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Natural Gas Price Surge Lifts ExxonMobil, ConocoPhillips

Add ExxonMobil Corp. and super independent ConocoPhillips to the list of operators that benefited from the first quarter's winter blast, which lifted U.S. natural gas prices.

ExxonMobil, the No. 1 North American gas producer, and ConocoPhillips delivered their quarterly reports on Thursday. The higher domestic gas prices have helped to boost upstream earnings across the board, including for the U.S.-heavy majors BP plc and Royal Dutch Shell plc (see Daily GPI, April 30; April 29). BP is the top North American physical gas trader; Shell is second. While ExxonMobil is a limited participant in gas marketing, ConocoPhillips is a leading trader and it reported strong income from marketing third-party gas.

ExxonMobil's U.S. gas and oil business reported profits up 45% to $1.24 billion -- the first big gain since purchasing gas-heavy XTO Energy Inc. in 2010. It beat average earnings forecasts, as did ConocoPhillips.

Between January and March, ExxonMobil's average U.S. gas price jumped by 49% from 1Q2013, which helped to offset a decline in global production. Total production fell about 6% year/year to 4.2 million boe/d. Net income was $9.10 billion ($2.10/share), down from $9.50 billion ($2.12) in the year-ago quarter, but the results beat Wall Street's average forecast of $1.88/share. Cash flow came in at $16.2 billion, with capital expenditures of $8.4 billion -- down 28% from 1Q2013.

Upstream earnings were $7.78 billion, up $746 million from 1Q2013, on higher gas realizations, partially offset by lower liquids realizations. Production volume and mix effects increased earnings by $20 million. The U.S. upstream unit earned $1.24 billion, $385 million higher than a year ago and higher than 4Q2013's $1.186 billion.

ExxonMobil's average realized price for U.S. gas was $4.78/Mcf, up from the year-ago price of $3.21 and from 4Q2013's $3.42. U.S. gas production available for sale in the first quarter actually fell from a year ago to 3,412 MMcf/d from 3,590 MMcf/d.

The upside from the domestic gas price was a bonus for ExxonMobil, which has been turning from its extensive onshore offerings to focus on oil and liquids output. Its realized price for U.S. crude in the first quarter was down year/year to $93.18/bbl from $98.05.

The go-to basin today is the oily Permian Basin, investor relations chief David Rosenthal said during a conference call. "We are ramping up activity with 10 rigs running now and output...at more than 90,000 b/d." Earlier this year subsidiary XTO bought about 34,000 gross acres within the Wolfcamp formation in Texas and worked a trade on some gassy property in the Utica Shale with privately held American Energy Partners LP's Utica unit (AEU) (see Shale Daily,Feb. 3).

Expect to see more deals like the trade with AEU, said Rosenthal. The transaction provided the Aubrey McClendon-run business about 30,000 net acres in Ohio, which AEU would have to fund in the near-term to gain the leasehold, he said. The agreement "enables XTO to manage its costs in the Utica...It's an example of an innovative solution to develop extensive natural gas resources...in a capital-efficient manner."

ExxonMobil's U.S. output, including oil, natural gas and liquids, rose to 442,000 boe/d from the year-ago production of 435,000 boe/d. Canada/South American production rose to 315,000 boe/d from 264,000 boe/d.

North American gas prices helped lift ConocoPhillips profits by "about a dime," or $100,000 pretax, said CFO Jeff Sheets during a conference call to discuss quarterly results.

ConocoPhillips reported a 27.5% increase to quarterly earnings, beating average estimates by 25%. The Houston operator earned $2.1 billion ($1.71/share), about flat from year-ago profits of $2.1 billion ($1.73). Cash flow from operations was $6.3 billion.

The producer earned on average $4.94/Mcf for its U.S. gas, versus $3.34 in 1Q2013 and $3.60 in 4Q2013. West Texas Intermediate crude prices increased to $98.75/bbl from $94.29 and from $97.38 in the final quarter. Although it remains a big gas producer, ConocoPhillips also is more focused on its onshore liquids prospects and in the deepwater Gulf of Mexico (GOM) operations.

Performing particularly well were the Eagle Ford and Bakken shales, which achieved peak production rates of 163,000 boe/d and 54,000 boe/d respectively. As part of its increasing investment in Alaska, ConocoPhillips added a second rig at Kuparuk in January and continues to progress plans for additional projects at Kuparuk and in the National Petroleum Reserve-A at Greater Mooses Tooth 1. Last month it received regulatory approval to resume exporting from the Kenai, AK, liquefied natural gas terminal (see Daily GPI, April 14) and has signed a contract to ship six cargoes this year.

In the deepwater GOM, exploration and appraisal continues at Tiber, Coronado and Deep Nansen. The company also was the apparent high bidder on five blocks in the March Central Area Lease Sale in the Gulf of Mexico.

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