Sharply lower gas and oil prices in the fourth quarter of 2001 forced Devon Energy to write down the value of its reserves by $556 million (after taxes) and take a $518 million net loss compared to $307 million in net earnings in 4Q2000. Quarterly earnings per share before special charges were 23 cents, or nearly double the average of Wall Street estimates. Despite the poor results, Devon reported record high oil and gas production, revenues and year-end reserves, mainly because of its mergers with Canada’s Anderson Exploration and Houston-based Santa Fe Snyder. Earnings for the year including special charges were $103 million, down from $730 million a year earlier. Earnings per share for the year before special charges were $5.03, also beating average Wall Street estimates of $4.87. Sales of oil, gas and natural gas liquids reached a record high $3 billion in 2001, up 10% from 2000. Total production of oil, gas and natural gas liquids rose 12% to a record 135 MMboe. There was an 81% increase in Canadian production attributable to the Anderson acquisition. The average price the company received for its oil production decreased 15% to $21.57/bbl and the average price for gas increased 9% to $3.80/Mcf. Gas liquids prices fell 19% to $16.98/bbl. Although the company reported minimal expenses related to its mergers with Anderson Exploration ($1 million pre-tax) and Santa Fe Snyder ($60 million), operating and other expenses rose across the board, including a 20% increase in operating expenses, a 55% in transportation expenses, a 26% increase in rates related to depreciation, depletion and amortization of property and equipment, a 19% increase in general and administrative expenses and a $3 million charge related to exposure to Enron. Estimated proved oil and gas reserves at the end of the year were 1,620 MMboe, or 523 MMboe greater than at Dec. 31, 2000. Total reserve additions were 658 MMboe, reduced by production of 135 MMboe. This resulted in production replacement of 487%. Year-end reserves included 586 MMbbl of oil, 5.5 Tcf of natural gas and 121 MMbbl of gas liquids. The company’s 2002 capital budget for drilling and facilities expenditures is approximately $1.3 billion. In addition, Devon has budgeted approximately $150 million for midstream facilities.

UtiliCorp United reported full-year 2001 operating earnings of $2.44 per diluted share, a 17% increase over the previous year’s operating earnings per diluted share of $2.08. Earnings before interest and taxes (EBIT) for 2001 were $704.7 million, up 31% from $540 million a year earlier. The company also reported that sales for the year were up 39%, from $29 billion in 2000 to $40.4 billion for 2001. Despite the strong full-year results, UtiliCorp recorded an after tax loss for the fourth quarter 2001. The company posted EBIT of $40.5 million for the 2001 quarter, compared to $141.1 million during the fourth quarter 2000. After tax, the company recorded an earnings loss of $6.2 million ($0.05 per share loss) for the fourth quarter 2001, compared to a $48.2 million ($0.50 per share) gain during the similar quarter a year earlier. Including non-recurring items, UtiliCorp reported full-year 2001 earnings of $2.42 per diluted share compared to $2.21 per diluted share in 2000. Full-year 2000 non-recurring items included an after-tax gain of $29 million ($0.30 per share) from the initial public offering of Uecomm Ltd. in Australia and $16.3 million ($0.17 per share) of after-tax impairments and other charges. Based on operating EBIT, which excludes non-recurring items, UtiliCorp’s Merchant Group posted an increase of 90% from $201.9 million in 2000 to $383.8 million in 2001. The record performance from the Aquila subsidiary was based on strong performances from wholesale and capacity services. The company’s wholesale services segment benefited from a volatile pricing environment in the first half of the year, combined with strong client demand, which provided increased opportunity to deliver products and services. UtiliCorp said that continued growth in the structured finance portfolio and new businesses such as hourly gas and global liquids also contributed to the increase in earnings. During the year, Aquila’s power volumes increased 84% to 350 million MWh in 2001 and gas volumes increased 13% to 13.5 Bcf/d. Aquila also closed more than 1,850 structured transactions in 2001, marking a 28% increase over 2000. The subsidiary has developed seven partnerships with reinsurance companies to create a global weather portfolio spanning 10 countries.

Pittsburgh-based Equitable Resources announced record core earnings per diluted share (EPS), excluding earnings from Westport Resources, of $2.12 for 2001 compared to a core EPS of $1.46 in 2000, an improvement of 45%. Reported 2001 earnings, including Westport, were $2.30 per share. Despite the record annual earnings, Equitable reported fourth quarter core EPS of $0.39 compared to fourth quarter 2000 EPS of $0.45. The decrease was attributed to lower gas prices, unusually warm weather and increased bad debt reserves at Equitable Utilities. Reported fourth quarter 2001 earnings, including Westport, were $0.37 per share. Due in part to mild weather, Equitable Utilities had earnings before interest and taxes (EBIT) of $79.0 million for 2001, compared with $93.0 million for 2000. Equitable Production recorded EBIT of $178.7 million in 2001, compared to $113.9 million for 2000, excluding EBIT from Gulf operations. The company said the positive results were primarily attributable to higher realized sales prices, higher operating volumes and lower expenses. Going forward, Equitable forecasts that 2002 full-year core EPS will be between $2.35-2.40 per share, subject to a one cent change for each ten cent change in the NYMEX natural gas price at the Jan. 3, 2002 price of $2.65. Equitable used approximately $133 million of its $175 million 2001 capital budget. During the year the company committed an additional $40 million, which is expected to be spent in 2002. Equitable said it has established a capital budget of $166 million for 2002. Actual capital spending, including the $40 million carryover from 2001 commitments, is expected to total $173 million. For 2002, the company said it has hedged 33 Bcf at an average of $4.15/Mcf. This is in addition to 14 Bcf in prepaid forward sales at approximately $4.00/Mcf.

In order to limit the impact of declining oil and gas prices on cash flow, Devon has hedged 35-40% of its gas production at $3/Mcf, and 50-55% of its oil production at $22.35/bbl. Dallas-based Pioneer Natural Resources Co. replaced 208% of its production last year, and has the potential in the next year to grow its production base 55-60%. The independent reported that its total proved oil and gas reserves stand at 671 MMboe, or 4 Tcfe, including 325 million bbl of crude oil and natural gas liquids and 2 Tcf of natural gas. Pioneer replaced its 2001 production at a finding cost of $7.49/boe. Excluding 25 MMboe downward revisions because of the decline in commodity prices, the independent actually replaced 268% of its production at a finding cost of $5.81/boe in 2001. Costs totaled $647 million, including $171 million for acquisitions and $476 million for development and exploration activities. Reserves were based on year-end Nymex prices of $19.76/bbl for oil and $2.73/Mcf of natural gas. Proved developed reserves accounted for approximately 70% of total proved reserves. Pioneer had a net loss in the fourth quarter of 2001, reporting it lost $20.9 million, or $0.21 per diluted share. The loss included a $7.7 million charge associated with the economic instability and resulting devaluation of the Argentine peso, where it has some production, a $6 million bad debt charge related to derivative contracts with Enron North America Corp., and a $1 million loss on the sale of assets, primarily in Canada. Pioneer also recognized an extraordinary loss of $5.1 million on the early “extinguishment” of $38.7 million of its 9-5/8% senior notes. Adjusted for the special items, Pioneer reported a loss of $1.1 million, or $0.01 per diluted share, compared to First Call/Thomson Financial analysts’ consensus estimate of a loss of $0.03 per share. For the same period in 2000, Pioneer reported net income of $84.2 million, or $0.85 per diluted share. Cash flow from operations for the fourth quarter of 2001 was $85.6 million compared to $145 million for the fourth quarter of 2000.

Coming off of a year highlighted by milder than normal weather, El Paso Energy Partners LP. reported a 51% increase in 2001 pro forma cash flow, as measured by adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), of $161.4 million compared with $107.0 million in 2000. Pro forma net income, which also excludes non-recurring items, was $61.8 million ($0.58 per unit) for 2001 — more than triple the $20.5 million (loss of $0.03 per unit) in 2000. The company’s net income was $55.1 million ($0.38 per unit) for 2001 and includes non-recurring charges of $6.7 million ($0.19 per unit) primarily related to asset sales in 2001. The company also posted a sizeable increase in its quarterly results. For the fourth quarter 2001, pro forma cash flow was $49.6 million, up 63% from $30.4 million in the fourth quarter of 2000. Pro forma net income was $18.9 million ($0.18 per unit) compared with $5.4 million (loss of $0.11 per unit) in the fourth quarter of 2000. Reported net income for the 2001 fourth quarter was $18.3 million ($0.17 per unit).

Increased power purchase costs due to a six month unplanned outage at its Palisades nuclear plant, which is now back in service, as well as near-record warm weather in the fourth quarter and the impact of the economic slowdown on electric and gas sales, hammered CMS Energy financials. The Michigan-based utility and pipeline company reported a net loss of $1.03 per share or a loss of $138 million for the fourth quarter and a net loss of $545 million, or $4.17 loss per share, for the year. In comparison, the company reported a $1.44 loss per share, or a loss of $171 million, in the fourth quarter of 2000 and net income of $36 million, or $0.32 per share, in 2000. CMS reaffirmed its outlook of $2.00 to $2.05 per share for net operating earnings in 2002, excluding uncertain impacts related to recent developments in Argentina. Total special charges reduced earnings by $730 million. For the year, operating income from non-utility energy businesses was up 13%. But for the fourth quarter, operating income was down 30% from the same period in 2000. Operating income was flat in the gas transmission business for the year, but down 31% for the fourth quarter. Independent power production operating income for 2001 was down about 35%, excluding write-downs. For the quarter, independent power operating income totaled $21 million, down from $55 million from the same period in 2000. Energy marketing, services and trading operating income for 2001 was up more than 400% to $71 million, but for the fourth quarter, the business showed a loss of $7 million. The company’s E&P business showed an increase in operating income, excluding $49 million of write-downs, to $74 million, up from $31 million the year before. Operating income of CMS Energy’s principal subsidiary, Consumers Energy, excluding $143 million of write-downs, totaled $454 million in 2001, down from $579 million in 2000. For the fourth quarter, the utility reported a 61% drop in operating income.

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