High Gas Prices Drive Burlington Earnings Up 145%

Burlington Resources' second quarter earnings spiked 145% to $231 million, or $1.10/share, while its discretionary cash flow grew 65% to $557 million on strong natural gas prices. During the quarter, the company's gas production was basically flat at 1,945 MMcf/d. Oil production declined to 69,600 b/d from 79,300 b/d in 2Q2000. However, realized gas prices soared. Natural gas price realizations rose to $4.10/Mcf from only $2.75 in 2Q2000, while oil prices were only about a dime stronger at $24.92/bbl.

"We delivered operationally and repurchased 4.8 million shares of our stock, while emerging from the quarter in even stronger financial condition," said CEO Bobby S. Shackouls. "In addition, we look forward to utilizing the increased capital budget to fund new drilling opportunities that are financially attractive."

The company announced plans to increase its capital spending budget by $2 million to $1.4 billion. Half of the additional capital will fund new opportunities in Burlington's core North American natural gas producing basins, with the remainder allocated for increased service costs. Exploration expenditures were $52 million during the second quarter, compared to $48 million during the prior year's quarter.

The company expects third quarter gas production to be basically flat compared to the second quarter at between 1,800 and 1,950 MMcf/d, while oil production is expected to be down slightly to between 60,000 and 68,000 b/d. Full year 2001 gas production is estimated to be 1,850 to 2,000 MMcf/d, with oil production expected to average 63,000 to 70,000 b/d.

Burlington CFO Steven Shapiro said during a conference call that the company emerged from the quarter "better positioned that ever, we think, to execute our business strategy even in the face of weaker short-term fundamentals for natural gas, obviously our key product."

The second quarter drop in gas prices was not altogether unexpected, said Shapiro, "although it came perhaps a bit sooner than we anticipated. Obviously the big run-up in prices that we saw earlier in the year had a big impact on demand, and we are clearly seeing the impact of this in terms of the building inventories as late as about an hour ago --- we saw another 100 Bcf plus [weekly storage injection, according to the American Gas Association]. This coupled with what we think is very modest supply increase has resulted in the prices that we see," he added.

"We think that compared to historical trends the fundamentals for natural gas longer term remain very strong, and we remain very optimistic about the commodity," he said. "However, going forward we are going to see a lot of volatility and that creates opportunity as well as uncertainty."

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