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Burlington to Record 4Q Charges on Undeveloped Canadian Assets

Burlington to Record 4Q Charges on Undeveloped Canadian Assets

In a 4Q2004 interim update on Thursday, Burlington Resources Inc. announced it will record a $90 million pre-tax impairment charge (15 cents/share) to its net income because of some undeveloped land in Canada. The charge, said the company, is not expected to impact reserves or the drilling inventory.

Burlington said in its announcement that 4Q production will be at the midpoint of its previously announced guidance. Last October, Burlington estimated U.S. gas production for 2004 would be in a range of 905-920 MMcf/d, and in Canada, a range of 810-825 MMcf/d (see NGI, Oct. 25, 2004).

Commodity price realizations, including hedging results, are expected in 4Q2004 to range from $5.80-6.00/Mcfe for natural gas, $28.50-29.50/bbl for natural gas liquids, and $38.50-39.50/bbl for crude oil. The ranges reflect higher location differentials for North American natural gas and worldwide crude oil compared to benchmark prices, and the timing of oil shipments. Combined operating, administrative and transportation expenses are expected to average from $1.32-1.36/Mcfe. Depletion, depreciation and amortization expense is expected to average from $1.15-1.19/Mcfe.

Burlington said it remains on track in 2005 to have total production of 2.8-3.1 Bcfe/d. In addition, combined operating, administrative and transportation expenses on a unit basis are expected to be "essentially" in line with 2004 full-year levels.

The producer will issue full guidance for 1Q2005 and full-year 2005 in its Jan. 26 earnings announcement. A 2004 earnings and operational review conference call is scheduled for Jan. 27.

Lehman Brothers' analyst Thomas Driscoll said in a research note that the interim guidance is likely to have a "negative impact" on 4Q earnings. However, because the company maintained its 2005 production guidance, Driscoll is maintaining its 1-OW rating, and said it would "continue to recommend it as a favorite name in the large cap space."

Driscoll noted that 4Q production guidance is similar to Lehman's estimate, but "wider than expected" differentials for oil and gas prices versus the benchmark for 4Q2004 are a negative. Operating costs this year are likely to be flat compared with 2004, and "this is a positive given that the industry is witnessing a rising service cost environment."

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