Burlington Management Takes Heat Over Poor Gas Production
Burlington Resources Inc.'s management team took heat from
investors and some analysts last week, after it reported on
Thursday that its natural gas production for the second quarter of
the year rose slightly compared with 1999, but still fell 7% from
the first quarter of 2000. Burlington reported that its natural gas
production for the entire year will be flat compared with last
year, and said that its oil production probably will be 10% lower
from a year ago.
CEO Bobby Shackouls acknowledged that the company had been
criticized for not spending some of its available capital, but said
he 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 of
spending all of the money it makes, Burlington was taking a slower
approach, with value-added acquisitions.
Saying he holds 150,000 shares of stock of Burlington, "80% of
my net worth," Shackouls tried to appease one angry shareholder who
called during the earnings conference call, who accused the CEO and
the rest of the management team of not doing enough to guarantee
better returns on the stock, which has fallen steadily in the past
"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 trying
to 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.
"The weather is out of our control, but there are ways to
mitigate the other problems and improve our position," said
Shackouls. He said the company expects production from Canada to
come on stream in the final quarter of 2000 and early in 2001.
Burlington's capital spending has been about $900 million this
year, and the company expects to spend between $800 million and $1
billion in 2001, said Shackouls. It originally had set a $1 billion
capital spending budget for this year, but in April, it backed off
of that figure, saying that it was moving toward a path of
financial discipline and improved capital returns rather than
volume growth. The stock has fallen steadily since then.
Irene Haas, an analyst with Sanders, Morris Mundy, said
Burlington had not been aggressive enough on its long-term
"The components for growth are not in place," she said. "They're
faced with a growth issue, and I feel the company is stuck in
neutral unless they become more aggressive. It's gone on too long."
She said that the company should have done better planning "five
years ago" to take advantage of the market now. It still could, she
said, it if intensified its exploration efforts.
Shackouls was asked on Thursday about the possibility of selling
the company, and while he and his managers would not comment, Haas
said Burlington has "great assets," but it would take a company
with "big domestic gas exposure" to take advantage of them.
Shares of Burlington stock fell Thursday and Friday after
failing to meet Wall Street's consensus estimate. It posted a
second quarter income of $94 million, or $.43 a share, compared
with $24 million or $.11 a share in 1999. However, 29 analysts
surveyed by First Call had predicted Burlington to earn $.44 a
share for the quarter.
On Friday, Gheit Fadel of Fahnestock & Co. downgraded
Burlington stock to hold from buy. David Wheeler at Deutsche Banc
Alex. Brown downgraded the stock to buy from strong buy. Wheeler
said the outlook for production growth "has substantially
deteriorated." In the past year, the stock has sold for between $47
and $26. Burlington closed Friday at 31 3/8, off 6.52% and down 2
3/16 from Thursday's close.
Carolyn Davis, Houston