Mixed results for Canadian branches of U.S. companies

Gary Park

Petroleum News Calgary Correspondent

For the Canadian branch plants of U.S.-based E&P companies the latest quarter was a grab-bag of the good, bad and indifferent. Here is a summary of highlights culled from earnings reports:

Anadarko — Regardless of takeover rumors and the elimination of 400 staff positions in the parent company, Anadarko is keeping its Canadian operations on an even keel. As of early August, the rig count in Canada was up four and second-quarter natural gas production rose to 391 million cubic feet per day from 356 million a year ago, although crude oil and condensate volumes nosedived to 17,000 bpd from 37,000 bpd in 2002. Of its northern programs, Anadarko said its Fort Liard P-16 exploratory well has been completed and an evaluation continues of its nine winter wells in the same area of the lower Northwest Territories. Two British Columbia wells are expected on stream this quarter and four successful development wells were drilled in the second-quarter. In the Alberta Deep Basin, Anadarko is developing a tight gas play it believes could have reserve potential of 1 trillion cubic feet.

ConocoPhillips — A sale of mature Western Canadian oil and natural gas properties has been stalled at a time when commodity prices have eroded hopes of attracting premium offers, said President and Chief Executive Officer Jim Mulva. “Obviously ... we don’t want to sell something that has more value to us,” he said. Petrovera Resources, a heavy oil joint venture that pumps 40,000 barrels per day, “may or may not” be up for sale, Mulva said. Canadian oil and condensate output averaged 31,000 bpd in the second quarter and natural gas liquids totaled 11,000 bpd.

Devon Canada — The company will operate about two dozen rigs through the summer, trying to offset some weather-related setbacks in the first quarter which normally accounts for more than 50 percent of the capital budget. The Canadian unit still aims to complete in excess of 700 wells this year, with a heavy focus on core areas in northern Alberta and British Columbia, said chief executive officer John Richels. Canadian output for the first half included declines in crude oil to 36,400 bpd from 48,200 bpd a year earlier, in gas liquids to 13,900 bpd from 16,000 bpd and in natural gas to 715.5 million cubic feet per day from 797.1 million.

EOG Resources — With the company’s overall focus on North American gas, because of the industry’s “inability to significantly address declining production,” chairman Mark Papas said a shallow gas drilling program is on scheduled to complete a 1,000-well program by Sept. 30. EOG posted second-quarter volumes of 153 million cubic feet per day in Canada, a drop of 6 million cubic feet per day from a year ago. Crude oil and condensates production edged up to 2,300 bpd from 2,000 bpd. Papas said EOG will continue its drilling mix of moderate rate and reserve wells with several big target prospects, while keeping an eye out for property acquisitions that offer upside drilling potential.

Forest Oil — Newly appointed Chief Executive Officer Craig Clark confirmed “significant discoveries” in the Fort Liard area of the lower Northwest Territories at Narraway in the Alberta Foothills, but said that returns on frontier assets in general, including Alaska, have been undermined by locked-in development plans that can’t easily be changed. He said future frontier spending will be restricted to between 5 and 10 percent of the total exploration budget, down from the usual 20 percent. He said frontier spending has fallen short of expected rates of return. The Canadian subsidiary produced 49.8 million cubic feet equivalent in the first half, down sharply from last year’s 60.4 million, blaming the decline on higher royalty volumes and last year’s disposal of producing assets.

Vintage Petroleum — Following its acquisition of Genesis Exploration more than two years ago, Vintage has struggled to overcome a series of problems, but is not ready yet to walk. Chief Executive Officer Craig George said that after much “soul-searching ... about why we got into Canada,” Vintage is unchanged from its initial view of the opportunities. However, it will seek farm-out prospects for three Northwest Territories exploration licenses that “no longer fit within the company’s current investment portfolio.” The Canadian setbacks have included a C$23.7 million impairment charge related to non-producing Northwest Territories properties and a C$12.6 million charge covering negative reserve revisions and unsuccessful workovers at three other Canadian properties. Second quarter volumes were down to 3,264 bpd of oil from 4,967 bpd and to 49.3 million cubic feet per day of gas from 90.66 million. Sales of Saskatchewan assets fetched C$14.9 million during the latest quarter.

National Fuel Gas — Through its wholly owned subsidiary Seneca Resources, National Fuel is selling 18.1 million barrels of oil equivalent from its southeast Saskatchewan oil properties for US$80 million. Crude oil accounts for 16.57 million barrels of the total. The deal, representing about half its Canadian assets, is expected to lower Seneca’s 2004 production by about 10 billion cubic feet equivalent. But National Fuel intends to remain an active gas explorer in Alberta and British Columbia, despite the fact that its latest quarter profit fell to US$2.2 million from US$17.7 million a year ago because of a writedown of its Canadian properties.

Burlington Resources — Natural gas output for the quarter rose to 868 million cubic feet per day from 805 million a year earlier; gas liquids production was flat at 28,500 bpd; crude volumes fell to 5,200 bpd from 9,900 bpd. The company collected an average US$5.34 per thousand cubic feet for its Canadian gas, compared with US$3.29 last year. The gas increases came mainly from the Viking and Deep Basin areas of Alberta, although plant downtime did trim 25 million cubic feet per day from production. Burlington is counting on completing 800 wells in Canada this year.

Apache — Canadian output was off slightly —gas averaging 317.08 million cubic feet per day from 321.64 million and oil easing to 24,890 bpd from 24.965 bpd. Gas liquids made a modest gain to 1,894 bpd from 1,614 bpd.