U.S. and Canadian-based producers began unveiling their second quarter results last week, and while some were able to take advantage of higher commodity prices, the results so far are mixed. However, some the larger U.S.-focused independents with extra cash said they will use some of their extra cash to not only pay down debt, but to increase exploration and production (E&P) efforts in the last six months of the year.

Burlington Resources Inc. said its second quarter production grew 10% over a year ago, while its earnings increased 36% on higher commodity prices. The Houston-based producer reported estimated earnings of $379 million (96 cents/diluted share), compared with $278 million (69 cents) in 2Q2003. Total production in the period was 2.758 Bcfe, up from 2.502 Bcfe a year earlier.

Net cash increased to $802 million from $733 million, and discretionary cash flow increased to $825 million from $596 million in 2Q2003. In addition, at the end of the second quarter, Burlington’s balance sheet included more than $1.3 billion in cash and cash equivalents, a $282 million increase during the quarter.

The company’s natural gas production during the second quarter increased 1% to 1.899 Bcf/d from 1.879 Bcf/d in the prior year. Natural gas liquids (NGLs) production was 59,000 bbl/d, down from 63,100 bbl/d in 2Q2003. Crude oil production increased 107% to 84,200 bbl/d, compared with 40,700 bbl/d last year. Natural gas volume increases were achieved in the Gulf of Mexico Madden Field with completion of gathering line repairs, as well as in Canada’s Deep Basin and Whitecourt areas, South Louisiana, the Fort Worth Basin in Texas and the CLAM properties in the North Sea. The increases were partially offset by declines in Canada’s O’Chiese and Viking-Kinsella areas, and in the East Irish Sea.

Occidental Petroleum Corp. generated its highest-reported earnings ever in the second quarter on robust energy prices and record oil and natural gas production. The Los Angeles-based producer earned $581 million ($1.48/share), compared with $374 million (98 cents/share) in 2Q2003. Production averaged 574,000 boe/d in the quarter, 6% higher than a year ago.

The company’s oil and gas segment and core earnings were $814 million, compared with $637 million a year ago. The improvement in earnings reflected approximately $294 million from higher worldwide crude oil and gas prices and increased sales volumes; partially offset by higher operating expenses. The second quarter of 2003 also included $14 million in after-tax gains on asset sales.

Houston-based independent Pogo Producing Co. is gearing up to expand exploration in the deepwater Gulf of Mexico (GOM) through the end of the year, after the board of directors upped the capital expenditure budget by 36%. Every operating division of the company will share in the increased funding, but most of the money will be directed toward drilling of at least five new high-potential GOM exploration prospects.

The $150 million capital budget increase, which now totals $565 million for the year, includes $85 million more earmarked for additional drilling on the OCS. The budget will give Pogo money to prospect at least five exploratory wells targeting deeper than usual depths, ranging between 14,000-21,000 feet subsea. The exploration prospects have been developed with 3-D seismic information. In such projects, both the target sizes and expected costs will be larger.

Pogo’s new plans for the deepwater GOM were announced the same day it also released a less-than-stellar 2Q earnings report. However, while crude and liquid oil production was down worldwide, natural gas production grew 12% over a year ago, averaging 338.1 MMcf/d, compared with 301.7 MMcf/d. Quarterly earnings were off 18.2%, falling to $65.2 million ($1.02/share) from $79.7 million ($1.29) for the same period of 2003. The quarter’s results included a charge of 11 cents/share on the early redemption of outstanding notes, which are designed to save the company $11 million a year in interest. However, without the charge, Pogo was still below Wall Street’s earnings forecast of $1.33/share.

XTO Energy Inc.‘s second quarter natural gas production hit a record 803 MMcf/d, a 27% increase from 2Q2003’s 631 MMcf/d, the company reported Tuesday. The Fort Worth-based producer’s oil production was up 38%, also a record, to stand at 17,682 bbl/d, while natural gas liquids output was up 17% over a year ago to 7,463 bbl/d.

Earnings for the quarter were $99.1 million (41 cents/share), compared with $57.3 million (25 cents) for the same period of 2003. Second quarter 2004 earnings include the effects of stock-based incentive compensation of $37.7 million, of which $30.6 million is non-cash, and a special one-time bonus of $11.7 million relating to the company’s $1.4 billion of acquisitions from ChevronTexaco and ExxonMobil. Excluding these items, earnings were $134.6 million (55 cents/share), compared with adjusted earnings of $74.4 million (33 cents) in 2Q2003. Operating cash flow was a record $285.6 million, up 59% from a year earlier’s $179.6 million.

Canada’s largest integrated oil and natural gas company, Imperial Oil Ltd, failed to take advantage of record commodity prices in the second quarter, with profit falling 12%. Toronto-based Imperial, which dominates the Canada’s oil sands and crude production, earned C$454 million (C$1.26/share), off from 2Q2003’s C$514 million (C$1.38). A year ago, quarterly results included gains of C$110 million because of tax cuts and C$55 million from the impact of the strong Canadian dollar on Imperial’s U.S. debt.

Imperial, whose majority owner is ExxonMobil Corp., said upstream earnings fell 8.5% to C$321 million because of lower production at the company’s Cold Lake, AB heavy oil project.

Imperial management said that “significant progress” has been made on the Mackenzie Gas Project, which involves a consortium of producers that also include ConocoPhillips, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group. Imperial is the project lead and operator for the gas-gathering system and the proposed Mackenzie Valley Pipeline.

Canada’s number two integrated, Shell Canada, reported a huge earnings drop in its exploration and production (E&P) segment, but results were boosted with the ramp up of the Athabasca oil sands project in Alberta. Shell Canada, an arm of Royal Dutch/Shell Group, reported a 63% jump in its earnings for the second quarter following the start up of its Athabasca project. The company earned C$285 million (C$1.04/share), ahead of last year’s C$175 million (C64 cents). Most impressive were results from Shell’s oil sands division, which earned C$96 million in the quarter compared with a C$68 million loss in 2Q2003. Bitumen development from the project more than doubled in the quarter to 85,200 bbl/d.

However, Shell’s E&P segment earnings fell more than 50% to C$91 million, compared with C$200 million a year earlier. The company blamed a C$28 million writeoff of its unsuccessful Weymouth deepwater well off the Scotian coast, and the costs of giving up offshore licenses there. Shell also reported decreased volumes resulting from natural field decline and planned plant turnarounds.

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