The first quarter reports of North American producers rolled in last week, but there was hardly any good news from the group. Net income was nearly decimated at some companies compared with the free flowing cash of a year ago. And production levels, which are up at some of the smaller independents, also are down overall, with analysts predicting a drop year-over-year of 4% — and a nearly 3% drop from the fourth quarter.

Based on first quarter reports for 23 companies that produce 40% of U.S. gas volumes, or 16,226 MMcf/d, production in the first quarter will show a 4% decrease from a year earlier and a 2.3-2.9% decrease sequentially, according to Lehman Brothers analyst Thomas Driscoll. The analyst now forecasts U.S. gas production will fall 3-3.5% this year.

Twenty-three of 44 companies in Lehman’s production survey have already reported that production was down 3.3% sequentially and 7.9% over the same period a year ago, he said. Lehman’s larger 44-company survey, which will include BP, which is reporting Tuesday, and Royal Dutch/Shell, reporting Thursday, will then total 52% of U.S. gas volume. With their reports, Driscoll expects to see a 3% decrease in reported gas volumes versus the fourth quarter and a 4% decline versus first quarter ’01 levels. The first quarter losses follow the loss of 0.6% in volume reported in the final quarter of 2001.

“If the remaining companies ‘miss’ our estimates by 1.6%, our 44-company survey would show a decline of 2.7% sequentially and a 4.6% decrease over Q1 ’01 levels,” said Driscoll. “We estimate that this 2.7% decline equates to a 2.9% decline in ‘wet’ or wellhead volume.” Adjusting for natural gas liquids production (NGL), which “shrinks” the volume, could lead to lower reported “dry” gas volumes, he said. “However, in the winter of 2001, producers had an economic incentive to leave NGLs in the gas stream, which inflated Q1 ’01 reported volumes,” said Driscoll. Frank Bracken, an analyst with Jefferies & Co. also said production results were “poor” in the first quarter. His survey, which represents 55% of U.S. gas volumes, (six of the top 10 U.S. gas producers and 26 of the top 100), indicate gas volumes are down 2.3% year-over-year and 2.1% from the fourth quarter.

Based on the basis net of acquisitions, Bracken said the results are even worse: gas production is down 7.4% year-over-year and 3.2% sequentially. Also, excluding deepwater Gulf of Mexico volumes, conventional and coalbed methane production is declining 9% year-over-year and 3.6% sequentially. Deepwater drilling was excluded to review production sources that were “actually elastic to changes in the gas rig count.”

Analysts at UBS Warburg expect that the top U.S. oil and gas companies’ quarterly earnings will drop about 63% from the first quarter of 2001, which would be the lowest quarterly earnings for the group since the second quarter of 1999. Year-on-year, UBS expects individual company earnings to fall from 48% to as much as 97%, with the largest declines in companies that are heavily leveraged in refining and marketing margins and natural gas and crude oil prices.

Exploration and production earnings for the top majors also are expected to be off 56% from last year, said UBS, reflecting “the sharp decline in North American natural gas realizations” from the first quarter of 2001, and lower crude oil prices.

Here’s a capsule of earnings and production reports that were released last week:

Amerada Hess Corp.: It reported first quarter earnings were 58% lower than last year, with net income of $141 million ($1.58), down from $337 million ( $3.79) for the first quarter ’01. Excluding asset sales, operating earnings amounted to $113 million in the first quarter of 2002. The net gain from asset sales in the first quarter of 2002 includes the sale of Hess’ energy marketing business in the United Kingdom and the disposition of several small UK oil and gas fields. Oil and gas production was 460,000 boe/d for the first quarter, an increase of 14% over last year.

Anadarko Petroleum Corp.: The company reported higher production, but sharply lower net income for the first quarter. It reported income of $88 million (34 cents), compared with $656 million ($2.50) a year earlier. Cash flow from operations totaled $399 million ($1.61), compared with $1.12 billion ($4.47 basic) a year ago. Anadarko currently is running 35 operated drilling rigs in North America and 21 non-operated rigs — roughly half the activity level during the first quarter of 2001, when the company had 82 operated and 24 non-operated rigs running.

Apache Corp.: Natural gas production for the first three months moved up 11% from the same time last year, and overall, total production increased 19% to approximately 350,300 boe/d. However, first quarter net income fell dramatically to $75.8 million (55 cents), compared with $277.3 million ($1.95) a year earlier. Cash from operations totaled $289.2 million, compared with $557 million in the year-earlier period.

ChevronTexaco: Net income was $725 million (68 cents a share) for the first quarter, compared with $2.433 billion ($2.29) a year ago. Excluding special items and merger-related expenses in both periods, operating earnings were $931 million (88 cents), down from $2.454 billion ($2.32). U.S. exploration and production earnings of $304 million for the first quarter 2002 declined by slightly more than $1 billion compared with last year’s quarter, partially offset by lower operating expenses. Net liquids production increased 2% to 619,000 bbl/d as a result of higher production in deepwater Gulf of Mexico. Net natural gas production averaged 2.509 Bcf/d, down 13% from a year ago.

Conoco: Set for a merger with Phillips Petroleum Co. by the third quarter of this year, CEO Archie W. Dunham called the first three months of ’02, “the most difficult quarter we’ve experienced in four years.” The company reported net income down 84% to $104 million (16 cents), compared with $653 million ($1.03) a year earlier. Conoco recognized a 16-cent per share current period, non-cash charge for the mark-to-market portion of crude oil and natural gas hedges associated with its Gulf Canada acquisition. Revenue for the quarter was $8 billion, down 25% from $10.7 billion last year. Gulf Canada contributed a 26% increase in production in the first quarter.

Exxon-Mobil: Earnings were eight cents short of First Call/Thomson Financial analysts’ expectations, with net income of $2.09 billion (30 cents a share), compared with first quarter earnings for 2001 of $5 billion (71 cents). Revenue declined 24% to $43.5 billion from $57.3 billion. Earnings from oil and natural gas production were also down 47%.

Houston Exploration Co.: There was a record 9% jump in production levels for the quarter from a year ago to 24 Bcfe, but net income was down 47%, standing at $12.5 million (41 cents) compared with $47.3 million ($1.55) a year ago. Cash flow totaled $56.8 million ($1.84), compared with $101.9 million ($3.34) for ’01’s first quarter.

Kerr-McGee: First quarter net income almost disappeared compared with a year ago, taking a 98% dive as commodity prices dropped. Net income fell to $5.5 million (5 cents) from $335 million ($3.21) in the first quarter of ’01. Operating profit, excluding special items, fell to $122 million from $449 million. First quarter operating profit, excluding special items, was $122 million, down 73% from the $449 million reported for the ’01 first quarter, and exploration and production profit dropped 69% on lower prices. Average daily oil production, excluding discontinued operations was 211,400 bbl/d, compared with 199,500 bbl/d a year earlier. However, daily gas sales jumped, averaging 728 MMcf, up 42% from ’01’s first quarter.

Marathon Oil: Earnings fell 87%, with its fuels unit reporting its first loss since it was started four years ago. Net income for the quarter stood at $67 million (22 cents a share), down from $509 million ($1.62) a year ago. Revenue was off 26% to $6.45 billion from $8.72 billion in the first quarter of 2001. Exploration and production earnings were down 73%, with profit of $165 million. Oil and gas production averaged 424,000 boe/d.

Murphy Oil Corp.: Net income dropped 97% in the first quarter to $2.53 million (6 cents) from $97.8 million ($2.16) for the same period of ’01. Revenue fell 30% to $829.9 million from $1.19 million. First quarter ’02 oil production and natural gas sales volumes were both quarterly records, with crude oil and gas liquids production averaging 74,292 bbl/d in the first three months, an increase of 8% from a year ago. Higher oil production was related to start up of the Terra Nova field offshore eastern Canada. The company’s natural gas sales averaged 309 MMcf/d in the first quarter, up 24% from a year ago, related to higher gas production at the Ladyfern field in western Canada that “more than offset lower production in the Gulf of Mexico.”

Newfield Exploration Co.: Net income in the quarter was $20 million (44 cents) before the effect of a non-cash charge related to accounting changes. After the charge, net income was $16.3 million (37 cents), compared to $64.2 million ($1.34) a year ago. Revenues for the quarter were $148 million compared with $209.3 in ’01. Total production was up 10% over last year to stand at 43.8 Bcfe, or an average of 487 MMcfe/d. Gas production volumes were lower during the first quarter because of the company’s decision to curtail nearly 1 Bcfe of unhedged production (approximately 30 MMcf/d) in February in response to low natural gas prices. Without the curtailment, volumes would have increased 13% over the prior period.

Noble Affiliates Inc.: It had a net loss for the first quarter of $15 million, or (26 cents a share), versus first quarter 2001 net income of $106 million ($1.88). Discretionary cash flow for the 2002 first quarter was $91 million ($1.60), versus cash flow of $216 million, ($3.84) for the same period a year ago. The decrease in natural gas prices, said Noble, was partially offset by a growth in production levels. Total production, on a boe basis, increased more than 5.5% from the same quarter a year ago, averaging 102,416 boe/d.

Ocean Energy Inc.” Production was at the same level as the first quarter of ’01, resulting when the company reduced its capital spending program in the second half of the year. First quarter earnings were $20 million (11 cents) on revenues of $220 million, compared with net income of $123 million (70 cents) on revenues of $403 million for the first quarter of ’01. Cash flow was $123 million (68 cents), compared to $292 million ($1.65) a year earlier. Average daily production for the quarter was 143 thousand boe, but the company noted that production increased toward the end of March, which should result in increased average production throughout the year.

Pioneer Natural Resources: Facing problems with its Argentina-based assets this quarter, it reported a net loss of $2 million (2 cents a share), including a non-cash $5.4 million (5 cent) charge for the remeasurement of the Argentine peso denominated net monetary assets. Adjusted earnings were $3.4 million (3 cents), compared with net income of $67.9 million (68 cents) in the same period of 2001. The first quarter of ’01 included a gain on asset sales of $7.3 million (7 cents), and an $8.8 million (9 cents) mark-to-market charge related to derivatives not treated as hedges. Cash flow in the first quarter of this year was $50 million, compared with $131.7 million a year earlier. Pioneer issued 11.5 million new shares of common stock under a public offering at $21.50 per share last week, resulting in approximately $236 million of net proceeds to the company, which it will use to purchase additional interest in Gulf of Mexico prospects and in a gathering system in a West Panhandle gas field.

Pogo Producing Co.: Earnings fell to $9.06 million (17 cents a share), compared with $39.9 million a year ago. Revenues reported for the quarter were $142.9 million, compared with $169.8 million in 2001. First quarter natural gas production averaged 264 MMcf/d, a 44% rise from 182.7 MMcf/d produced in the same quarter last year. Even more dramatic, first quarter production of liquid hydrocarbons, including crude oil, condensate and plant products, rose 65% to 47,175 bbl/d in the quarter, compared with 28,538 bbl/d in 2001.

Phillips: The company had a first quarter net operating loss (excluding special items) of $7 million (2 cents), compared with net income of $502 million ($1.95) for the same period of ’01. Including special items, the company had a loss of $25 million (7 cents), compared with net income of $516 million ($2.01). Total revenues were $9.4 billion, versus $5.3 billion a year ago. The first quarter was negatively affected by $18 million in special items, including charges for a property impairment and an insurance settlement. Worldwide natural gas production was essentially flat; Lower 48 production grew 2%.

XTO Energy Inc.: It had record first quarter gas production of 464 MMcf/d, a 21% increase from the first quarter ’01, coming from the company’s development activity in East Texas and the Arkoma and San Juan basins. However, earnings for the quarter were down, with XTO reporting $49 million (40 cents), compared with $91 million (76 cents) a year ago. Cash flow from operations was $129.5 million ($1.05), compared with $159.4 million ($1.33) a year ago.

EnCana Corp.: The newly merged company formed from PanCanadian Energy Corp. and Alberta Energy Co. Ltd. reported first quarter earnings of C$186 million, with cash flow of C$765 million. Oil and gas sales increased by 12% to 700,846 boe/d, compared to ’01’s first quarter. Natural gas sales averaged 2.7 Bcf/d, up 21% over the same period a year ago. Oil and natural gas liquids sales averaged 246,846 bbl/d, down 1%.

Imperial Oil Ltd.: The Canadian arm of Exxon Mobil reported first quarter profit dropped 69%, with net earnings of C$106 million (C28 cents a share), compared with C$340 million or (C85 cents) during the first quarter of 2001. Total revenues were C$3,485 million in the first quarter, compared with C$4,722 million a year ago. Gross production of natural gas for was 557 MMcf/d, compared with 621 MMcf/d a year earlier, with the decrease coming from lower production at Imperial’s Bonnie Glen and Golden Spike in Alberta. Total production of crude oil and natural gas liquids (NGLs) decreased to 238 thousand bbl/d in the first quarter from 275 thousand bbl/d in 2001.

Petro-Canada: It had earnings of C$88 million (34 cents) for the quarter, down from C$282 million ($1.05) a year ago. Cash flow was C$287 million (C$1.07) versus C$629 million (C$2.34) in 2001. However, CEO Ron Brenneman said growth in the upstream business “advanced significantly” during the first three months of the year, boosted by its Terra Nova development off the East Coast of Canada.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.