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Burlington Management Takes Heat Over Poor Gas Production

Burlington Management Takes Heat Over Poor Gas Production

Burlington Resources Inc.'s management team took heat from investors and some analysts last week, after it reported on Thursday that its natural gas production for the second quarter of the year rose slightly compared with 1999, but still fell 7% from the first quarter of 2000. Burlington reported that its natural gas production for the entire year will be flat compared with last year, and said that its oil production probably will be 10% lower from a year ago.

CEO Bobby Shackouls acknowledged that the company had been criticized for not spending some of its available capital, but said he preferred taking a disciplined approach.

"Falling into a boom and bust leads to inferior returns," Shackouls said. He said that instead of following a path of spending all of the money it makes, Burlington was taking a slower approach, with value-added acquisitions.

Saying he holds 150,000 shares of stock of Burlington, "80% of my net worth," Shackouls tried to appease one angry shareholder who called during the earnings conference call, who accused the CEO and the rest of the management team of not doing enough to guarantee better returns on the stock, which has fallen steadily in the past few months.

"I'm just as concerned as any of the shareholders," he said. When asked if he loses sleep over the poor returns of the company, the CEO said they (management) were "working ourselves silly trying to improve" the capital position of the company.

The Houston-based holding company is considered one of the largest U.S. independents, and natural gas accounts for about 80% of its production. Most of the problems, said Shackouls, relate to poor rainy weather and regulatory issues in Canada, which prevented the company from bringing in an expected 90 MMcf/d of production on stream in its first Canadian holding, Poco Petroleums Ltd.. Burlington purchased Poco last August for $2.5 billion (see NGI, Aug. 23, 1999).

"The weather is out of our control, but there are ways to mitigate the other problems and improve our position," said Shackouls. He said the company expects production from Canada to come on stream in the final quarter of 2000 and early in 2001.

Burlington's capital spending has been about $900 million this year, and the company expects to spend between $800 million and $1 billion in 2001, said Shackouls. It originally had set a $1 billion capital spending budget for this year, but in April, it backed off of that figure, saying that it was moving toward a path of financial discipline and improved capital returns rather than volume growth. The stock has fallen steadily since then.

Irene Haas, an analyst with Sanders, Morris Mundy, said Burlington had not been aggressive enough on its long-term exploration prospects.

"The components for growth are not in place," she said. "They're faced with a growth issue, and I feel the company is stuck in neutral unless they become more aggressive. It's gone on too long." She said that the company should have done better planning "five years ago" to take advantage of the market now. It still could, she said, it if intensified its exploration efforts.

Shackouls was asked on Thursday about the possibility of selling the company, and while he and his managers would not comment, Haas said Burlington has "great assets," but it would take a company with "big domestic gas exposure" to take advantage of them.

Shares of Burlington stock fell Thursday and Friday after failing to meet Wall Street's consensus estimate. It posted a second quarter income of $94 million, or $.43 a share, compared with $24 million or $.11 a share in 1999. However, 29 analysts surveyed by First Call had predicted Burlington to earn $.44 a share for the quarter.

On Friday, Gheit Fadel of Fahnestock & Co. downgraded Burlington stock to hold from buy. David Wheeler at Deutsche Banc Alex. Brown downgraded the stock to buy from strong buy. Wheeler said the outlook for production growth "has substantially deteriorated." In the past year, the stock has sold for between $47 and $26. Burlington closed Friday at 31 3/8, off 6.52% and down 2 3/16 from Thursday's close.

Carolyn Davis, Houston

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