Two of the top U.S.-based integrated majors, ConocoPhillips and Amerada Hess Corp., along with revamped independent Kerr-McGee Corp., reported Wednesday phenomenal earnings growth in 4Q2005 and full-year 2005, boosted by soaring oil and natural gas prices. ConocoPhillips also recorded natural gas production gains in Alaska and the Lower 48 states in the final quarter; however, gas output at Hess and Kerr-McGee for the final period and the year was lower.

Houston-based ConocoPhillips, which announced last month it would buy North American gas producer Burlington Resources (see Daily GPI, Dec. 14, 2005), reported that 4Q earnings rose 52%, offsetting a continued impact from hurricanes on Gulf Coast operations. Profits reached $3.78 billion ($2.61/share), up from $2.48 billion ($1.72) in 4Q2004. Quarterly earnings included a $15 million loss from discontinued operations and a charge of $88 million from the effect of a change in accounting rules. Continuing operations reached $2.69/share, well ahead of Thomson First Call estimates of $2.62, and ahead of the $1.76 recorded for the same period of 2004. For the year, profit ballooned to $13.53 billion ($9.55/share) from $8.13 billion ($5.80) in 2004. Full-year revenue increased to $183.4 billion from $136.9 billion in 2004.

In the final quarter, ConocoPhillips produced 1.88 million boe/d, which included 1.59 million boe/d from the Exploration and Production (E&P) unit. In 4Q2004, E&P recorded 1.52 million boe/d. In the United States, gas output in 4Q2005 reached 1,436 MMcf/d, up from 1,377 MMcf/d in 4Q2004. For the year, domestic gas production was 1,381 MMcf/d, slightly lower than the 1,388 MMcf/d recorded in 2004. Canadian gas production fell in the final quarter to 430 MMcf/d from 442 MMcf/d a year earlier, and it also fell year-over-year to 425 MMcf/d from 433 MMcf/d in 2004.

“During the fourth quarter, our Gulf Coast operations continued to be impacted due to effects from the hurricanes. Otherwise, our operations ran well,” said CEO Jim Mulva. “Integration teams” composed of employees from both ConocoPhillips and Houston-based Burlington currently are working on transition details, “and we anticipate completing the transaction in the first half of 2006. With this transaction, ConocoPhillips will expand its portfolio of high-quality, low-risk, long-lived gas reserves and become a leading producer of natural gas in North America. Additionally, the transaction enhances ConocoPhillips’ North American natural gas supply position in projects involving conventional and unconventional resources, as well as long-term LNG [liquefied natural gas] and Arctic gas projects.”

Asked about rising service costs in the energy sector, which have gone up even more following the hurricanes last year, Mulva said the producer was “obviously seeing quite a bit of pressure on the cost side for operations and maintaining production, and we also see it with the large capital programs going forward…the cost pressures as well.” The “cost pressures,” which the company noted in November “have not really abated much at all,” have “pushed up higher development costs [and] operating costs.”

New York-based Hess doubled its 4Q profit over a year ago with a more than 100% increase in the sales price of natural gas and a strong contribution from refining and marketing. Hess earned $452 million in the quarter ($4.31/share), up from $229 million ($2.22) in 4Q2004. The result easily topped analyst expectations of $3.26/share. Revenue reached $7.15 billion, nearly double for the same period of 2004. For the full year, net income was $1.242 billion, compared with $977 million in 2004.

In a conference call with analysts, CEO John B. Hess said Hurricanes Katrina and Rita impacted production by 7,000 boe/d overall in 2005. “Although our deepwater production facilities were largely undamaged, we were impacted by outages in downstream transportation and processing infrastructure,” said Hess. “As of the beginning of this year, we have restored 45,000 boe/d in the Gulf of Mexico, out of a pre-storm total of 51,000 boe/d.”

Oil and gas production declined to 316,000 boe/d from 346,000 boe/d a year earlier. Lost production in the Gulf of Mexico as a result of the hurricanes cut output by 19,000 boe/d, the company said. For 2005, U.S. gas output was 137 Mcf/d, well below the 171 Mcf/d recorded in 2004. Worldwide, gas production fell to 544 Mcf/d from 2004’s 575 Mcf/d. However, Hess made up the difference in prices, selling gas for an average of $11.75/Mcf, up from $5.83 in 4Q2004.

Oklahoma City-based Kerr-McGee, which announced Monday that it would sell the rest of its Gulf assets to W&T Offshore (see Daily GPI, Jan. 25), also reported soaring profit in the final quarter of 2005. However, after deducting for discontinued operations from numerous asset sales and the spin-off of its chemicals unit, profit was off 3% from a year ago. In 4Q2005, earnings were $2.2 billion ($18.46/share), compared with $133.8 million (86 cents) for the same period of 2004. Profit from continuing operations was $653.9 million, compared with $276.1 million in 4Q2004. Adjusted after-tax income was $125.7 million ($1.07/share), down from $129.7 million (84 cents) in 4Q2004. Thomson First Call analysts had pegged earnings at $1.61/share.

“In 2005, Kerr-McGee redefined itself as a pure-play oil and natural gas exploration and production company focused on per-share growth,” said CEO Luke R. Corbett. “We capitalized on strong commodity prices by divesting of lower-growth properties and redeploying funds to our vast inventory of higher-return, less capital-intensive properties.” He noted Gulf production is now at about 85% of pre-hurricane levels. None of Kerr-McGee’s equipment was severely damaged, but output suffered because of damage to infrastructure owned by third parties.

Gas sales worldwide fell to 883 MMcf/d from 1.04 Bcf in 4Q2004. Domestically, Kerr-McGee’s offshore gas output — where most of the sales were concentrated — fell to 288 MMcf/d from 418 MMcf/d in 4Q2004. Domestic onshore gas output fell to 595 MMcf/d from 623 MMcf/d. Gas sales fetched an average price of $7.28/Mcf, up from $5.29 a year earlier.

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