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Independents See the Light at Tunnel's End

Independents See the Light at Tunnel's End

Some major U.S. independent producers absorbed major blows to the bottom line in the first quarter of 1999, but CEOs from the companies insist higher profits are right around the corner.

Occidental Petroleum Corp. recently posted first quarter earnings of a $70 million net loss compared to a profit of $177 million in the same period of 1998. Overall sales were down $400 million from the first quarter of 1998, finishing at $1.3 billion. Oil and gas earnings fell from $127 million in 1Q98 to $63 million for this past quarter. The hardest hit division was Occidental's chemical operations which earned $9 million in the first three months of 1999, compared to $158 million in 1998's first quarter.

CEO Ray Irani said the tables are turning in a positive direction. "First quarter 1999 results reflected lower oil and gas prices and lower chemical margins compared to the same quarter in 1998. The recent rise in oil prices, if sustained, should have a significant impact on our earnings as Occidental has become more leveraged to changes in oil prices."

Burlington Resources said it lost $10 million in 1Q99, down from a profit of $48 million in 1Q98. Burlington's natural gas sales fell 83 MMcf/d from 1.648 Bcf/d in 1Q98 to 1.565 Bcf/d in 1Q99. Production volumes were negatively affected because lower prices forced Burlington to cut capital spending, which decreased Gulf of Mexico activity.

Burlington said its natural gas price averaged $1.88/Mcf over the last quarter, which is a 7% drop from the $2.03/Mcf average of 1Q98. Oil prices fell 31% from $15.26/Boe in 1Q98 to $10.55/Boe in 1Q99 causing an 11,600 barrel drop in production in the first quarter of this year.

Although natural gas prices were partly to blame for this year's poor first quarter, Bobby Shackouls, CEO of Burlington, said they also will bring the company back. Gas prices bottomed out in the low $1.70s in late January, but have rebounded into the low $2.20s recently.

"We're pleased with the recent rise in oil prices that resulted from OPEC's announced production cuts and we are particularly optimistic about the outlook for North American natural gas prices, especially considering our heavy weighting toward domestic gas production."

Thomas Usher, Marathon Group's CEO said the recovery could last through the rest of 1999. "Recent actions taken by OPEC.combined with improvements in downstream margins offer a positive outlook for the second quarter and the balance of 1999."

Like its fellow producers, Marathon was unable to escape the dreary first quarter. Net income was down from $183 million in 1Q98 to $119 million in 1Q99. Adjusted for special items, including the $136 million sale of Scurlock Permian LLC, a crude oil transport, trading and marketing company, Marathon experienced a net loss of $11 million for the quarter.

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