Flush with Cash, Independents Eye 2001 E&P

Record-breaking fourth quarter and year-end earnings have created more opportunities for U.S. independents this year, which now are flush with cash to ramp up North American exploration and production projects and many U.S.-based independents now are boosting capital spending in their E&P units to boost energy reserves, especially natural gas.

Still not complete, the news from several independents last week was impressive, with Anadarko Petroleum Corp. and Apache both reporting record-breaking fourth quarters and plans to greatly increase production and exploration in 2001. Mitchell Energy & Development Corp. Pioneer Natural Resources Co., Devon Energy Corp. and Williams also are setting their sights on eclipsing production records set in 2000.

Anadarko is channeling $2.8 billion more into its capital budget this year, a 65% increase, and most of the exploration will be in North America. More than half of the swollen budget is for ongoing development drilling to increase production from existing fields in Texas, the Gulf of Mexico, the Rockies, Western Canada, the North Slope of Alaska and Algeria.

Anadarko CEO Robert J. Allison Jr. said that the fatter budget is directed toward finding more natural gas for North America. "Natural gas is and will continue to be in tremendous demand in North America. Therefore, the primary focus of this 2001 budget is to find new natural gas reserves and increase gas production in the Lower 48, the Gulf of Mexico and Canada."

Anadarko can well afford to budget more this year following its results from 2000. It reported that for the fourth quarter 2000, it had net income of $454 million, or $1.75 a share, up from 1999's last quarter of $28 million or 22 cents a share. The results reflect the company's merger with Union Pacific Resources, which doubled annual production levels and coincided with higher commodity prices on oil and gas.

Its Houston-based neighbor, Apache Corp., also announced record earnings last week, and said it would spend about $1 billion --- 30% more --- this year on exploration and development. Apache recorded fourth quarter earnings of $252.2 million, or $2.04 a share, which was 173% higher than the fourth quarter of 1999, which had earnings of $92.5 million or 81 cents a share. For the full year, Apache said higher prices and increased oil and gas production brought record earnings of $693.1 million, or $5.87 a share. In 1999, Apache earned $186.4 million, or $1.73 a share.

Production for Apache continued its roll, which has seen a rise in those levels for 23 consecutive years. It produced 260,196 boe/d and reserves surpassed 1 B boe, up 35% from year-end 1999. It added 377 MM boe through acquisitions, drilling and revisions, and replaced 396% of its production.

The earnings boom continues at Mitchell Energy & Development Corp., which said increased natural gas sales volumes and higher commodity prices contributed to its over-the-top report last week. Fourth quarter earnings for The Woodlands, TX-based company were $95.3 million, or $1.92 a share, compared with $34.5 million or $.70 in 1999.

A 30% increase in average natural gas sales to 341 MMcf/d and doubled gas sales prices of $5.52/Mcf contributed to the higher earnings.

"Double-digit production growth is not only improving earnings, but is also creating shareholder value as the marketplace recognizes our ability to substantially increase the reserve base for the company," said CEO George P. Mitchell. "We are one of only a few companies that can say with full confidence that production will continue to grow significantly beyond 2001. In fact, with at least 2,000 undrilled locations in the Barnett, we expect to increase gas and natural gas liquids sales over the next three years at compounded interest rates exceeding 20% and 10%, respectively."

Oklahoma City-based Devon Energy Corp. also set a record for production of oil and natural gas liquids and was boosted by higher oil and natural gas prices in its forth quarter and year-end report. Record new discoveries and extensions, said the company, drove oil and gas reserves to a new high of 1.1 B boe. For the fourth quarter, net earnings were $306.9 million, or $2.37 a share, compared with 1999 fourth quarter earnings of $74.9 million or $0.50 a share.

For the year, Devon reported net earnings of $730.3 million, or $5.66 a share. Excluding its one-time costs of $60.4 million associated with its merger with Santa Fe Snyder Corp., earnings were even higher at $767.6 million, or $5.95 a share. The earnings compared with a net loss of $1.54.1 million or $1.68 a share in 1999. In 2001, Devon is budgeting $1.1 billion in its capital budget --- more than double 2000's budget of $510 million.

With an aggressive drilling program that helped to replace 329% of its 2000 natural gas production, Houston-based Williams' exploration and production unit now plans to drill more than 300 wells this year --- a record number in a single year for the company --- concentrating its talents in Wyoming's Green River Basin and New Mexico's San Juan Basin. Last week the Tulsa-based company reported that at year's end, its natural gas reserves totaled 1.20 Tcfe, up from 1999's year-end total reserves of 1.05 Tcfe. The unit replaced 329% of its 2000 production of 65.6 Bcfe.

Carolyn Davis

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