U.S. natural gas production results for the first quarter have been mixed so far, with some companies reporting tremendous growth compared to the first quarter of last year while others have shown sharp declines. According to company figures compiled by NGI, the net result of majors and independents reporting results so far is a 1% decrease in domestic natural gas supply for the first quarter compared with last year.

Although decline rates could ease somewhat going forward, analyst Stephen Smith said last week that the “basic conclusion remains the same: a drilling boom driven by two years of $4-plus prices could not reverse, on a sustained basis, the decline trend in domestic gas production.” Smith noted that domestic gas production is now in an environment of “chronic shortages.”

Other than an “improbable series of freakishly mild winters, we see no quick fix for this solution,” Smith said. The analyst noted that many of the majors have drawn down “very large gas reservoirs” over the past few years, and are directing an increasing share of their drilling toward regions that “tend to have a much smaller share of total reserves that are produced in the first year.”

J. Marshall Adkins, an energy analyst with Raymond James Energy Group, said that higher commodity prices will prove positive for exploration and production (E&P) companies in the first quarter. “With bidweek natural gas prices averaging roughly $6.50/MMBtu for the first quarter of 2003, this should be the best quarterly earnings performance for E&P companies since the 2001 gas price spike.”

Although it usually provides a pre-quarter production survey, Adkins said Raymond James did not do that for the first quarter because the firm had found “large discrepancies between our forecast survey and the actual reported data,” and “increasing reluctance on the part of the majors and diversified natural gas companies to discuss volume trends in front of quarterly results.” However, he added that with a “$5.40 12-month futures strip, we expect a record year for the sector,” with few surprises.

Here’s a brief production recap of some of last week’s reports, including Unocal Corp., Anadarko Petroleum Corp., Apache Corp., Burlington Resources Inc., Marathon Oil Corp., Newfield Exploration Co., XTO Energy Inc., Occidental Petroleum, Pogo Producing Co., Southwestern Energy Co. and McMoRan Exploration Inc.

Unocal Corp., based in El Segundo, CA, reported record earnings for the quarter, but its North American natural gas production fell dramatically compared with a year ago. Worldwide, Unocal’s production was down, with consolidated net daily production in the first quarter averaging 471,000 boe, compared with 477,000 boe/d a year ago. When compared with the 4Q02, production was up 4.4% from 451,000 boe/d, reflecting increased production in Thailand and a 14% surge in the Gulf of Mexico, as production ramped back up from hurricane related shut-ins in 4Q02, and new deep shelf discoveries on the Jalapeno and Rio Grande projects came online.

But the tale is really in Unocal’s drop in North American daily net production compared with a year ago. In the Lower 48, Unocal reported liquids production of 48 thousand bbl/d, compared with 56 thousand bbl/d for 1Q02. In Alaska, production was 22 thousand bbl/d, compared with 25 thousand bbl/d in 1Q02; in Canada, it was flat at 18 thousand bbl/d.

For natural gas on a dry basis, Unocal’s Lower 48 production level was 700 MMcf/d compared with 746 MMcf/d for 1Q02, while in Alaska, there was a sharp dropoff to 61 MMcf/d, down from 101 MMcf/d for the same period a year ago. In Canada, there also was a drop to 97 MMcf/d, down from 90 MMcf/d in 1Q01. Total natural gas in North America was off, standing at 858 MMcf/d for the first quarter, compared with 937 MMcf/d in 1Q02.

What may impact North American production at Unocal going forward are divestitures of assets in Canada, onshore the United States and in the Gulf of Mexico. So far this year, net proceeds from the completed divestitures are $64 million, with an associated production loss of approximately 5,000 boe/d.

Boosted by high commodity prices, Houston-based Anadarko Petroleum Corp. also reported production losses in the quarter, reporting Friday that its North American natural gas volumes of 1.7 Bcf/d were 6% lower than a year ago because of a 10% decline in U.S. production, which was partly offset by a 12% increase in production from Western Canada. Oil production in the first quarter was 173,000 bbl/d — 18% lower than a year earlier — also because of lower U.S. production.

“We expect production volumes to build each quarter throughout the year, as we bring on additional production in the Gulf of Mexico, Canada, Qatar and the Lower 48,” said Robert Allison, Anadarko’s CEO. “Total volumes in the fourth quarter of this year should be about 20% higher than in the first quarter.” He said the company expects ’03 volumes to be about 5% higher than last year, adjusting for the effect of /02 asset sales. “Next year’s volumes are forecast to increase 12%” over this year, he added.

Houston-based independent Apache Corp., meanwhile, was helped in its production figures with a BP acquisition and new development in China, which is setting a course for “strong” growth this year, according to CEO G. Steven Farris. Oil production averaged 158,815 bbl/d in the first quarter, while natural gas production averaged 1.09 Bcf/d. Natural gas liquids (NGL) production averaged 7,489 bbl/d.

By region, Apache’s U.S. natural gas volumes for the first quarter were up 2%, averaging 552,783 Mcf/d, compared with 1Q02’s rate of 540,433 Mcf/d. In Canada, however, volumes were lower this year over 2002, averaging 309,205 Mcf/d compared with 314,659 Mcf/d. Worldwide, total natural gas production was down, standing at 1.093 MMcf/d for the quarter, compared with 1.097 MMcf/d a year ago.

Apache’s U.S. natural gas liquids volumes for the quarter also were down compared with last year, standing at 6,083 bbl/d compared with 6,895 bbl/d in 1Q02. In Canada, NGL volumes were higher, with 1,406 bbl/d for the quarter, compared with 1,358 bbl/d last year for the same period. Oil volumes worldwide were also down, standing at 158,815 bbl/d for the quarter, compared with 159,156 bbl/d in 1Q02.

Thomas Driscoll and Sangita Jain, energy analysts with Lehman Brothers, said Friday that Apache’s production figures were 5.6% lower than the Lehman forecast, with lower-than-estimated Canadian natural gas production and Australian oil volumes responsible for most of the shortfall. Because of the shortfall, the analysts lowered Apache’s ’03 production estimates by 6.8% to 413 MMboe/d from 443.3 MMboe/d, and the ’04 production estimate by 7.7%, to 440.3 MMboe/d from 477.1 MMboe/d. “The main growth driver for 2003 and 2004 is production acquired from the BP transaction with some contribution from the South Louisiana acquisition in late 2002.”

Another Houston-based producer, Burlington Resources Inc., also reported sky-high earnings for the quarter on commodity prices, however, production during the quarter was down compared with a year ago, attributed to asset sales since last year. Total production averaged 2,490 MMcfe/d, which, adjusted for asset sales in 2002, represented growth of 6%. For 1Q02, production averaged 2,716 MMcfe/d, including approximately 367 MMcfe/d of volumes from properties that were subsequently sold during 2002. In the United States, Burlington reported a 16% drop in gas production to 867 MMcf/d compared to 1,031 MMcf/d in 1Q02.

In Canada, Burlington recorded field activity for the first quarter, completing more than 300 new wells and achieving an 8% increase in production over the prior year’s quarter on a divestiture-adjusted basis.

Overall, its first quarter natural gas production averaged 1,872 MMcf/d, a decline compared with 1Q02’s 2,019 MMcf/d. NGL production increased 13% to 63.7 thousand bbl/d from 56.3 thousand bbl/d a year ago, while oil production decreased to 39.3 thousand bbl/d from 59.9 thousand bbl/d in 1Q02. The lower gas and oil volumes were attributed “solely” to last year’s property sales, the company said.

Lehman analysts said they “continue to project strong production growth for BR in 2003 and 2004,” with ’03 production increasing by as much as 12% and another 9-10% in 2004 as the company brings on new production in Algeria, the East Irish Sea and in China. “Development drilling in the U.S. and production growth from its Canadian drilling program should supplement the growth from new projects.”

Marathon Oil Corp., meanwhile, also with record quarterly earnings, said its first quarter oil and gas production worldwide averaged 414,000 boe/d. U.S. gas production was lower than a year ago, averaging 778 MMcf/d for the quarter, compared with 786.7 MMcf/d in 1Q02. Worldwide, its gas production was up, standing at 1.337 Bcf/d, compared with 1.308 Bcf/d in 1Q02. Total gas and liquids production averaged 413.8 Mboe/d, down from 424.1 Mboe/d in 1Q02.

Independent Newfield Exploration Co., which is headquartered in Houston, boasted a strong natural gas production boost in the first quarter, producing 55.2 Bcfe, or an average of 614 MMcfe/d during the first quarter, compared with 43.8 Bcfe in 1Q02. Its U.S. gas production leaped 30% to 44 Bcf (489 MMcf/d) for the quarter, compared with 34 Bcf (378 MMcf/d) in 1Q02. Oil and condensate production in the United States for the quarter was 1.52 million bbl, compared with 1.35 million bbl a year ago.

With its strong first quarter, Newfield also made some forecasts for the second quarter. It expects natural gas to be in the range of 42-to-47 Bcf/d (462-to-511 MMcf/d). Consolidated oil production in the second quarter of 2003 is expected to be 1.6-to-1.8 million bbl/d (18,000-to-20,000 bbl/d).

And Fort Worth-based independent XTO Energy Inc. also reported record first quarter natural gas production of 591 MMcf/d, a 27% increase from 1Q02’s 464 MMcf/d. Oil production for the first quarter was 13,394 bbl/d, a 1% increase from 1Q02’s 13,212 bbl/d. During the quarter, natural gas liquids production was 5,182 bbl/d, a 27% increase from the prior year of 4,082 bbl/d. Increased gas production was attributed to development in East Texas as well as the Arkoma and San Juan basins.

“Our measured growth strategy of combining development drilling with long-lived acquisitions continues to drive prosperity for XTO,” stated Bob R. Simpson, chairman and CEO. “With natural gas production steadily increasing, the company is delivering strong economic margins while adhering to our low cost structure. This consistent performance has now led to 12 sequential quarters of production growth.”

Los Angeles-based Occidental Petroleum Corp. said that oil and gas production averaged 532,000 boe, which CEO Ray Irani said was the highest level for any quarter in the company’s history. However, on a regional basis, U.S. production was off, with first quarter production of 528 MMcf/d, compared with 591 MMcf/d a year ago.

During a conference call last week, Irani said that Occidental has made 32 acquisitions in the past three years that have added 139 million boe to reserves, which exceeded 1 billion boe at the end of last year. Occidental also used strong cash flow for the quarter to reduce its debt-to-capital ratio to 41%, from 43% at the end of last year.

Houston-based Pogo Producing Co. said its first quarter production averaged 67,602 bbl/d of liquid hydrocarbons, including crude oil, condensate and plant products, a 43% increase from 47,175 bbl/d a year earlier. Meanwhile, Pogo produced 304.8 MMcf/d in the quarter, a 15% increase from 264.0 MMcf/d a year ago. When calculated on an energy-equivalent basis, Pogo’s first quarter 2003 equivalent daily production of all hydrocarbons averaged 118,394 boe/d, a 30% increase from 91,175 boe/d produced during the first quarter one year ago.

Pogo plans to drill 82 wells in the Permian Basin in 2003. Already, 28 wells have been drilled, 27 successfully, and 13 others were in progress as the quarter ended. Seven shallower Lower Fort Union formation wells were drilled during the first quarter in the Madden Field in central Wyoming, where Pogo owns interests of about 11%, and three other wells are currently being drilled. The deep Bighorn 9-4 well to the Madison formation reached total depth in March, and testing is ongoing; early indications show natural gas pay thickness of about 240 feet.

Southwestern Energy Co., headquartered in Houston, said Friday that its production fell slightly compared with a year ago. The Houston-based independent reported quarterly production of 8.9 Bcfe, compared with 10.3 Bcfe a year ago, and down from 9.5 Bcfe in 4Q02. Southwestern said the decreases resulted from declines in its South Louisiana properties during the last half of 2002, combined with the loss of production after selling some Mid-Continent properties last November.

This year, Southwestern said it expects to increase production “as we begin to see the impact of accelerating the development drilling at our Overton Field in East Texas and as we continue to execute our capital plan in our other core operating areas. Our 2003 oil and gas production target is 42-to-44 Bcfe, compared to 40.1 Bcfe produced during 2002.”

Meanwhile, New Orleans-based McMoRan Exploration Co. reported huge production and sales volumes losses in the quarter compared with last year. First quarter production averaged approximately 8 MMcfe/d, compared to 25 MMcf/d for the same period of 2002. The company said its production was affected by remedial activities at two properties and premature depletion of a producing zone at a third property.

McMoRan expects its average net production rates for the remainder of 2003 to be about 7 MMcfe/d. Sales volumes in the quarter were 579,800 Mcf, compared with 2.77 MMcf for 1Q02. Oil sales volumes were 14,100 bbl, compared with 58,500 bbl a year earlier. Equivalent barrel sales volumes also were down for the quarter, at 6,100 boe, compared with 7,900 boe a year ago. Volumes included 856,000 Mcf during 1Q02 for properties that were sold in February 2002.

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