Some of the largest North American independents — U.S. and Canadian — are reporting not only stronger profits, but also respectable third quarter increases in natural gas production over a year ago.

Devon Energy Corp.‘s production growth is expected to remain on a fast track through the rest of the year, but its oil and natural gas output hit a slight bump when Hurricane Ivan crossed the Gulf of Mexico. Its production dropped 2% in the third quarter compared to the same period last year.

Devon, headquartered in Oklahoma City, achieved a 26% increase in earnings in the quarter on high commodity prices, reporting $517 million ($2.12/share), compared with $412 million ($1.76) in 3Q2003. Total gas production was 222.1 Bcf, compared with 234.7 Bcf a year earlier. Combined oil, gas and natural gas liquids production was 679,000 boe/d in 3Q2004, 2% below the 689,000 boe/d a year ago. Hurricanes in the Gulf of Mexico reduced production by about 4,600 boe/d, the company said. Approximately 8,800 boe/d of Devon’s production remains shut-in due to the storm, the company said Thursday.

Total U.S. gas output in the quarter was 150 Bcf, down from 162.7 Bcf in 3Q2003. In its U.S. onshore regions, Devon reported 120.8 Bcf, down from 126.3 Bcf, while U.S. offshore rates were 29.2 Bcf, down from 36.4 Bcf. Canadian output was flat at 70.1 Bcf. Daily U.S. gas production was 1.6 Bcf/d, down from 1.77 Bcf/d in 3Q2003, while daily Canadian production was slightly up at 762.2 Bcf/d from 761.5 Bcf/d.

In a research note, Lehman Brothers’ analyst Thomas Driscoll said that Devon’s 3Q production, although lower than a year earlier, was still 0.4% higher than his estimate, “even with a 4,600 boe/d impact from Hurricane Ivan. Without weather-related issues, production would have been higher than our estimate by 1.1%, and the market is likely to view this as a modest positive.”

Meanwhile, independent Vintage Petroleum Inc., which focuses its production onshore, reported a 36% increase in gas output, giving credit to strong-than-expected success in U.S. exploitation. Tulsa-based Vintage reported quarterly net earnings of $32.2 million (49 cents/share), compared with $11.8 million (18 cents) in 3Q2003. Income for the quarter was below analysts’ consensus view of 63 cents/share because of higher-than-estimated exploration expenses and a higher income tax rate.

Continued strong organic growth resulted in 3Q production of 7.3 million boe, a 6% increase over the 6.8 million boe reported in 3Q2003, and a 7% sequential increase over the second quarter. Total production from continuing operations for the quarter (excluding Canada) was 6.4 million boe, or 10% above 5.8 million boe reported in 3Q2003. The production increase was driven by a 36% increase in gas output, while oil production was relatively flat.

Canada’s production numbers were excluded from continuing operations numbers because Vintage agreed to sell its poorly performing assets in September (see NGI, Sept. 27).

“Total gas production continues to be significantly ahead of the company’s expectations to date as a result of exploitation successes in the U.S. more than offsetting temporary production interruptions in Argentina,” the company said in a statement. For 2004, Vintage increased its production guidance slightly to 27.6 million boe from 27.5 million boe.

Lehman’s Driscoll said Vintage’s long-term investors “are likely to view the increase in 2004 production guidance and strong 3Q2004 production performance as a positive and a reversal of the disappointing production guidance trends of 2003. The sale of Canada, and Vintage’s renewed focus on domestic exploitation activities is bearing fruit in the former of higher production (pro forma for Canada) trends.”

Driscoll said the increase in 2004 production guidance “is particularly impressive since it comes despite a 0.2 million boe impact from temporary production shut-ins in Argentina during 3Q2004, and the loss of roughly 0.3 million boe as a result of the sale of Canadian assets. The increased production guidance reflects the success that Vintage is having with its lower risk exploitation activities in the U.S.”

Calgary-based Canadian Natural Resources Ltd. (CNR) reported its total 3Q production, which includes gas, crude oil and natural gas liquids (NGLs), was up 15% over a year ago, and up 2% sequentially over the second quarter. Total gas production increased 8% over the previous year.

CNR’s North American averaged 1,336 MMcf/d, or 107 MMcf/d higher than a year ago, and as expected, 4% lower than 2Q2004. Approximately half of the increase from the prior year reflects organic growth with the remainder representing accretive property acquisitions.

“This strong growth is comprised of approximately 5% organic growth with the remainder being comprised of property acquisitions,” the company said. “As expected, 3Q production decreases from 2Q2004 reflect seasonality caused by a first quarter emphasis on drilling natural gas in winter-access only areas compared with significantly smaller spring and summer drilling programs.”

CNR achieved a net profit of C$311 million (C75 cents/share), compared with C$201 million (C97 cents) a year ago. It also achieved record cash flow of C$1 billion.

Talisman Energy Inc., also headquartered in Calgary, posted slightly lower earnings in the quarter and slightly higher cash flow compared with a year ago. However, production averaged 429,000 boe, up 13% over a year ago, but down 2% sequentially from the second quarter. The sequential drop was blamed on planned plant turnarounds for maintenance in Western Canada and the North Sea.

Talisman’s North American gas production increased for the fourth consecutive quarter, averaging 892 MMcf/d, compared with 853 MMcf/d in 3Q2003. Total gas production averaged 1,263 MMcf/d, up from 1,064 MMcf/d a year ago. The company said it still expects production for the full year to be near the midpoint of its guidance range of 420,000-450,000 boe/d.

Net income of C$122 million (C31 cents/share) was down from C$128 million (C31 cents). Cash flow rose to C$706 million (C$1.84) from C$640 million (C$1.66).

“Although the net income number was affected by a number of non-operational factors during the quarter, our underlying performance remains strong and we achieved a number of strategic milestones,” said CEO Jim Buckee. “The company grew its North American gas volumes for the fourth consecutive quarter, driven by a very successful drilling program and highlighted by a number of high impact wells.”

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