There have been few surprises in domestic producers’ earnings reports for the fourth quarter and all of 2001. Despite record production in the first half– pushed during a high commodity price cycle — U.S. companies saw their fortunes fall along with commodity prices in the last half of the year, and they paid dearly for it in the fourth quarter. Apache Corp. reported Thursday that its fourth quarter earnings fell 70% compared to 2000, and leading independent Anadarko Petroleum Corp., which already had to restate its third quarter earnings to include a $1.1 billion charge, said Thursday its final quarter also saw a sharp earnings decline.

Anadarko, which restated its third quarter just this week (see Daily GPI, Jan. 31), reported fourth quarter net income of $108 million, or 41 cents per share, compared with net income of $454 million, or $1.75 per share. In mid-January, the company said it expected earnings per share of about 25 cents, and announced then that it would cut its capital spending to about $2 billion this year, down from its $3 billion budget a year ago.

For the full year 2001, Anadarko reported a net loss of $188 million, or 75 cents per share (diluted), compared with earnings of $796 million, or $4.16 per share (diluted) for 2000. Results for both 2000 and 2001 include the effect of non-cash property impairments. Stated without the effect of those items, earnings in 2001 were $1.39 billion, or $5.25 per share (diluted), compared with $828 million, or $4.32 per share (diluted) in 2000. Cash flow from operations for 2001 totaled $3.43 billion, or $13.71 per share (basic), compared with $1.88 billion, or $10.19 per share (basic) for the prior year.

Despite the drop in earnings, Anadarko reported that its total natural gas, crude oil and natural gas liquids (NGLs) sales volumes for 2001 were 199 MMboe, compared with 112 MMboe BOE for 2000, a 78% increase. The increase, it said, was due in part to its acquisitions of United Pacific Resources in 2000 and Berkley Petroleum Corp. last year, as well as increased production from the company’s operations in Alaska, the Gulf of Mexico, East Texas and Canada (see Daily GPI, April 4, 2000; March 20, 2001). On a per-share basis, 2001 sales volumes increased about 30%.

“We’ll continue to defer some of our natural gas development drilling where the economics are less attractive, and we’ll use this time to build up our inventory of exploratory prospects and discretionary development drilling locations,” said Anadarko CEO John N. Seitz said. `”At the first sign of demand picking up and prices recovering, we plan to accelerate our drilling activity, just as we did in 1999, in the last price cycle.”

Apache reported fourth quarter net income of $74 million, or 53 cents per diluted common share, compared with net income of $252 million, or $1.78 per common share, in the year-earlier quarter. Revenues also fell in the final quarter, dropping 27% to $529.1 million from $730.8 million for 2000. Apache’s per-share results for prior periods also were restated to account for the stock dividend.

While its earnings dropped dramatically, Apache reported that record production fueled its full-year earnings of $704 million, up from $693 million in 2000. Adjusted for a 10% stock dividend at yearend, Apache earned $4.97 per diluted common share, compared with $5.16 per share in 2000. Apache recorded its largest percentage production increase in a decade, as output climbed 32% to 344,130 boe/d in 2001. As a result, Apache’s cash from operations climbed to $1.9 billion, or $13.54 per basic common share, despite a 16% decline in oil prices. Year-end reserves totaled 1.27 billion boe, the 16th consecutive increase and a 17% increase from year-end 2000, and Apache replaced 314% of its production.

Apache COO G. Steven Farris said the company’s “low finding costs provide the basis for strong margins, even in a weaker commodity price environment. In this volatile environment, we will remain disciplined, while high-grading our internal opportunities.”

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