Asset Sales, Weather Lowered 4Q Production Rates
Fourth quarter profits are over the top but not natural gas
production figures, according to a preliminary analysis of U.S.
companies. Overall, the majors and the independents showed stunning
monetary gains in the final quarter of last year, but the
production levels for many of the larger independents were actually
lower than those recorded in the third quarter.
One factor that may have contributed to some of the larger
companies' fourth quarter decline could be related to asset sales
and acquisitions related to the many mergers of 2000. Also cited as
factors were the weather, which was colder and wetter in some
production areas, as well as the natural decline in some regions.
According to a recent study by Lehman Brothers of 20 of the
largest natural gas producers, which account for about 40% of
domestic production, fourth quarter production was down 0.8% from
the third quarter. Perhaps more significant is that production was
down 3.7% from the fourth quarter of 1999. Even though some of the
largest producers have yet to report, BP Amoco PLC, for instance,
doesn't report until later this month, the study is significant
because it shows that while natural gas demand has never been
higher, production appears to not be ahead of the curve.
Many companies reported totals with flat or declining production
growth into the fourth quarter, which puzzled analysts, who had
expected to see higher production figures in a quarter where record
profits were streaming in from higher commodity prices.
Another surprising tally is in the drilling figures. Baker
Hughes Inc. reported that 879 rigs were actively drilling for
natural gas in the third week of January, up 41% from the same
period a year ago. However, while drilling activity is higher, the
gas reserves being targeted are actually smaller in size and the
decline rates are higher.
In the Lehman study, companies that produced at least 15.1 Bcf/d
in the fourth quarter were about 2.6% off. "From quarter to
quarter, production fell by 100 MMcf/d," said Lehman analyst Tom
Driscoll. "Year-over-year production is down 3.4%." Once all of the
final figures are in, the gap may be much tighter.
In some of the companies' fourth quarter reports, there are
valid reasons for a slowdown in production late in the year.
Anadarko Petroleum Corp., which announced its record earnings last
week, said that "production from the Gulf of Mexico and Alaska
fields began later than we had expected and this caused us to
record slightly lower production volumes than anticipated for the
Still, Anadarko's results couldn't be called shabby. Its total
year-end production was actually up 124%, standing at 112 MM boe.
In 1999, the total was 50 MM boe, with the increase attributed to
the acquisition of Union Pacific Resources and increased production
at operations in Texas, Louisiana, Kansas and Algeria.
Texaco, which saw its production decline 12% in the fourth
quarter, attributed the decrease to the natural decline rate in its
wells. At Kerr-McGee, fourth quarter production was down almost 13%
from a year earlier, and it also reported overall lower year-end
However, not every company drew a loss in the fourth quarter.
Some, in fact, are reporting production figures to match huge
profits. Apache Corp., which reported its earnings last week,
jumped its fourth quarter natural gas production 28% to 934 MMcf.
Apache has followed an "acquire and exploit" policy in recent
years, buying up underutilized oil and gas assets and working them
harder to raise production. Last year, the Houston-based
independent spent more than $1.5 billion to acquire oil and gas
properties, mostly U.S. and Canadian natural gas properties.
Devon Energy, based in Oklahoma City, said last week that its
domestic gas production grew 9% in the fourth quarter from a year
earlier. Mitchell Energy & Development Corp. also saw its
production up in the fourth all from the Barnett shale region of
East Texas, and Cabot Oil & Gas also reported a slight increase
in gas production in the final quarter.
Coastal Corp.'s production was up 16% in the final quarter ---
it had a 42% rise over the year. And Chevron also was up for the
entire year and in the fourth quarter, reporting it produced 3,571
MMcf/d in the fourth compared with 2,591 MMcf/d in 1999.
Noted in the study are dry hole expenses, and based on those
figures, companies appear to be drilling wells in the same
geographic areas that have been producers in the past, but those
regions tend to produce less over time. The decline in dry hole
expenses usually indicates that fewer exploratory wells are being
Several things have contributed to the lower production figures,
say industry analysts. Among other things, because natural gas is
difficult to ship, most of the gas used in the United States is
produced here or imported from Canada. In the past several years,
technology has helped producers to obtain more gas from older
fields in the United States, Canada and offshore in the Gulf of
However, new technology is at its peak --- for the moment anyway
--- and older fields are losing reserves faster than companies can
find new gas deposits.
More federal and state regulations also have restricted
exploring and developing new regions, a factor that may be changed
with the Bush Administration. John Sharp, vice president for
federal and state affairs for the Natural Gas Supply Association,
said industry is "fighting depletion of wells and we're fighting
lack of access."
Though lagging in recent months, nearly all domestic producers
are upping the ante in their E&P programs beginning this year,
setting record capital budgets to spend more. Dallas-based Pioneer
Natural Resources Corp. expects to increase its production this
year only slightly, 1% to 4%. Then, in 2002, with plans firmly in
place Pioneer expects to jump production between 15% and 25%. Some
others are predicting accelerated results.
Apache said it will ramp up production 30% in 2001 over 2000,
spending approximately $1 billion on E&P. And Anadarko also
announced it would increase its first quarter 2001 daily production
volumes by about 3% over fourth quarter volumes. Anadarko's
projected increase in first quarter production will come from the
Alpine field in Alaska, which came on stream in November. Anadarko
holds a 22% stake in the field.
In the months ahead, the American Gas Association expects a
complete turnaround with record production from majors and
"As of six months ago, they (producers) were projecting a much
smaller increase," said AGA vice president Roger Cooper. "So, they
do see this drilling boom as bringing more gas to market. But
essentially, we are in a very tight race right now. We're in a
tight race between increasing demand and increasing supply. And the
supply market's trying to catch up with the demand market."
The Natural Gas Supply Association also expects new supplies of
natural gas to come on line in the next 12-24 months. But how much?
Because so many delayed spending in the downturn in 1997, it's
difficult to ramp up as quickly. Because of that, some predict that
overall, U.S. gas production in 2001 will rise only 2%.
Carolyn Davis, Houston