Flush with cash on higher commodity prices, U.S.-based independents’ record quarterly earnings have overshadowed stellar natural gas production numbers from some of the domestically focused producers. While Devon Energy Corp. gained production wise with its Ocean Energy Inc. merger, others like EOG Resources Inc. and Houston Exploration Co. did it through internal growth.

Oklahoma City-based Devon Energy Corp.’s record numbers followed its merger with Ocean Energy, which created the largest U.S.-based independent. The merger, completed in April, allowed Devon to record Ocean operations from April 25 through June 30. Combined production of oil, gas and natural gas liquids (NGL) reached 56 MMboe, an all-time quarterly production record and a 13% increase over the 50 MMboe in 2Q02. The merger more than offset Devon’s $1.4 billion in asset sales last year.

In the United States, Devon recorded quarterly production of 147.8 Bcf, up from 126.7 Bcf in 2Q02. Devon produced 265.6 Bcf for the first six months, compared with 247 Bcf last year. In Canada, gas production was down, mostly from asset sales, to 66.6 Bcf from 71.4 Bcf in 2Q02, and for the first six months, production was 129.6 Bcf compared with 144.3 Bcf last year. Average daily gas production in the United States was 1.624 Bcf/d, up from 1.393 Bcf/d in 2Q02. Average daily Canadian production was 7.3 Bcf/d, down from 7.84 Bcf/d in 2Q02.

Without a merger to boost its numbers, Houston Exploration Co. also benefited from record production rates, with daily quarterly production averaging 292 MMcfe/d, compared with 283 MMcfe/d for 2Q02. The company is focused in South Texas, the shallow waters of the Gulf of Mexico and the Arkoma Basin, with additional production in East Texas, South Louisiana and West Virginia.

“Again this quarter we enjoyed the combined benefits of solid production increases and a sustained, high natural gas price environment,” said CEO William G. Hargett. “We took advantage of the opportunity, both directing our additional cash flow to further strengthen our balance sheet and refinancing our public debt to lower our cost of capital and provide us greater acquisition liquidity.” Because of the results, Houston Exploration has increased its 2003 capital program by $26 million, which will be used to accelerate its South Texas drilling program and initiate a presence in the Rockies.

EOG Resources Inc. said organic North American natural gas volumes will help it ramp up in the third quarter and grow even larger in the fourth quarter, with its programs here and in Trinidad generating “the expected results.” The Houston-based producer also reported that it tripled its income from a year ago and dropped its debt almost 7%.

“This is a unique time in the industry,” said CEO Mark G. Papa. “At a time of high commodity prices, EOG’s suite of drilling prospects in the U.S. onshore arena is increasing. EOG is pursuing attractive farm-in and lease and property acquisition opportunities that didn’t exist even a year ago.”

In Canada, a 1,000-well shallow natural gas drilling program planned for 2003 is under way, with current drilling activity more than double that of the first quarter. EOG anticipates Canadian natural gas production will increase during the third quarter with the most significant growth expected during the fourth quarter when the new wells are put on sales. Additional fourth quarter production growth also is expected from recent onshore natural gas drilling success.

Record production in the second quarter will benefit the last six months for Houston-based Swift Energy Co. , whose quarterly production was 13.3 Bcfe, which includes both domestic, at 8.5 Bcfe, and New Zealand, 4.8 Bcfe. This is an increase of 5% from the 12.7 Bcfe (8.9 Bcfe domestic and 3.8 Bcfe New Zealand) reported in 2Q02. Total production in the second quarter of 2003 also increased 3% sequentially, up from 12.9 Bcfe in 1Q03.

The all-time high numbers convinced Swift management to up capital spending the rest of the year about 15% to approximately $150 million, an increase of $20 million. The extra funds will be spent on additional development drilling, facility upgrades and initial 3-D seismic work in the Lake Washington Field located in Plaquemines Parish, LA, and E&P in New Zealand.

Fort Worth’s Range Resources Corp., a junior independent focused on the Permian, Midcontinent, Appalachian and Gulf Coast regions, said that in the first six months of 2003 its drilling program “exceeded expectations, causing second quarter production to grow faster than initially planned. John H. Pinkerton, president, said, “As a result, we anticipate production to grow at an increasing rate in the third and fourth quarters.”

Production rose 5% in the quarter to average 158 MMcfe/d, which included 117 MMcf of gas and 6,930 bbl of oil and liquids. Production increased 4.3 MMcfe/d, or 3% sequentially from the first quarter.

Meanwhile, Magnum Hunter Resources nearly doubled its income from a year ago, but actual production numbers were down after the loss of 32.4 MMcfe/d on asset sales. Core production grew 7%, but the Irving, TX-based independent reported a decline in actual boe production of 8% from 2Q02.

Production volumes totaled 18.5 Bcfe, or 203.5 MMcfe/d for the second quarter, compared with last year’s 222.2 MMcfe. Natural gas production was 68% of total equivalent production volumes for the second quarter of 2003. Daily average natural gas production stood at 137.6 MMcf, down from 147.6 MMcf a year ago. However, overall production was up for the first six months, standing at 196.6 MMcfe, compared with 184.04 MMcfe for the first half of 2002. CEO Gary Evans said that a “combination of recent new discoveries” in the Gulf of Mexico, which are awaiting facility installation this year, as well as two new wells per month added to its production base in southeastern New Mexico, will help the company “continue meaningful production gains throughout the remainder of 2003.”

Stone Energy Corp., headquartered in Lafayette, LA, reported a 5% drop in quarterly production, attributed to unscheduled repair work and Tropical Storm Bill. Its gas production, focused on the Gulf Coast and in the Rockies, stood at 23.8 Bcfe, compared with 25 Bcfe a year ago. The decline came from four producing wells, three since restored to production. Stone is currently producing at a net daily rate of approximately 278 MMcfe, 6% higher than the average daily rate in the second quarter. Gas production totaled 15.4 Bcf in the second quarter, down sequentially from 16.5 Bcf in the first quarter of 2003.

CEO D. Peter Canty said Stone had achieved “outstanding” drilling results in the first six months even though the company was behind schedule on production from “several important discoveries.” Still, he said, “I am delighted that we are well ahead of our annual internal goals for reserve replacement and finding cost based on what we have accomplished principally with the drill bit.”

Houston-based Edge Petroleum Corp.’s production numbers also were down from a year ago, with quarterly production of 1.8 Bcfe, averaging 19.3 MMcfe/d, compared with 2Q02’s 1.9 Bcfe, or 21.0 MMcfe/d. However, second quarter production increased 13% sequentially from the first quarter’s 1.5 Bcfe, or 17.2 MMcfe/d. The independent’s focus is the onshore Gulf Coast. Excluding the impact of any acquisitions, Edge also projects its third quarter production will increase almost 20% sequentially from the second quarter, and the fourth quarter will increase by 10% to 15% sequentially.

CFO Michael Long said that the company’s financial flexibility has allowed it to increase its exploitation of its core areas through increased drilling and focused acquisitions, “which we believe provide additional opportunities for drill bit growth.” Despite the “recent fall in natural gas prices, our growing production volumes should allow us to continue our aggressive drilling program during this time of attractive commodity prices and reasonable service costs.”

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