El Paso Corp., which is preparing for a takeover by Kinder Morgan Inc. (KMI) and a blockbuster deal to sell its exploration unit, said fourth quarter profits more than doubled. The natural gas pipeline franchise also reported a solid performance, lifted by rising volumes from the Marcellus Shale. A consortium of private equity investors led by Apollo Global Management LLC late last month agreed to buy the exploration business, EP Energy, for about $7.15 billion (see NGI, Feb. 27). The KMI deal and the sale both are expected to close by the end of June (see related story). Beyond the big deals, El Paso’s net profits reached $185 million (24 cents/share) in 4Q2011, compared with $62 million (9 cents) in the year-ago period. After adjusting for the impacts of financial derivatives and other one-time charges, the company earned 28 cents in 4Q2011, versus 20 cents in 4Q2010. Net income in 2011, which was impacted by derivatives losses, fell to $141 million (18 cents/share), versus $721 million ($1.00) for 2010. Throughput for the Pipeline Group, including equity investments, rose 8% in 4Q2011 from a year earlier, primarily because of higher Marcellus Shale volumes on Tennessee Gas Pipeline. The Pipeline Group earned $417 million in 4Q2011, compared with $439 million in 4Q2010. E&P production volumes rose 11% from a year earlier to 880 MMcfe/d; the year-end production exit rate exceeded 900 MMcfe/d.
Proving that different shale gas plays have different economics, Southwestern Energy Co. plans to cut spending in the Fayetteville Shale and increase spending in the Marcellus Shale this year. “This year has already started out to be a challenge, but as I tell our employees, our goal is not just to survive. It’s to thrive,” CEO Steve Mueller said during a fourth quarter conference call. Net natural gas production in the Fayetteville Shale grew from just 11.8 Bcf in 2006 to 436.8 Bcf in 2011. Overall, the Fayetteville Shale represented roughly 4% of total Lower 48 marketed natural gas production in 2011, up from a mere 0.1% in 2006, according to data from the company, the Arkansas Oil & Gas Commission and the Energy Information Administration. Southwestern earned $637.8 million in 2011 ($1.82/share), up 6% from $604.1 million ($1.73) in 2010, largely on the back of increased midstream activities. Despite a 24% increase in production in 2011 to 500 Bcfe, upstream profits actually fell slightly year over year due to lower natural gas prices and higher operating expenses associated with the increased production. The company earned $158.5 million (45 cents/share) in the fourth quarter of 2011, up slightly from $149.5 million (43 cents) in the final three months of 2010, as low prices and higher operating expenses partially offset a 20% increase in production. The recently announced $2.1 billion capital budget for 2012 is down from $2.2 billion spent in 2011. Southwestern plans to spend $1.1 billion for the Fayetteville, down from $1.3 billion, and $526 million in the Marcellus, up from $332 million. Southwestern plans to cut spending in the Ark-La-Tex region and its “new ventures,” including its new Canadian operations, but plans to increase its midstream budget.
Quicksilver Resources Inc. is on track to strike joint ventures (JV) by the end of this year to help develop its West Texas and Horn River properties, CEO Glenn Darden said during a conference call. “Data rooms are open on both projects and marketing efforts are under way for both. We’ve already received multiple indications of interests on both properties, so this is moving ahead as scheduled and we’re going to push it to the finish line this year.” Fourth quarter net income was $49 million (28 cents/share), compared with net income of $332 million ($1.82) in the prior-year period. Full-year 2011 net income was $115 million (67 cents/share), compared with $449 million ($2.52) for 2010. Preliminary year-end 2011 proved reserves total 2.8 Tcfe. Total proved developed reserves percentage increased to 69% as the company converted proved undeveloped reserves into the producing category last year. By product, reserves were 77% natural gas, 22% natural gas liquids and 1% crude oil and condensate. Geographically, 88% of reserves were located in the United States, primarily in the Barnett Shale, and 12% in Canada.
Houston-based Carrizo Oil & Gas Inc. has shifted from deriving its revenue mostly from natural gas to an equal reliance upon revenue from oil production, CEO Chip Johnson told analysts during a conference call. “We expect this trend to continue for the entire year of 2012 as we become increasingly weighted toward oil production,” he said. The Barnett Shale leads the company’s portfolio, but Carrizo also is active in the Eagle Ford and Marcellus shales, the Niobrara formation, U.S. Gulf Coast and the North Sea. Production during the fourth quarter was 11.9 Bcfe, an increase of 1.2 Bcfe, or 12%, from fourth quarter 2010 production of 10.7 Bcfe and an increase of 0.6 Bcfe, or 6%, from third quarter 2011 production of 11.3 Bcfe. Adjusted net income was $9.1 million (23 cents/share), compared with $19.5 million (54 cents) during the fourth quarter of 2010, including an $18 million benefit of cash distributions from a joint venture partner for the fourth quarter of 2010. Net income was $6.5 million (16 cents/share) for the fourth quarter, compared with a net loss of $24.4 million (minus 69 cents) for the same quarter during 2010.
San Diego-based Sempra Energy has amended its 20-year contract for liquefied natural gas (LNG) shipments from the Tangguh project in Indonesia to allow BP Indonesia more flexibility to divert LNG shipments to other, higher-paying global markets, particularly those on the Pacific Rim. Sempra President Mark Snell said the move is intended to help offset the continuing drag from lower natural gas prices and provide the Indonesian shippers more flexibility in commanding higher prices for their supplies. Entered in 2004 and effective in the second half of 2009 (see NGI, Dec. 22, 2003), Sempra’s 20-year deal to bring up to 500 MMcf/d of LNG from Indonesia to its Energia Costa Azul terminal along the Pacific Coast of North Baja California, Mexico has always had a provision allowing up to half the contract volumes to be diverted in return for payments to Sempra. The amended contract allows for more volumes to be diverted with revised terms on the payments to Sempra and a guaranteed minimum number of annual shipments to the Mexican receiving terminal. Sempra also reported earnings growth in 4Q2011 of $292 million ($1.21/share), compared with $280 million ($1.15) in 4Q2010; and $1.4 billion ($5.62/share) for 2011, from $739 million ($2.98) in 2010.
Further deteriorating power prices fueled by record low natural gas charges, combined with stiffer air quality rules, have put Edison International‘s (EI) already shaky independent power business, Edison Mission Group (EMG), on the brink of sell-offs, divestitures or a restructuring, EI CEO Ted Craver said during a conference call. EI’s principal subsidiary Southern California Edison Co. (SCE) reported net earnings of $247 million in 4Q2011 and $1.09 billion for 2011. However, EI reported net losses of $839 million (minus $2.57/share) in 4Q2011, and a loss of $37 million (minus 11 cents/share) in 2011. All of the red ink was driven by “lower energy prices, capacity prices and generation,” said Craver. “Current conditions, coupled with continuing debt maturities and retrofit investments, will strain EMG’s liquidity such that it may need to divest assets, and restructure or reorganize it capital structure to get through this period and determine that an option value is indeed there.”
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