Lower natural gas and oil prices affected the profits of Marathon Oil Corp. in the first three months of 2007. However, for some of the larger independents, it wasn't only lower prices -- Anadarko Petroleum Corp. was hit by an unexpected international windfall profits tax, and at EOG Resources Inc., mark-to-market losses made a big dent in the bottom line.
Despite the lower prices, Houston-based Marathon Oil Corp.'s 1Q2007 profits slid only slightly because of higher refining volumes, to $717 million ($2.07/share) from $784 million ($2.13) in 1Q2006. CEO Clarence P. Cazalot Jr. told financial analysts Tuesday that even though prices were down, production grew worldwide, as its "focus on execution, along with strong industry fundamentals" allowed the company to continue its "substantial capital reinvestment program."
U.S. upstream profit was $150 million, compared with $245 million a year earlier, which Marathon blamed partly on prices and partly on normal output rate declines, particularly in the Gulf of Mexico (GOM). However, Marathon's Neptune development in the GOM is quickly moving forward, now 69% complete and on target for first production by early 2008. Offshore installation is expected to begin in June, Cazalot said.
Marathon's U.S. gas production fell to 512 MMcf/d in the quarter, down from 561 MMcf/d for the same period of 2006.
An unexpected windfall tax that will be applied to the total value of Anadarko Petroleum Corp.'s production in Algeria will cost it nearly half a billion dollars this year, the Houston company said Tuesday. Anadarko CEO Jim Hackett said Tuesday the company was notified in late April that the tax would be applied to all of its output rather than only a portion generated by an international oil price above $30/bbl.
In the first three months of this year, Anadarko booked a $189 million charge on the Algerian tax; it previously expected to record a $58 million charge. Altogether, this year the tax charges could reach $450 million, Hackett told investors during a conference call. Anadarko has 111 MMboe of proved undeveloped reserves in Algeria.
"While we recognized several significant charges in the first quarter, we also delivered very strong operating results, which reflect the quality of our optimized portfolio," Hackett said. "We continued to set daily production records in the Greater Natural Buttes area in eastern Utah, the Powder River Basin in Wyoming and the Delaware Basin in Texas."
On the strength of its purchase last year of Kerr-McGee Corp. and Western Gas Resources, Anadarko's average U.S. natural gas volumes more than doubled to 2,204 MMcf/d from 1,091 MMcf/d. Average gas prices in 1Q2007 were $6.24/Mcf, down from $7.48 in 1Q2006.
For the quarter, Anadarko's profit fell sharply on lower commodity prices and a threefold increase in service costs. Net earnings were $104 million (23 cents/share), down from $660 million ($1.42) in 1Q2006. Revenue climbed to $2.68 billion from $1.70 billion, but service costs jumped to $2.17 billion from $735 million.
Anadarko expects to sell another $2 billion in noncore assets this year, according to Hackett. The company estimates 2Q2007 output will range 46-48 MMboe, with full-year production of 184-192 MMboe.
EOG Resource Inc.'s earnings in the first three months plunged by nearly half from the same period of 2006 following a mark-to-market loss. EOG reported net profit of $216.8 million (88 cents/share), compared with $424.8 million ($1.73) in 1Q2006. Revenue fell to $875.2 million from $1.1 billion.
The Houston-based independent had previously disclosed a $39.8 million loss (minus 11 cents/share) on the mark-to-market treatment of financial commodity price transactions in 1Q2007. In 1Q2006, EOG recorded a $107 million (28 cents/share) gain on the mark-to-market transactions.
However, despite its financial losses, EOG's U.S. gas output was up 21% from a year ago, boosted by increases from its leasehold in the Barnett Shale. Gains were also seen in EOG's operations in East and South Texas, the Rocky Mountains and the Midcontinent.
EOG's 1Q2007 gas volumes in the United States rose to 915 MMcf/d from 738 MMcf/d in 1Q2006. In Canada, gas volumes fell slightly to 222 MMcf/d from 229 MMcf/d. Trinidad volumes also were off slightly at 30 MMcf/d from 34 MMcf/d. Composite average gas prices in the United States and Canada were $6.42/Mcf in the first three months, down from $7.79/Mcf in 1Q2006.
"Based on our growing success in the Barnett Shale and our other activities in North America, we are on track to achieve our target of 10% total company production growth in 2007," said CEO Mark G. Papa. "Operating results from the Fort Worth Barnett Shale continue to meet or exceed every target we have set. As we maintain our focus on gaining operational expertise, our results continue to improve as well."
Papa said that in the past month, EOG has seen a "strengthening in natural gas prices for the second half of the year that falls in line with our internal expectations." Based on the current commodity environment, he said EOG would likely spend $3.4 billion on capital expenditures this year.
"2007 is shaping up to be an active drilling year with good organic production growth," said Papa. "Combined with our continued focus on returns and cost control, we expect to end the year as we began, with a very strong balance sheet."
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