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E&Ps Pump Up Profits, but Hurricane Ivan Impacts Output

Exploration and production (E&P) fourth-quarter and year-end profit reports began in earnest last week, with many of the largest independents and a few of the majors reporting record income on higher commodity prices. However, Hurricane Ivan, which led to widespread shut ins in the Gulf of Mexico last September, continued to affect output in the final quarter.

U.S.-based producers also are showing the effects from another continuing problem: how to boost natural gas and oil output in North America. Global upstream numbers continue to grow, but many U.S.-based E&Ps are reporting that, without acquisitions, production is becoming more difficult to find in their own backyards.

ChevronTexaco Corp. set new records in the fourth quarter, nearly doubling net income from a year ago and beating analyst expectations. However, natural gas and oil output fell 9% globally, and most of the losses were blamed on U.S. asset sales and Hurricane Ivan shut ins.

Quarterly net income rose 98%, to $3.4 billion ($1.63/share), from $1.7 billion (82 cents) in 4Q2003. Revenue rose 41%, to $42.7 billion from $30.3 billion. Thomson First Call analysts had pegged income at $1.40/share. For 2004, net income rose 84%, to $13.3 billion ($6.28/share), up from $7.2 billion ($3.48) in 2003. Annual revenue rose 28%, to $155.3 billion from $121.3 billion.

Net oil-equivalent production in the United States declined about 20%, or 175,000 boe/d, from 4Q2003. The net liquids component of production was down 17% to 454,000 boe/d. Net natural gas production averaged 1.6 Bcf/d, down 23%. Excluding the lower production attributable to property sales and the effect of hurricanes, net oil-equivalent production otherwise declined about 7%.

Anadarko Petroleum Corp. reported a 38% hike in quarterly income, with stronger-than-expected gains in oil and natural gas sales. Net income rose to $405 million ($1.64/share), up from $294 million ($1.17) in 4Q2003. Without some one-time items, which included legal settlements and restructuring charges, Anadarko's earnings would have been $2.04/share, well above the Thomson First Call forecast of $1.86/share.

Revenue rose 25% to $1.6 billion from $1.28 billion a year ago, with a 23% growth in gas sales, and 28% rise in oil and condensate sales. Quarterly sales volumes totaled 46 MMboe, compared with 49 MMboe in 4Q2003. Property divestitures prior to the end of the year reduced Anadarko's 4Q2004 production by about 5 MMboe.

Sales volumes of natural gas, crude oil and natural gas liquids for 2004 totaled 190 MMboe, compared with volumes of 192 MMboe a year earlier. Assuming the divested properties were owned by Anadarko for the entire year, the company believes 2004 volumes would have been approximately 196 MMboe.

Apache Corp. reported that record oil and natural gas production, combined with strong commodity prices, drove 2004 net income to a record $1.7 billion ($5.03/share), up from $1.1 billion ($3.43) in 2003. Canadian gas volumes were up for the quarter, while U.S. gas output fell. Fourth quarter profit was up 90% over a year ago to stand at $507 million ($1.52), compared with $260 million (80 cents). Thomson First Call analysts expected earnings of $1.58 a share.

In the fourth quarter, Apache's production of 461,000 boe/d was up slightly from the third quarter despite the lingering effects from Hurricane Ivan in the Gulf of Mexico, which curtailed production by an estimated 9,700 bbl of oil and 34 MMcf/d of gas during the quarter. Gas production slipped 1% to an average of 1.24 Bcf/d, but sold at an average price of $5.24/Mcf, up from $4.18 the year before.

In the United States, Apache's natural gas volumes for the quarter were 636 MMcf/d, down from 685 MMcf/d in 4Q2003. For the year, U.S. gas production was 646 MMcf/d, down from 665 MMcf/d. Gas production in Canada for the quarter was higher, to stand at 340 MMcf/d, compared with 328 MMcf/d, and for the year, production stood at 327 MMcf/d, up from 318 MMcf/d in 2003.

Good upstream operations capitalizing on strong commodity prices catapulted ConocoPhillips' fourth quarter 2004 earnings to more than twice the level for the same period a year earlier, the company reported Wednesday. It recorded net income of $2.4 billion, or $3.44/share, this past quarter, compared with $1 billion, or $1.48/share, for the fourth quarter of 2003. Revenues were $40.1 billion, compared to $26 billion for the same period the previous year.

For the 12 months ending Dec. 31, 2004, ConocoPhillips reported earnings of $8.1 billion, or $11.60/share, on overall revenues of $136.9 billion, compared to $4.7 billion in earnings, or $6.91/share, on overall revenue of $105.1 billion for all of 2003.

ConocoPhillips CEO Jim Mulva noted that the firm's financial position "continues to steadily improve, and our return on capital employed remains strong and competitive." He lauded the company's operations in the fourth quarter particularly.

"The total company produced 1.75 million boe/d, including 1.6 boe/d from our exploration and production segment and an estimated 150,000 bbl/d from our LUKOIL equity investment," Mulva said. "Downstream, our domestic operations benefited from improved heavy-light crude oil differentials, and our international refineries ran well, with strong capacity utilization rates."

Mulva said that worldwide, ConocoPhillips refineries ran at 94% capacity, excluding the impact of LUKOIL. He said for the full year the company generated $12 billion in cash and spent $9.5 billion on capital projects and investments, including the purchase of 10% of LUKOIL.

As another company in the industry riding the favorable commodity price wave, Amerada Hess reported its unaudited fourth quarter profits more than doubled, hitting $229 million, or $2.22/share, compared with $68 million, or 71 cents/share, for the same period at the end of 2003. Revenues for the quarter were $4.6 billion, compared to $3.6 billion for the same period a year earlier.

For the 12 months ended last Dec. 31, Amerada had unaudited net income of $977 million, or $9.50/share, compared with $643 million, or $5.17/share, for all of 2003 from continuing operations. Both the exploration/production (E&P) and refining/marketing portions of its business did markedly better for the quarter and year in 2004, compared to the same periods the previous year.

Capital expenditures were up in 2004 (to $1.5 billion) with more than 90% attributable to E&P activities, compared to the previous year when $1.3 billion was spent, the vast majority for E&P.

Citing market constraints and charges, Marathon Oil Co. said its quarterly income fell from a year ago, but the producer was able to beat Wall Street's expectations.

Marathon reported 4Q2004 income of $429 million ($1.23/share), compared with $485 million ($1.57) for 4Q2003. Excluding special items, Marathon earned $415 million ($1.19/share). Thomson First Call analysts had predicted earnings of 93 cents a share. Revenue rose to $14.2 billion from $11 billion in 4Q2003.

Worldwide upstream segment income totaled $443 million in 4Q2004, and $1.696 billion for the year, compared with $372 million in 4Q2003 and $1.580 billion for 2003. U.S. upstream income was $238 million in quarter and $1.073 billion for the year, compared with $249 million and $1.155 billion in the same periods of 2003. Net natural gas production in the United States fell to 585.5 MMcf/d in the final quarter from 737.3 MMcf/d a year earlier. For the year, gas production fell to 631.2 MMcf/d from 731.6 MMcf/d in 2003.

Los Angeles-based Occidental Petroleum Corp. reported a 74% hike in fourth quarter income because of higher oil and natural gas prices, but the earnings still fell short of Wall Street forecasts. The company reported a profit of $665 million ($1.67/share), compared with $382 million (99 cents/share) in 4Q2003. On average, Thomson First Call had forecast 4Q2004 earnings of $1.92/share.

Occidental said it benefited from a 3.5% rise in oil and natural gas production for the year to an average of 566,000 boe/d. However, in North America, production was down year-over-year, to 249,000 boe/d from 263,000 boe/d in 2003. In the United States, natural gas production declined in 4Q2004 to 499 MMcf/d from 525 MMcf/d in 4Q2003. Kerr-McGee Corp.

Fourth-quarter production averaged 372,100 boe/d, up 41% from 4Q2003. Its domestic natural gas sales soared 65% to 1,041 MMcf/d in the fourth quarter compared to 4Q2003. Oil production averaged 184,700 bbl/d, up 32%. The company grew proved oil and natural gas reserves by nearly 20% to 1.2 billion boe. Full-year 2004 net income excluding special items, rose to $622.9 million, or $4.71 a share, from $403.9 million, or $3.84 a share. Analysts were expecting $4.58/share for the year.

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