Beneath the hefty first quarter earnings’ figures for oil and gas companies, a more compelling tale is unfolding as both majors and independents operating in North America appear to be benefiting from the move to the drill bit. Production numbers so far are mixed, but some indicate that gas production is up significantly — with some companies predicting the best is yet to come.

For the first quarter of 2001, Unocal Corp. saw its Lower 48 production jump 22% from a year ago, while El Paso Corp.’s was up 7%. Hitting on all cylinders, Spinnaker Exploration Co.’s production soared 153% from a year ago, Cross Timbers Oil Co. reported a 14% increase, HS Resources Inc. was up 11%, and Magnum Hunter Resources Inc. was up 23%. Domestically, Ocean Energy also saw its natural gas numbers go up.

Salomon Smith Barney is predicting that first quarter domestic gas production levels for the top 40 producers to be up 0.8% from the first quarter of 2000 and 1.8% from the fourth quarter to 27.3 Bcf/d. About half of the top 40 producers have reported first quarter domestic gas volumes. In total, Salomon estimates the 40 companies represent roughly two-thirds of total domestic production.

“Interestingly, though the integrated producers tended to be the major culprits in overstating domestic natural gas production in recent quarters, the aggregate first quarter domestic natural gas production for the six integrateds that have reported to date have slightly exceeded estimates,” SSB analysts said in a research note. “Meanwhile,the independent producers, on average, have thus far met or slightly undershot domestic natural gas production estimates.”

Because of higher commodity prices in recent months, earnings are up across the board. And despite not meeting estimates, only a few large independents have reported production declines. Kerr-McGee, which saw its first quarter earnings skyrocket, reported gas production down 4% from a year ago.

Unocal’s North American operations increased production for the fifth straight quarter, although some of the jump has not come from the drill bit, but rather from acquisitions, “allowing us to take advantage of the strong natural gas market in the U.S.,” said CEO Charles R. Williamson. In the Lower 48, Unocal’s net natural gas production in the first quarter was 874 MMcf/d, up 22% from 714 MMcf/d a year ago. Higher production came principally from the Gulf of Mexico Muni field, which Unocal said reached peak production of 130 MMcf/d; production from newly acquired properties in the Norphlet Trend in Mobile Bay and other Gulf of Mexico shelf areas. There are no plans to slow down, with exploration wells planned in each of its four deepwater projects in the Gulf of Mexico.

Houston-based Spinnaker’s first quarter earnings set a record: net income of $28.1 million, or $1 per share, compared with $3.1 million or 15 cents a share in 2000. Its production was up to 12.4 Bcfe in the first quarter, compared with 4.9 Bcfe a year ago, an increase of 7.5 Bcfe. Spinnaker’s fourth quarter production alone was up 10%, and its current daily production rate increased 124% to nearly 150 MMcfe from 67 MMcfe at the end of first quarter 2000.

Fort Worth-based Cross Timbers is remaining on its high-flying course, reporting its first quarter daily gas production averaged 383 MMcf, a 14% increase over first quarter 2000’s 336 MMcf. CEO Bob R. Simpson said the record quarter “amplifies the company’s momentum as we rapidly grow our production and reserves.” He said Cross Timbers, with core assets in Texas, Oklahoma, Kansas, New Mexico, Arkansas, Wyoming, Alaska and Louisiana, was moving toward a goal of 20% annual gas production growth and 3 Tcfe of reserves by the end of 2002.

It’s success with the drill bit that is bringing in higher production numbers for Irving, TX-based Magnum Hunter, which saw a 23% hike in production from a year ago. “We are in a unique position of being able to increase our daily production from the drill bit at a 40% to 50% annual rate for 2001,” said CEO Gary C. Evans. “We saw just the beginning of that production increase during this quarter. We have nine new offshore Gulf of Mexico exploration discoveries scheduled to come on line throughout the remainder of the year and into early 2002. We also have six new onshore discoveries in various stages of completion…The continued production increase to be experienced throughout the year, coupled with record commodity prices, is creating an environment that is allowing for substantial financial returns for our shareholders.”

Ocean CEO James T. Hackett said that “this was the third consecutive quarter that production has increased,” adding that the Houston-based company continues to “benefit from a growing production base.” Average daily production for the quarter was 143,000 boe, which it attributed to an expansion of its Gulf of Mexico and West Africa deepwater drilling program. In the domestic arena alone, Ocean saw its natural gas production rise to 403 MMcf/d, up from 374 MMcf/d a year ago.

El Paso’s production volumes also improved in Q1, averaging 1,697 MMcf/d equivalent, up 7% from the year earlier. El Paso Production also reported strong drilling results in all of its core areas in the quarter.

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