Burlington Resources Inc.’s management team took heat frominvestors and some analysts last week, after it reported onThursday that its natural gas production for the second quarter ofthe year rose slightly compared with 1999, but still fell 7% fromthe first quarter of 2000. Burlington reported that its natural gasproduction for the entire year will be flat compared with lastyear, and said that its oil production probably will be 10% lowerfrom a year ago.

CEO Bobby Shackouls acknowledged that the company had beencriticized for not spending some of its available capital, but saidhe preferred taking a disciplined approach.

“Falling into a boom and bust leads to inferior returns,”Shackouls said. He said that instead of following a path ofspending all of the money it makes, Burlington was taking a slowerapproach, with value-added acquisitions.

Saying he holds 150,000 shares of stock of Burlington, “80% ofmy net worth,” Shackouls tried to appease one angry shareholder whocalled during the earnings conference call, who accused the CEO andthe rest of the management team of not doing enough to guaranteebetter returns on the stock, which has fallen steadily in the pastfew months.

“I’m just as concerned as any of the shareholders,” he said.When asked if he loses sleep over the poor returns of the company,the CEO said they (management) were “working ourselves silly tryingto improve” the capital position of the company.

The Houston-based holding company is considered one of the largest U.S. independents, and natural gas accounts for about 80% of its production. Most of the problems, said Shackouls, relate to poor rainy weather and regulatory issues in Canada, which prevented the company from bringing in an expected 90 MMcf/d of production on stream in its first Canadian holding, Poco Petroleums Ltd.. Burlington purchased Poco last August for $2.5 billion (see NGI, Aug. 23, 1999).

“The weather is out of our control, but there are ways tomitigate the other problems and improve our position,” saidShackouls. He said the company expects production from Canada tocome on stream in the final quarter of 2000 and early in 2001.

Burlington’s capital spending has been about $900 million thisyear, and the company expects to spend between $800 million and $1billion in 2001, said Shackouls. It originally had set a $1 billioncapital spending budget for this year, but in April, it backed offof that figure, saying that it was moving toward a path offinancial discipline and improved capital returns rather thanvolume growth. The stock has fallen steadily since then.

Irene Haas, an analyst with Sanders, Morris Mundy, saidBurlington had not been aggressive enough on its long-termexploration prospects.

“The components for growth are not in place,” she said. “They’refaced with a growth issue, and I feel the company is stuck inneutral unless they become more aggressive. It’s gone on too long.”She said that the company should have done better planning “fiveyears ago” to take advantage of the market now. It still could, shesaid, it if intensified its exploration efforts.

Shackouls was asked on Thursday about the possibility of sellingthe company, and while he and his managers would not comment, Haassaid Burlington has “great assets,” but it would take a companywith “big domestic gas exposure” to take advantage of them.

Shares of Burlington stock fell Thursday and Friday afterfailing to meet Wall Street’s consensus estimate. It posted asecond quarter income of $94 million, or $.43 a share, comparedwith $24 million or $.11 a share in 1999. However, 29 analystssurveyed by First Call had predicted Burlington to earn $.44 ashare for the quarter.

On Friday, Gheit Fadel of Fahnestock & Co. downgradedBurlington stock to hold from buy. David Wheeler at Deutsche BancAlex. Brown downgraded the stock to buy from strong buy. Wheelersaid the outlook for production growth “has substantiallydeteriorated.” In the past year, the stock has sold for between $47and $26. Burlington closed Friday at 31 3/8, off 6.52% and down 23/16 from Thursday’s close.

Carolyn Davis, Houston

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