1Q Domestic Gas Production Results Mixed; Newfield Shows 30% Jump

With U.S.-based exploration and production companies continuing their earnings reports for the first quarter, one thing is becoming clear: even though earnings are on a record pace because of higher commodity prices, U.S. natural gas production results have been mixed with some companies reporting tremendous growth compared to the first quarter of last year while others have shown sharp declines.

Unocal Corp.'s domestic gas production fell 6% and Burlington Resources' dropped 16%, but Newfield's domestic gas production rose 30% and Apache saw a 2% climb. Meanwhile, on Wednesday, XTO reported a 27% jump in domestic production, Pogo said its volumes rose 15% and MDU Resources saw its domestic production grow 20%, but Occidental reported an 11% decline. The net result of 10 majors and independents that have reported results so far is a 1% increase in domestic natural gas supply for the first quarter compared with 1Q2002.

Unocal Corp., based in El Segundo, CA, reported record earnings for the quarter, but its North American natural gas production fell dramatically compared with a year ago. Net earnings in the first quarter of $134 million (52 cents), compared with net earnings of $22 million (9 cents) in the same period a year ago and $96 million (38 cents) for the fourth quarter.

Worldwide, Unocal's production was down from a year ago, with consolidated net daily production in the first quarter averaging 471,000 boe, compared with 477,000 boe/d a year ago. When compared with the 4Q02, production was up 4.4% from 451,000 boe/d, reflecting increased production in Thailand and a 14% surge in the Gulf of Mexico, as production ramped back up from hurricane related shut-ins in 4Q02, and new deep shelf discoveries on the Jalapeno and Rio Grande projects came online.

But the tale is really in Unocal's drop in North American daily net production compared with a year ago. In the Lower 48, Unocal reported liquids production of 48 thousand bbl/d, compared with 56 thousand bbl/d for 1Q02. In Alaska, production was 22 thousand bbl/d, compared with 25 thousand bbl/d in 1Q02; in Canada, it was flat at 18 thousand bbl/d.

For natural gas on a dry basis, Unocal's Lower 48 production level was 700 MMcf/d compared with 746 MMcf/d for 1Q02, while in Alaska, there was a sharp dropoff to 61 MMcf/d, down from 101 MMcf/d for the same period a year ago. In Canada, there also was a drop to 97 MMcf/d, down from 90 MMcf/d in 1Q01. Total natural gas in North America was off, standing at 858 MMcf/d for the first quarter, compared with 937 MMcf/d in 1Q02.

What may impact North American production at Unocal going forward are divestitures of assets in Canada, onshore the United States and in the Gulf of Mexico. So far this year, net proceeds from the completed divestitures are $64 million, with an associated production loss of approximately 5,000 boe/d.

Houston-based independent Apache Corp. quadrupled its first quarter earnings compared with a year ago, earning a record $310.9 million ($1.94) on rising commodity prices and strong production. CEO G. Steven Farris said cash from operations totaled $644 million in the first quarter, up from $289.2 million in the prior-year period, and exceeded the full-year totals for the first 44 years of Apache's 48-year history.

And production-wise, Farris said additional production from a BP acquisition and new development in China is setting a course for "strong" growth this year. Oil production averaged 158,815 bbl/d in the first quarter, up from 150,253 bbl/d in the fourth quarter of 2002. Natural gas production averaged 1.09 Bcf/d, up from 1.07 Bcf/d in the fourth quarter. Natural gas liquids (NGL) production averaged 7,489 bbl/d, down from 8,967 bbl/d in the fourth quarter.

By region, Apache's U.S. natural gas volumes for the first quarter were up 2%, averaging 552,783 Mcf/d, compared with 1Q02's rate of 540,433 Mcf/d. In Canada, however, volumes were lower this year over 2002, averaging 309,205 Mcf/d compared with 314,659 Mcf/d. Worldwide, its total natural gas production was also down, standing at 1.093 MMcf/d for the quarter, compared with 1.097 MMcf/d a year ago.

Apache's U.S. natural gas liquids volumes for the quarter also were down compared with last year, standing at 6,083 bbl/d compared with 6,895 bbl/d in 1Q02. In Canada, NGL volumes were higher, with 1,406 bbl/d for the quarter, compared with 1,358 bbl/d last year for the same period. Oil volumes worldwide were also down, standing at 158,815 bbl/d for the quarter, compared with 159,156 bbl/d in 1Q02.

Another Houston-based producer, Burlington Resources Inc., also reported sky-high earnings for the quarter on commodity prices, with reported estimated net income of $269 million for the first quarter ($1.33), compared with net income of $48 million (24 cents) a year earlier. Burlington benefited from higher commodity prices, higher production on a divestiture-adjusted basis and lower production and processing costs.

Burlington's production during the quarter, however, was down compared with a year ago. Its total production averaged 2,490 MMcfe/d, which, adjusted for asset sales in 2002, represented growth of 6%. For 1Q02, production averaged 2,716 MMcfe/d, including approximately 367 MMcfe/d of volumes from properties that were subsequently sold during 2002. In the U.S., Burlington reported a 16% drop in gas production to 867 MMcf/d compared to 1,031 MMcf/d in 1Q2002.

In Canada, Burlington recorded field activity for the first quarter, completing more than 300 new wells and achieving an 8% increase in production over the prior year's quarter on a divestiture-adjusted basis.

Overall, its first quarter natural gas production averaged 1,872 MMcf/d, a decline compared with 1Q02's 2,019 MMcf/d. NGL production increased 13% to 63.7 thousand bbl/d from 56.3 thousand bbl/d a year ago, while oil production decreased to 39.3 thousand bbl/d from 59.9 thousand bbl/d in 1Q02. The lower gas and oil volumes were attributed "solely" to last year's property sales, the company said.

Marathon Oil Corp., meanwhile, also with record quarterly earnings, had net income of $307 million (99 cents), compared with 1Q02 net income of $67 million (22 cents). In the exploration and production (upstream) sector, Marathon's first quarter oil and gas production averaged 414,000 boe/d.

Still, natural gas production in the United States was lower for Marathon than a year ago. Net natural gas production in the United States averaged 778 MMcf/d for the quarter, compared with 786.7 MMcf/d in 1Q02. Worldwide, its gas production was up, standing at 1.337 Bcf/d, compared with 1.308 Bcf/d in 1Q02. Total gas and liquids production averaged 413.8 Mboe/d, down from 424.1 Mboe/d in 1Q02.

Independent Newfield Exploration Co., headquartered in Houston, saw its first quarter earnings rise and production jump 25% over a year ago, when stated on a natural gas equivalent basis. Newfield reported net income of $64.1 million ($1.17), compared with $16.3 million (37 cents) in 1Q02.

Newfield produced 55.2 Bcfe, or an average of 614 MMcfe/d during the first quarter, compared with 43.8 Bcfe in 1Q02. Its U.S. gas production leaped 30% to 44 Bcf (489 MMcf/d) for the quarter, compared with 34 Bcf (378 MMcf/d) in 1Q02. Oil and condensate production in the United States for the quarter was 1.52 million bbl, compared with 1.35 million bbl a year ago.

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