Results of Burlington Resources, Apache Corp., Vastar Resources,and Union Pacific Resources began the tale of woe that independentproducers’ will be telling with their third quarter earnings. Thecompanies cited a common cause for their malaise – depressed gasand oil prices and liquids margins that are at historic lows.

Burlington’s realized gas prices dropped 3% to $1.89/Mcf from$1.95/Mcf in the third quarter of 1997. Oil prices fell 31% to$12.60 per barrel in 1998’s third quarter from $18.28 per barrel inthe same period of 1997. Burlington gas sales averaged 1,630 MMcf/dduring the third quarter of 1998 compared to 1,671 MMcf/d in thethird quarter of 1997.

Apache realized an average gas price of $1.86/Mcf, down 9% from$2.05/Mcf in the third quarter of 1997. Apache’s oil sold at anaverage price of $12.49 per barrel, down 32% from an average priceof $18.48 in the year earlier period. Apache gas productionaveraged 576 MMcf/d compared with 620 MMcf/d in the comparable 1997period.

Vastar realized wellhead prices of $1.79/Mcf for gas, down from$1.86/Mcf during last year’s third quarter. Crude oil pricerealizations were $13.11/barrel, down from $19.59/barrel duringlast year’s third quarter. NGL prices were $8.38/barrel, down from$11.34/barrel during the third quarter of 1997. Gas represented 78%of Vastar production. During the third quarter gas production rose10% to 977 MMcf/d, from 888 MMcf/d.

Production of all three companies was impacted by storms andhurricanes in the Gulf of Mexico.

UPR had a 68% increase, to 2,605 MMcf/d, in third-quarter dailyproduction volumes, up from 1,550 MMcf/d for the same period lastyear. But like other independents, the company was hit by low gasand oil prices, as well as high debt service levels associated withthe 1998 acquisition of Norcen Energy Resources Ltd. UPR sold itsdomestic produced gas for an average of $1.73/Mcf in the thirdquarter, down from $1.85/Mcf in Q3 1997. However, Canadian gasproduction sold for an average of $1.25/Mcf, up from $1.18/Mcf. UPRdomestic crude prices were off to an average of $12.43/barrel from$17.98/barrel, and Canadian oil production was down sharply to$8.73/barrel from $20.24/barrel.

Burlington reported third quarter net income of $15 million, or8 cents/share. For the same period last year, the company had netincome of $65 million, or 37 cents/share. Operating cash flow forthe third quarter of 1998 was $231 million compared to $269 millionin the same period in 1997.

Apache reported third quarter net income of $2.6 million, or 3cents/share, down from $30.8 million, or 34 cents/share, in theprior-year period. Cash from operations totaled $96.9 million,compared with $142.3 million in 1997’s third quarter.

“Apache is in good shape to operate in a difficult time for theoil and gas industry,” said G. Steven Farris, president. “When wedecided to sell producing properties late last year, we tradedhigh-cost production for a stronger balance sheet. Ourthird-quarter production was below what it would have been withoutthe property sales. However, with our increased financialflexibility, we can continue to grow through drilling andexploitation, by acquiring the right assets in the right place atthe right price, or by a combination of both.”

Vastar reported third-quarter 1998 earnings of $37.6 million, 39cents/share, compared to $52.4 million, 54 cents/share, reported inthe third quarter of 1997. “Vastar continues to operate profitablydespite the unfavorable market conditions that are impacting theentire industry, said CEO Charles D. Davidson. “Our low costscoupled with record production volumes have enabled us to maintainour base investment programs while positioning Vastar for thefuture.”

Bobby S. Shackouls, Burlington CEO, lamented the weak priceenvironment but said the company will push ahead with its capitalspending plans. “Financial results for the third quarter of 1998were adversely impacted by continued low oil prices, moderate gasprices and unscheduled production interruptions. We are pleased tohave posted positive earnings for the quarter, given the pricingenvironment the industry has experienced. The company’s financialstrength allows us to prudently maintain our capital program andcontinue moving ahead with our long-term growth strategy, in spiteof short-term price declines.”

UPR reported a net loss of $17 million compared to net income of$67 million in the third quarter of 1997. Earnings per sharedeclined to a loss of seven cents a share, down from a gain of 27cents a share a year earlier. “Our entire industry is operating indifficult conditions – crude oil prices are as low as they havebeen in half-a-century when adjusted for inflation. At the sametime, we at UPR are digesting a major acquisition that will proveto be positive to the future of our company,” said CEO JackMessman. “While some in our industry are struggling to survive, wehave more than doubled our asset base, increased production by 68%this quarter, and are on track with our de-leveraging program.

“De-leveraging is moving ahead.” The company signedpurchase-sales agreements on several other properties, and isnegotiating the properties not yet sold, Messman said. UPR saidlast week its Canadian subsidiary has nearly completed its 1998property divestiture program.

Joe Fisher, Houston

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