Major U.S.-based exploration and production independents, buoyed by unparalleled strength in oil and gas prices, continue to surprise to the upside on quarterly earnings.
Despite a disruptive hurricane season in the Gulf of Mexico, Apache not only weathered the storm with record earnings in the 2004 third quarter, but also managed to beat Wall Street expectations by a cool 8 cents per share.
The big Houston independent weighed in Oct. 28 with third-quarter earnings of $432 million or $1.31 per share, up 57 percent from $276 million or 84 cents per share in the same period last year. Analysts had been expecting $1.23 cents per share for this year’s third quarter.
The combination of continued strong prices for both oil and natural gas and record oil production fueled Apache’s results, the company said.
In fact, Apache’s 2004 third-quarter earnings improved 16 percent over the company’s previous record of $372 million or $1.13 per share, which was established in the prior quarter.
Cash from operations also totaled a record $883 million in the 2004 third quarter, up from $731 million in the year-ago period.
Apache’s third-quarter earnings actually were reduced by 6 cents per share because of the impact of foreign currency swings on deferred taxes and by 4 cents per share because production was curtailed by Hurricane Ivan, which swept through the U.S. Gulf in September.
“Apache established a new production record despite the negative effects of Hurricane Ivan,” said Steve Farris, Apache’s president and chief executive officer. The company made up the difference with growth in other regions, including a 23 percent increase in North Sea production, he added.
Apache’s worldwide daily production averaged 458,412 barrels of oil equivalent during the 2004 third quarter, up 2 percent from last year’s third quarter. Ivan’s impact reduced Apache’s U.S. oil production by 4,042 barrels per day during the quarter.
Apache’s debt-to-capitalization ratio rose slightly to 26.3 percent at the end of the 2004 third quarter from 23.2 percent at the end of the second quarter, due to the cost of assets purchased from ExxonMobil and fellow independent Anadarko Petroleum.
Unocal exceeds expectations
Unocal reported adjusted net income for the 2004 third quarter of $294 million or $1.09 per share, well above analysts’ expectations of 96 cents per share. That compared to $190 million or 72 cents per share in last year’s third quarter.
When including special items, however, Unocal actually earned $330 million or $1.23 per share in this year’s third quarter, a 117 percent increase over the $152 million or 58 cents per share reported in the same period a year ago.
Unocal’s profit soared despite a decrease in worldwide liquids and natural gas production, which averaged 407,000 barrels of oil equivalent per day in the 2004 third quarter versus 441,000 barrels per day in the same period a year ago.
The company attributed the production decline partly to the sale of oil and gas producing assets in North America, Gulf of Mexico hurricanes and natural production declines in North America. Higher liquids production in Thailand and from the West Seno field in Indonesia partially offset the declines, the company added.
For the fourth quarter of 2004, Unocal said it expects adjusted after-tax earnings of $1.15 to $1.30 per share, considerably higher than analysts’ expectations of around 99 cents per share.
Kerr-McGee beats consensus
Kerr-McGee’s adjusted after-tax net income from operations, supported by strong commodity prices and a hefty increase in production, rocketed to $177.4 million or $1.17 per share in the 2004 third quarter from $76.7 million or 76 cents per share a year earlier. That beat analysts’ consensus by 8 cents per share.
Kerr-McGee’s 2004 third-quarter net income, when including special items, was $7.4 million or 5 cents per share, compared with the 2003 third-quarter net income of $28.8 million (29 cents per share).
The company said special items after taxes were higher in the 2004 third quarter, primarily due to a $79.6 million write-down related to its Savannah titanium dioxide pigment plant, higher environmental charges of $19.7 million, and higher non-hedge commodity and other derivative losses of $24.1 million.
On the oil and gas side, Kerr-McGee reported record production in the third quarter, averaging 341,600 barrels of oil equivalent per day, a 33 percent increase from the 2003 third quarter.
The production increase was attributed primarily to the early start of oil production in China’s Bohai Bay, natural gas production from the company’s new deepwater Gulf of Mexico Red Hawk field and the company’s Westport Resources acquisition.
Kerr-McGee’s daily oil production alone averaged 166,400 barrels in the 2004 third quarter, up 18 percent from 141,000 barrels per day from the year-ago period. Natural gas sales averaged a record 1.051 billion cubic feet per day during the recent quarter, up 50 percent from the same period last year.
EOG Resources also beats consensus
EOG Resources, which benefited from a 12 percent increase in production, saw its 2004 third-quarter profit soar to $169.6 million or $1.42 per share, compared to a 2003 third-quarter profit of $114.7 million or 99 cents per share. That also surpassed the consensus by 8 cents per share.
Production from the United States and Canada increased more than 7 percent, while production from Trinidad and the United Kingdom North Sea increased 38 percent, EOG said, adding that it has increased its 2004 total production growth target from the previous 9 percent to 9.5 percent.
In the United States, the most significant production increases came from the Rocky Mountain and South Texas areas.
“Based on results to date, EOG is well positioned to meet its three-year production growth target of 34 percent through 2006,” said Mark Papa, EOG’s chief executive officer.
At Sept. 30, EOG’s total debt outstanding was $1.063 billion and cash on the balance sheet was $82 million. The company’s debt-to-total capitalization ratio was 28 percent, down from 33 percent at year-end 2003, the company said.
Anadarko net income up substantially
Anadarko Petroleum weighed in with 2004 third-quarter net income of $399 million or $1.58 per share, a substantial increase from the $277 million or $1.09 per share the company earned in last year’s third quarter.
During the third quarter, Anadarko’s sales volumes totaled 49 million barrels of oil equivalent or 534,000 barrels per day, up more than 4 percent from the previous quarter due to the start-up of the company’s Marco Polo field in the deepwater Gulf of Mexico, continued drilling success in East Texas and North Louisiana tight gas plays and the timing of sales in Algeria.
However, sales volumes were down compared to the prior-year third quarter due primarily to high natural decline rates on properties that are currently being divested, Anadarko said. Third-quarter 2004 volumes also were reduced an estimated 200,000 barrels of oil equivalent because of hurricane-related problems in the U.S. Gulf.
Pioneer profits take a dive
Pioneer Natural Resources is among the few large independents whose profit took a nose dive in the 2004 third quarter.
The company reported net income of $80.9 million or 67 cents per share versus $191.8 million or $1.62 per share compared to last year’s third quarter. The company said it took a write-down of 8 cents per share based on its decision not to pursue development of the Olowi field in Gabon due to increases in projected development costs, primarily steel costs.
However, the significant year-to-year change in Pioneer’s net income was attributed largely to the company’s reversal of its deferred tax valuation allowance in the United States during the third quarter of 2003.
Pioneer’s balance sheet also reflects the merger with Evergreen Resources that closed Sept. 28. Long-term debt at the end of the third quarter was $2.46 billion, reflecting a $280 million debt reduction year-to-date offset by a $1.2 billion addition for merger-related debt.
Third quarter oil sales averaged 45,924 barrels per day, while natural gas liquids sales averaged 21,459 barrels per day and gas sales averaged 676 million cubic feet per day. For the same quarter last year, Pioneer reported oil sales of 33,560 barrels per day, natural gas liquids sales of 22,658 barrels per day, and gas sales of 643 million cubic feet per day.
Fourth-quarter 2004 production is expected to average 190,000 to 205,000 barrels of oil equivalent per day, including the production from the Evergreen assets, current production expectations for Devils Tower and the Falcon Corridor in the U.S. Gulf and oil cargo shipments in Tunisia and South Africa. Third-quarter oil and gas production averaged 180,020 barrels oil equivalent per day.
