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Burlington boosts production target Company plans to spend $5 billion over three years Ray Tyson Petroleum News Houston Correspondent
Big U.S. independent Burlington Resources says that in spite of increasing market debate over whether the North America natural gas business can be sustained, it fully intends to stick with it. In fact, the company has “upped” its commitment to produce even more of the stuff over the next three years from its so-called “base of excellence.”
Bobby Shackouls, Burlington’s chief executive officer, informed industry analysts during a March 3 meeting in Houston, Texas, that the company now believes it can achieve 20 percent production growth over the next three years, up from previous guidance of 3 to 8 percent per year. For 2004, he added, Burlington’s production should come in at the high end of that range. Output to come from U.S. Rocky Mountains corridor, western Alberta With current proved reserves of 11.8 trillion cubic feet of gas equivalent, he said Burlington intends to spend $5 billion over the next three years to achieve its new production goal, primarily from about 10 core producing areas in the Rocky Mountains corridor between New Mexico’s San Juan basin in the United States and western Alberta in Canada. The company said it plans to spend $1.5 billion in 2004 alone.
“Today there is considerable debate over the sustainability of the North American natural gas focus,” he acknowledged. “We firmly believe that though this is a very slow growth business, the ... gas business can generate very, very high financial returns. We are comfortable staying focused on this as our core business.”
However, because Burlington is roughly 90 percent weighted to North American natural gas, any prolonged downturn in the market could spell financial hardship for the company. Shackouls even cited one study that presented widely varying gas-price scenarios over the next 20 years, the outcome of which would depend largely on the actions of government and producers. Expects price volatility, sets $4 benchmark “We expect considerable volatility in natural gas prices as we go forward,” Shackouls conceded. “But what really matters to us is what price that should be used to run our business and generate success.”
To that end, he added, Burlington has established a planning benchmark of $4 per million Btu, considerably lower than today’s actual prices. “We do not view these recent prices as required for our success,” he asserted, adding that Burlington’s conservative price should generate over three years an additional $1 billion in cash flow above the $5 billion earmarked for capital spending.
Since coming under criticism in the late 1990s for consistently missing its own production targets, Burlington management has restructured the company, divesting costly non-core properties and focusing on its “keeper assets.”
While divestitures eliminated about 10 percent of Burlington’s production base, output from these keeper assets also rose 10 percent.
“We want to give you some confidence that we’re able to achieve the growth that we are projecting over that three-year period of time,” said Randy Limbacher, Burlington’s chief operating officer. Drilling inventory opportunities of 6.5 tcf Limbacher said Burlington has identified “drilling inventory opportunities” of 6.5 trillion cubic feet of gas equivalent, about 75 percent of which are located in the Rockies and deemed “relatively low risk.” Of the total, he said, about 3 tcf is considered to be proved undeveloped reserves and about 3.5 tcf unproved.
On average, the company has been able to move about 1 tcf per year of its inventory into the all-important proved producing category. To increase international activities Internationally, Burlington maintains a drilling inventory of 1.2 trillion cubic feet of gas equivalent. The company will remain active abroad, despite spending around 85 percent of its capital budget in North America, Limbacher said.
Today only northwest Europe meets the company’s “base of excellence” standard, he said, but over the next few years “the goal” is to make two to four additional regions core producing areas.
Burlington also operates in Algeria, onshore and offshore China and Argentina.
“We’re going to continue to be active internationally, looking at it as an enhancement to our overall North American business,” Limbacher said.
Additionally, he said, Burlington plans to spend about $800 million on exploration over the next three years, about 80 percent of which “is expected to go to more low-to-medium risk” projects.
“We think this level of spending is adequate in order to sufficiently enhance our growth and inventory capability for North America,” he said, adding that about $50 million is earmarked annually “for higher risk, higher reward opportunities.”
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