from 420,000 barrels per day in the same period a year ago. The production increase specifically was due primarily to higher liquids and natural gas production in Asia, the company said.

Unocal said it currently expects worldwide production for the full-year 2005 to exceed 425,000 barrels of oil equivalent per day.

Unocal’s pre-tax profit of $268 million or $1 per share for the final quarter of last year was 49 percent above the $180 million or 68 cents per share the company earned for the same period a year ago

The company said its forecast of $1.20-$1.35 per share for the first quarter 2005 is based on average Nymex benchmark prices of $46.70 per barrel of oil and an average $6.25 per million British thermal units for North America natural gas.

Burlington also beats expectations

Big natural gas producer Burlington Resources also beat Wall Street expectations, reporting $1.02 per share for the 2004 fourth quarter vs. First Call’s 95 cents per share mean estimate.

While Burlington did not provide an earnings forecast for the 2005 first quarter, the company has consistently beat the street and is projecting daily production to average between 2.8 billion cubic feet and 3.001 bcf of natural gas equivalent during 2005, a probable increase over the 2.846 bcf of equivalent produced daily during the 2004 fourth quarter. Nevertheless, First Call has Burlington earning just 82 cents per share at the end of the current quarter.

Burlington reported net income of $400 million in the 2004 fourth quarter, including a previously announced charge of 15 cents per share or a $90 million pre-tax impairment related to undeveloped lands in Canada. The company was able to beat the prior-year fourth-quarter earnings of $387 million, which included a $33 million pre-tax impairment charge.

Burlington’s total reserves at year-end 2004 were 12 trillion cubic feet of natural gas equivalent, up from 11.8 tcf at year-end 2003.

Anadarko has gains even with divestitures

Anadarko, even after divesting more than $3 billion in non-core properties, weighed in with 2004 fourth-quarter net income of $405 million or $1.64 per share, smashing the $294 million or $1.17 per share the company earned for the same period last year. Net income for the recent quarter included no gains or losses from the oil and gas asset sales, the company said.

Anadarko sold properties accounting for 288 million barrels of oil equivalent based on 2003 year-end reserves. However, the company added 335 million barrels of equivalent proved reserves during 2004, ending the year with a total of 2.37 billion barrels.

Reserve additions in 2004 came primarily from fields in the North Louisiana Vernon, East Texas Bossier, West Texas Haley, Wyoming Salt Creek and Canadian Wild River areas, as well as the K2, K2 North, Spiderman and Jubilee deepwater discoveries in the Gulf of Mexico, Anadarko said.

However, property divestitures caused Anadarko’s fourth-quarter sales volumes of 46 million barrels of oil equivalent to fall by 5 million barrels from 49 million barrels registered in the year-ago period.

The divested assets represent about 11 percent of Anadarko’s 2003 year-end reserves and about 20 percent of its 2004 annual production, the company said. The proceeds were used primarily to repurchase $1.3 billion, or 20.3 million shares, of outstanding common stock and to retire about $1.2 billion in debt. Additionally, Anadarko ended the year with nearly $900 million of cash.

“This year we made some tough decisions to implement a new strategy for Anadarko,” said Jim Hackett, Anadarko’s chief executive officer.

Apache up 90 percent from fourth quarter 2003

Meanwhile, Apache turned in a superlative 2004 fourth-quarter profit of $507 million or $1.52 per share, up 90 percent from the $260 million or 80 cents per share the company earned in the fourth quarter of 2003. The company’s net income for the recent quarter beat analysts’ estimates by a cool 6 cents per share.

Apache said it was able to add 467 million barrels of oil equivalent reserves in 2004 from a capital investment of $3.4 billion, which generated 7 percent production growth vs. 2003.

“With that growth and strong commodity prices … we enter 2005 with record production and a strong portfolio of drilling opportunities across our core areas,” said Steve Farris, Apache’s chief executive officer.

In the 2004 fourth quarter, Apache’s daily production of 461,000 barrels of oil equivalent was up slightly from the third quarter, despite lingering effects from Hurricane Ivan in the Gulf of Mexico, which curtailed company production by an estimated 9,700 barrels of oil and 34 million cubic feet of natural gas per day during the quarter.

For the year 2004, Apache produced an average of 448,000 barrels of oil equivalent per day, up from 417,000 barrels per day in 2003. Proved reserves increased for the 19th consecutive year, climbing 17 percent or 280 million barrels of oil equivalent, to 1.94 billion barrels of oil equivalent.

Kerr-McGee has record production

Kerr-McGee saw its 2004 fourth-quarter profit of $133.8 million or 86 cents per share rocket when compared to the $50.5 million or 50 cents per share the company earned in the 2003 fourth quarter.

The company also achieved record production for the second consecutive quarter, with 2004 fourth-quarter daily production averaging 372,100 barrels of oil equivalent, an increase of 41 percent from the 2003 fourth quarter. Production for the year averaged 312,200 bpd, an increase of about 15 percent from the prior year.

The increase in 2004 production was due to higher oil and gas sales volumes and prices, partially offset by higher operating and exploration costs, the company said, adding the higher sales volumes primarily were due to the acquisition of Westport Resources late in the second quarter of 2004, and the start of production at Red Hawk in the Gulf of Mexico, and Bohai Bay, China, in the 2004 third quarter and Gunnison in the U.S. Gulf late in the 2003 fourth quarter.

Moreover, Kerr-McGee said it expects to achieve record production in 2005, with volumes projected to increase in the range of 13 percent to 18 percent vs. 2004.

“We’re confident we also will grow our reserves as we execute our 2005 capital and exploratory program, which includes identified low-risk exploitation opportunities in the Rockies, appraisals of 2004 discoveries in Alaska, Brazil and China, and a high-potential exploratory program,” said Luke Corbett, Kerr-McGee’s chief executive officer.

Devon adds 313 million barrels

Devon Energy, the largest independent producer based in the United States, also blew away First Call earnings estimates for the 2004 fourth quarter. The company reported net income of $673 million or $1.38 per share vs. First Call’s $1.20 per share. Devon’s fourth-quarter performance also compared to net income of $543 million or $1.16 per share in the year-ago period.

Devon’s combined oil, gas and natural gas liquids production during 2004 averaged 685,000 barrels of equivalent per day, a 10 percent increase over the average rate of 624,000 bpd in 2003. Furthermore, with drill-bit capital of $2.8 billion, the company managed to add 313 million barrels of proved reserves while reducing its debt by $1.8 billion with free cash flow.

“Devon is clearly performing at a very high level and we couldn’t be more enthusiastic about our future,” said Larry Nichols, Devon’s chief executive officer.



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