Two of the top majors, BP plc and Marathon Oil Corp., and North America’s leading independent, EnCana Corp., released their second quarter earnings on Tuesday, and of the three, only EnCana showed natural gas production gains in the United States. BP’s oil and gas production was up, but only because of its new Russian output, while Marathon’s output was down, not just in the United States but also worldwide.
London-based BP’s oil and gas production grew by 18% year-over-year to 3.97 MMboe/d. However, all of the growth was in Russia, where the company completed an $8 billion deal to create the TNK-BP joint venture in late 2003. Production outside of Russia declined 2% in the first six months. BP blamed the decline on asset sales, lower seasonal natural gas production in the North Sea, as well as unplanned shutdowns in its Gulf of Mexico Mars field and a Trinidad field.
In the Gas, Power and Renewables segment, BP reported another strong quarter for gas sales, including a higher contribution from its natural gas liquids (NGL) business in North America. Gas sales volumes worldwide totaled 27.3 Bcf/d, compared with 24.28 Bcf/d for 2Q2003. In the United States, gas sales volumes totaled 12.47 Bcf/d, up from 10.441 Bcf/d a year earlier. NGL sales in the United States stood at 334,000 bbl/d compared to 289,000 bbl/d in 2Q2003.
Meanwhile, BP’s quarterly earnings were 35% higher because of higher commodity prices. BP posted a profit of $3.43 billion, up from $2.54 billion in 2Q2003. Pro forma profit, which excludes losses and gains, was $3.91 billion, up from $3.17 billion, which was slightly below Wall Street’s forecast of $4.14 billion. Quarterly sales were $71.2 billion, up from $54.8 billion a year ago.
Lord John Browne, BP’s CEO, said the world economy slowed in the second quarter, and noted that the “pace of economic activity seems to be easing in the U.S.” Browne also noted that U.S. gas supply is increasing “as imports grow, both from Canada and in the form of LNG [liquefied natural gas] and as onshore domestic production rises.” He said “summer temperatures and oil prices will be the keys to near-term gas prices.”
At Houston-based Marathon, total production worldwide was down at 338.8 MMboe/d, compared with 395.5 MMboe/d in 2Q2003. In the United States, net natural gas production fell to 641.1 MMcf/d from 707.4 MMcf/d; net liquid hydrocarbon production also fell to 87,200 bbl/d from 114,400 bbl/d in 2Q2003. Marathon blamed the lower production primarily on asset sales, increased administrative expenses and up-front costs related to outsourcing activities.
However, Marathon’s earnings, excluding one-time times and discontinued operations, rose 48% to $348 million ($1.01/share), compared with $248 million (80 cents/share) in 2Q2003. Wall Street had pegged 2Q2004 earnings at $1.05 a share.
Marathon also reported positives in its LNG shipment plans to the United States from Equatorial Guinea, which it said are on pace to begin in late 2007. The project is expected to be one of the lowest-cost LNG operations in the Atlantic basin with an all-in LNG operating, capital and feedstock cost of approximately $1/MMBtu at the loading flange of the LNG plant. Efforts also are underway to expand the utilization of the LNG facility “above and beyond” the contract to supply 3.4 million metric tons/year to BG Gas Marketing Ltd. for 17 years, the company said. And Marathon is seeking additional gas supply in the area that could lead to the development of a second LNG train.
Marathon estimates its 2004 production will average 360,000 boe/d, excluding the effect of any acquisitions or dispositions, compared to previous estimates of 365,000 boe/d. The output reduction, which was announced by Marathon in June, resulted from delays associated with the LNG expansion projects.
Calgary-based EnCana reported a 26% rise in production in the second quarter, fueled by its North American assets. However, EnCana’s output failed to overcome a 69% drop in profit, which the producer blamed on several non cash items that hurt bottom-line results.
Production showed strong gains, rising to 775,885 boe/d from 617,408 boe/d in 2Q2003. Natural gas production was up more than 23% in the quarter to average 3.04 Bcf/d, while oil and natural gas liquids sales rose 31% to 270,000 bbl/d. The gas increase was attributed to strong growth from Greater Sierra, Cutbank Ridge and Southern Plains shallow gas in Canada and Mamm Creek in the U.S. Rockies. Gas sales included production as of May 19 from its Denver-based Tom Brown acquisition, which added an average of 132 MMcf/d over the quarter.
“North American conventional reservoirs are generally experiencing increasing decline rates and decreasing reserve life — the combination of which creates a treadmill effect that makes profitable production growth difficult,” said CEO Gwyn Morgan. “EnCana’s strategy of investing in unconventional North American resource plays, while divesting of conventional assets, is expected to continually slow our treadmill and enable us to focus on strong return investments in long-life, low-decline assets.”
EnCana earned $250 million (54 cents/share), down from $807 million ($1.67) for the same period of 2003. Cash flow rose 12% to $1.13 billion ($2.43/share), up from $1.01 billion ($2.08). Earnings for the quarter were impacted by a change in accounting policy for unrealized hedging, and included an after-tax unrealized mark-to-market loss of $104 million related to hedges, as well as an after-tax unrealized $25 million loss because of changes in foreign exchange rates.
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