U.S. companies looking to buy

Flush with cash, E&P companies eye acquisitions in core operating areas

Petroleum News Houston Staff

After a few years of belt-tightening, U.S. exploration and production companies are once again cash-rich and appear to be on the hunt for properties to build their oil and gas portfolios.

Large independents Apache and Burlington Resources, both with considerable amounts of money in the bank due to the first-quarter run-up in commodity prices, made it clear in separate conference calls April 24 that acquisitions were at least on their agendas.

Just one day before Apache and Burlington reported first-quarter earnings, ChevronTexaco announced that it was offering for sale more than 100 producing properties throughout North America, primarily in Texas, Louisiana, Oklahoma, Wyoming, California and Alberta.

“There are a lot of people coming out of the woodwork wanting to sell assets,” Steve Farris, Apache’s chief executive officer, told analysts. “We are interested in purchasing in any of our core areas.”

Apache, which operates in the United States, Canada, the United Kingdom, Egypt, Western Australia and China, had net income of $545.5 million for full-year 2002, a respectable performance at the time.

But during the first three months of 2003, Apache generated net income of $337.5 million or $2.10 per share, exceeding full-year totals for all but three of the company’s 48-year history. In March alone, Apache collected more money than it did for all of 1996.

Earnings up by more than 80 percent

Apache’s $337.5 million in first-quarter profit represented a nearly 90 percent increase from the $179 million the company earned in the prior quarter and a 345 percent jump from $75.8 million it earned in the year-ago quarter, when commodity prices were at a low point in the cycle.

Apache has turned the acquisition game into an art form, buying over the past few years billions of dollars worth of North American properties at bargain prices during market downturns. Recently, the company shelled out $1.3 billion for BP assets in the Gulf of Mexico and the North Sea.

That strategy has paid off handsomely for Apache, particularly when it comes to production. Between the 2002 fourth quarter and 2003 first quarter, the company increased daily oil production to 158,815 barrels from 150,000 barrels and daily natural gas production to 1.09 billion cubic feet from 1.07 bcf.

And that performance included only 18 days of first-quarter production from the recently acquired BP properties in the Gulf of Mexico and none from BP properties in the North Sea.

“In terms of production, the best is yet to come,” Apache’s Farris said. “We should see our highest levels in April.”

Burlington weighted to gas

Nonetheless, “we will continue to tackle the tactical acquisition game hard,” he told analysts. “But we’re not going to do this just because we have the cash.”

Burlington, 85 percent weighted to natural gas, operates in the United States, Canada, the United Kingdom, Africa and South America.

The company’s first-quarter net income jumped more than 100 percent to $328 million or $1.62 from $157 million or 78 cents per share in the prior quarter and soared nearly 600 percent compared to $48 million or 24 cents per share for the year-ago period.

Burlington was particularly bullish on commodity prices for the remainder of this year, suggesting U.S.-based independents may be gaining confidence in the future and could be ready to plunk down cash for the right properties.

“The sweet spot for exploration activity is North American gas, either in or around our assets or those large chunky assets,” Shapiro said of what properties the company might pursue.

“We clearly have an optimistic view, at least in the near term,” he added. “It’s hard to see supply being up dramatically … so we’re expecting a reasonably strong period for the rest of the year. But we will spend money where it makes sense and not be embarrassed with cash on our balance sheet at the end of the year.”