Invigorated by a strong second quarter, Texas-based MitchellEnergy said last week it is increasing its capital budget by $31million to total $167 million. Most of the increases will bededicated to escalating the company’s drilling program. With thisstepped-up activity, gas production is expected to reach the 250MMcf/d range by the end of the year. Mitchell said production atthat level would equal its January output, before gas prices felldramatically.

Mitchell reported second quarter net earnings of $26.8 millionor 54 cents/share for this year, compared to a loss of $4.2 millionor 9 cents/share in 2Q98. The 54 cents per share result is morethan four times the Wall Street consensus estimate of 13 cents pershare.

The company attributed the $24 million earnings increase tohigher commodity prices, lower operating and administrativeexpenses resulting from the staff reduction program implementedlast year and overall streamlining of operations, and an aggressive3-D seismic program in the prior year.

“While restrained capital spending over the past year did causeus to lose some headway in increasing gas production, we expect toquickly return to the levels achieved prior to the downturn inprices. We continue to have a drilling backlog of 1,000 developmentgas wells and will be drilling some of the exploratoryopportunities identified by earlier 3-D seismic surveys,” saidGeorge Mitchell, the company’s CEO.

Mitchell said a major reason for optimism is the company’s NGLproduction, which he believes will exceed 50,000 b/d by the fourthquarter of this year. “In Gas Services, natural gas liquids (NGL)production is expected to be approximately 47,000 barrels per dayin September with the recovery of gas processing margins, improvedoperating efficiencies at the Bridgeport Plant and new sources ofgas at other processing plants…..Combine our financial leverageto changes in NGL prices with these higher volumes and you canunderstand our optimism for the near term prospects for this veryimportant part of our business.” He added that a one penny pergallon increase in NGL prices adds $6 million to Mitchell’s annualoperating cash flows and 8 cents to annual earnings per share.

Another reason is the recent completion of a turnaround projectat Mitchell’s largest gas processing plant in Bridgeport, TX. Thework included de-bottlenecking gathering systems that supply theplant, implementing a new automated control system and constructinga new sales point on the outer edge of the system. Theimprovements, which took place in early August, are expected toimprove the plant’s efficiency 5%.

Mitchell, which is based in the Woodlands, TX, is one of thecountry’s largest independent producers of gas and natural gasliquids. In fiscal 1999 (ending Jan. 31, 1999), Mitchell produced94 Bcf of natural gas, 17.5 million barrels of liquid hydrocarbons(natural gas liquids, oil and condensate) and replaced 185 percentof its gas and oil production. At the end of 1998, Mitchell’sproved reserves totaled 867 Bcf of natural gas and 155 millionbarrels of liquid hydrocarbons.

John Norris

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