Canadian Hunter Shows 485% Rise in Q1 Net Income

With record levels of natural gas rigs in the ground, it's about time the industry started showing results. Canadian Hunter Exploration Ltd. is doing just that, as the company announced last Tuesday an increase in gas production to 523 MMcf/d during the first quarter 2001, a jump of 36% over the similar time period a year ago, and a 7% rise from the fourth quarter 2000. As a result, the Calgary-based producer posted a 485% increase in net income to C$145.1 million, or C$2.38 per fully diluted share for the first quarter 2001.

The company also posted a 159% increase in cash flow to C$224.9 million, or $3.69 per fully diluted share. "The main drivers for these strong results were not only the exceptionally high natural gas prices we are currently experiencing," said Steve Savidant, CEO of Canadian Hunter, "but also, and we believe quite importantly, Canadian Hunter's significantly increased natural gas production volumes."

Canadian Hunter said gas production increases were realized in almost all of its core areas, but the largest increases came from Canada's Lethbridge, Deep Basin and the Border areas. Production in Argentina was reduced in the quarter due to competition from hydroelectric power plants, which reduced the purchases from Canadian Hunter's two major customers. Now that the rainy season is over, the Sierra Chata field in Argentina is again producing at full capacity, the company said.

The company also said its natural gas liquids (NGL) production segment is on the move, producing 10,094 b/d in the first quarter, representing a 30% increase over the same period last year and a 5% jump on the fourth quarter 2000 level. The company attributed the increase to "higher liquids-rich natural gas production" in the Deep Basin.

Canadian Hunter's small oil production segment dropped to 958 b/d in the quarter, down 44% compared to the same time period last year, and down 11% from the fourth quarter 2000, largely due to "normal declines" in the Brassey and Chedderville oil fields, the company said. Natural gas represents 89% of the company's first quarter production mix, while NGLs account for 10%, and oil brings up the rear with 1%.

As a result of a successful winter drilling season, the company said it is increasing its 2001 production forecast from 92,000 boe/d to 100,000 boe/d, a 23% increase over 2000 production. To help achieve that goal, Canadian Hunter has upped its Canada exploration and development budget from C$385 million to C$500 million. For the first quarter, overall production increased 34% to 98,151 boe/d. During the first three months of 2001, Canadian Hunter drilled 167 gross wells, with a success rate of 93%, representing a 7% increase in the number of gross wells drilled compared to the first quarter 2000.

With gas prices being driven higher because demand growth has outpaced supply, Canadian Hunter said it realized an average gas price of C$9.49/Mcf for Canadian production in the first quarter, up 224% when compared to the first quarter 2000, and 21% higher than the fourth quarter of 2000.

Canadian Hunter said it remains positive on the Canadian natural gas sector. "We anticipate that the current tight balance between natural gas supply and demand in North America will support favourable prices for some time, but there is a risk that the economic downturn in North America could reduce demand and lead to lower gas prices than we are currently realizing," said the company. "Canadian Hunter is pleased with the number and quality of exploration and development opportunities in our core areas in western Canada and in Argentina. Regardless, during this period of high levels of industry activity, capital spending discipline and cost control will remain priorities as we work to build shareholder value."

Looking forward, the company said it expects to sell approximately 31% of its gas production to aggregators under term contracts and 65% on a discretionary basis tied to index pricing. The remaining 4% has been hedged at fixed prices until Oct. 31, 2005. The company hopes to keep gas production "relatively unhedged" going forward.

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