Burlington Resources Inc., Anadarko Petroleum Corp., Devon Energy Inc. and Sunoco posted the “biggest earnings surprise” in the third quarter, with earnings 15-28% higher than expected, followed by ConocoPhillips, EOG Resources Inc. and Occidental Petroleum Corp. in the 13-14% range, according to a new report by CreditSights analysts.

Brian M. Gibbons Jr. and Spencer Siino reviewed the quarterly results for integrated U.S. exploration and production (E&P) companies they cover, and upgraded four names: ConocoPhillips, Transocean, Halliburton and Anadarko. The upgrades were based on continued strong results, “positive strategic events” and favorable valuations. Downgrades were given to Unocal and Baker Hughes “purely on valuation,” the analysts said.

“Results in the third quarter for oil and gas companies were positive on the whole, with 14 out of our 20 companies beating estimates, five coming in-line, and only one [Ashland] disappointing,” said the analysts. “The majority of companies posted sequentially lower results, but year-over-year gains. All eight of our E&Ps beat expectations while the Integrateds and Oilfield Service players were in-line to better than expectations.”

At the top of their “names to watch” list were producers Amerada Hess (AHC) and Kerr-McGee (KMG).

“AHC’s Q32003 results were in-line with expectations, but erosion of the reserves and production base, a high cost structure, and delays at key developments (Northern Block G, Equatorial Guinea) have caused investors and Moody’s [Investor Services] heartburn,” the analysts said. And, despite its “improved balance sheet and recent deepwater Gulf of Mexico exploration successes, Northern Block G and the timing of other major developments set for 2005-2006 could be subject to delay, which could once again pressure credit spreads.” AHC was rated “underweight” by CreditSights.

More positive things are happening at KMG, however. “Cautious” on its prospects “given its weak balance sheet, riskier deepwater strategy and volatile Chemicals business,” the analysts noted a “shifting strategy” during the quarterly earnings call.

“We welcome the strategic shift to a more prudent E&P strategy, but it will take time to execute,” the analysts said. “KMG has a high level of debt maturities in the coming three years and this will likely continue to be the overriding credit driver as the company attempts to pay down debt and reduce its risk profile. This is a developing story that could offer relative tightening outperformance in 2004, but for now we maintain our marketweight on KMG.”

For the full report, visit the web site at www.creditsights.com.

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