Record earnings for ChevronTexaco Corp. in the second quarter masked a 13% decline in U.S. natural gas production from the same period a year ago, continuing a trend reported by other leading producers in recent days. For Houston-based independent Anadarko Petroleum Corp., earnings also showed strong gains in the quarter, but its U.S. gas production struggled to maintain 2Q2003’s output.

On nearly every financial level, the news at San Ramon, CA-based ChevronTexaco was good. The producer reported record quarterly net income of $4.1 billion ($3.88/share diluted), compared with net income of $1.6 billion ($1.50) in the year-ago period. For the first six months of 2004, net income was $6.7 billion ($6.28/share diluted), almost double for the first six months of 2003’s $3.5 billion ($3.31).

CEO Dave O’Reilly expressed enthusiasm for the high numbers during a conference call with analysts on Friday.

“I am very pleased with our performance in the second quarter both operationally and strategically,” he said. “Our back-to-back record quarterly earnings this year helped us achieve a 21% return on capital employed for the past 12 months. This performance has significantly improved our company’s financial strength, and we are in an excellent position to continue creating value for our stockholders.” He added that the company’s financial strength and positive earnings outlook “were among the primary drivers for the 10% increase in our quarterly common-stock dividend announced earlier this week, an action that will be immediately followed by a 2-for-1 common-stock split.”

However, in the United States, Chevron’s net oil-equivalent production declined 8%, or 78,000 boe/d, from 2Q2003. Excluding the effect of property sales, net oil-equivalent production declined about 6% between periods. Chevron said normal field declines accounted for most of the reduced production, the effects of which were only partially offset by new or increased production in certain fields. The net liquids component of production was down 5% to 535,000 bbl/d. And net natural gas production averaged 2 Bcf/d, down 13%.

Worldwide oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, declined about 4% from the 2003 second quarter. About one-half of the decline was associated with properties sold since last year’s second quarter.

The average sales price for U.S. natural gas increased 9% to $5.59/Mcf, while internationally the average natural gas price of $2.55 declined 4% from a year ago.

In remarks about Chevron’s upstream earnings performance, O’Reilly said the improvement resulted primarily from higher oil and gas prices, along with a significant gain associated with the sale of nonstrategic producing properties in western Canada. The company completed the sale of 13 producing fields in western Canada in June, and in July, it closed on the sales of a Canadian natural gas processing business, as well as a subsidiary in the Democratic Republic of Congo. Total proceeds from the sales were $1.1 billion.

Houston-based Anadarko also recorded stellar earnings in the quarter, with net income of $405 million ($1.59/share diluted) on revenues of $1.44 billion. For the same period of 2003, net income was $301 million ($1.20/share diluted), on revenues of $1.25 billion.

“Anadarko produced good second quarter results that were helped by strong commodity prices,” said CEO Jim Hackett. “In fact, our earnings are up 35% over second quarter ’03.” He also noted that “our production levels for the quarter met our expectations,” but in that case, Anadarko set its bar low for the quarter.

North American gas production was basically flat compared with a year ago. For the quarter, Anadarko reported average U.S. gas volumes of 1.388 Bcf/d, compared with 1.35 Bcf in 2Q2003. Its gas price was $5.19/Mcf, up from $4.28 a year earlier. In Canada, gas volumes averaged 398 MMcf/d, slightly ahead of 391 MMcf/d in 2Q2003. The gas price was $5.16/Mcf, ahead of last year’s $4.80.

Worldwide, Anadarko’s gas volumes totaled 162 Bcf, compared with 158 Bcf in 2Q2003. Average daily volumes were 1.786 Bcf/d, compared with 1.741 Bcf/d in 2Q2003. During the second quarter of 2004, sales volumes totaled 47 MMboe, or 512,000 boe/d, down slightly from 2003 second quarter sales volumes of 48 MMboe, or 527,000 boe/d.

Anadarko trimmed its 2004 production forecast slightly on Friday, citing the impact of higher prices on production-sharing projects in Venezuela and the Gulf of Mexico. It also expects to increase its capital spending to a range of between $2.8-3 billion, primarily to accelerate development of its K2 North field in the Gulf of Mexico.

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