Fourth quarter earnings and cash flow estimates for U.S.-based producers are slightly above consensus estimates, but sequentially, earnings per share will be down about 11% and cash flow will be down about 4% from the third quarter, mostly the result of an 8% decline in benchmark natural gas prices, according to Southwest Securities.

In the earnings preview for the fourth quarter, analysts John Gerdes, Brian Kinsey and Chris Clark reviewed their 14-company universe, which includes some of the largest exploration and production independents in the United States.

While estimates are down sequentially, earnings and cash flow are up substantially compared with the same period of 2002. “Earnings per share for 4Q2003 are forecasted to be improve roughly 28% versus a year ago, and 4Q2003 cash flow per share should increase approximately 20% compared to a year ago, principally due to 10% higher oil and 15% higher natural gas prices.”

Looking ahead, the analysts forecast full-year 2004 earnings will be “modestly less,” with cash flow “modestly higher” than in 2003. “Earnings should fall about 8% principally [as] the result of higher debt, depreciation and amortization, while cash flow per share should grow about 4% as production growth attributes in our coverage universe more than offset 13% lower oil and 11% lower gas prices.”

Production estimates for 2004 are “slightly higher than midpoint of company guidance,” said the analysts. Southwest Securities’ production expectations are approximately 2% above the midpoint of company guidance for 4Q2003 and full-year 2004.”

Companies covered by Southwest Securities that are forecast to have positive production gains this year include Devon Energy Corp., 6%; Newfield Exploration Co. and Pioneer Natural Resources Co., 4%; St. Mary Land & Exploration and Magnum Hunter Resources, 3%; XTO Energy, EOG Resources and Cimarex, 2%; and Anadarko Petroleum Corp. and Chesapeake Energy, 1%.

Murphy Oil Co.’s production was expected to be flat, while Burlington Resources Corp. will be down 1%. Apache Corp. did not provide an estimate.

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