Most of the largest U.S. and global producers released first quarter earnings last week, reporting stupendous income almost across the board. However, according to preliminary estimates from Lehman Brothers, U.S. production rose only about 1.3% sequentially and decreased 2.5% from year-ago levels. Canadian production also appears to be down 2.1% sequentially and 2.5% from 1Q02.

Lehman analyst Thomas Driscoll said that the 1-4% North American gas volume decline and low storage levels this year will keep upward pressure on prices. In contrast to some other analysts and consultants, Driscoll predicts that full-year 2003 gas production will fall 1-3% in the United States and 2-4% in Canada.

Driscoll surveyed 49 North American producers, and 21 have reported results so far. According to the Lehman survey to date, the largest production declines were reported by the following companies: Swift Energy, off 36%; Murphy Oil, 29%; ATP Oil & Gas, 22%; Amerada Hess, 20%; Noble Energy, 16%; and El Paso Corp., 15%. The largest gains so far have been made by EnCana Corp., 80% (partially because of a merger); Pioneer Natural Resources Co., up 57%; Westport Resources, up 31%; Spinnaker, up 24%; and XTO Energy and Chesapeake Energy, both up 20%.

ExxonMobil Corp. said last week that it broke earnings records for the first quarter, more than tripling income from a year ago on higher commodity prices and accounting changes. However, its oil equivalent and liquids production were flat, while natural gas production increased slightly.

The Irving, TX-based super major on Thursday reported net income of $7.04 billion ($1.05 per share), compared with $2.09 billion (30 cents) for 1Q02. Earnings included a $500 million gain related to accounting changes plus another $1.7 billion from the transfer of shares of a German-based gas transmission company.

Excluding the one-time items, ExxonMobil still more than doubled its year-ago income, to stand at $4.8 billion (71 cents), and beat analysts’ estimate by 1 cent. Revenue was $63.8 billion, up 47% from last year’s $43.4 billion for the quarter. Earnings from U.S. upstream operations were $1.26 billion, up $811 million. Non-U.S. upstream earnings of $2.7 billion were $1.1 million higher than last year’s first quarter excluding a $1.7 billion German transmission Ruhrgas gain.

However, oil equivalent production was up only 2% from a year ago, excluding a national strike in Venezuela, lower entitlements caused by higher prices and changes in OPEC quotas. Liquids production of 2.5 million bbl/d was flat compared with a year ago. Higher production in Nigeria and Canada, and reduced OPEC quota restrictions in Abu Dhabi, were “more than offset by supply disruptions in Venezuela, lower entitlements and natural field declines in mature areas.”

ExxonMobil’s quarterly gas production increased to 12,048 MMcf/d, compared with 11,740 MMcf/d last year. The company said higher weather-related demand in Europe more than offset natural field decline in mature areas. U.S. gas production fell 5% to 2,369 MMcf/d from 2,492 MMcf/d. Exxon Mobil’s total North American natural gas production fell 7.2% to 3,300 MMcf/d in the first quarter from 3,556 MMcf/d in 1Q02.

Two more of the top majors, ChevronTexaco Corp. (CVX) and Royal Dutch Shell Group, reported record first quarter earnings on Friday, as high commodity prices continued to lead income higher. San Ramon, CA-based CVX reported it had tripled income from a year ago, reporting quarterly net income of $1.9 billion ($1.81 a share), compared with $725 million (68 cents) a year ago. Results included net charges of $196 million (18 cents) for accounting changes and special charges.

“The first quarter’s financial results were the best since our merger in late 2001,” said CEO Dave O’Reilly. He said the company’s “merger integration activities” were complete, helping CVX achieve “significant” savings. Its debt ratio has fallen to 32%.

However, despite record earnings, CVX reported that higher prices were partially offset by a decline in oil-equivalent production compared with last year. More than half of the net change resulted from lower production from its Indonesian operations. Production was also lower in the United States because of “normal field declines and production deemed uneconomic to restore following storm damages in the Gulf of Mexico last year.”

Net oil-equivalent production declined 6%, or about 66,000 bbl/d from a year ago, primarily due to normal field declines. The net liquids production component was down 7% to 577,000 bbl/d. Net natural gas production averaged 2.365 Bcf/d, down 6%. Included in the overall decline were approximately 10,000-to-15,000 boe/d of production that CVX decided not to restore following hurricane damage in the Gulf last summer.

Shell’s profit also surged on spiking crude prices during the Iraq war, the company said Friday, with quarterly earnings of $5.3 billion, up from $2.3 billion a year ago. Its crude averaged $31.50/bbl, up from $21.15 in Q102. Adjusted for current cost of inventories and special items, Shell surpassed a previous record, earning $3.9 billion ($1.13) for the quarter. Shell measures its profit on current cost of supplies, stripping out the effect of changing values or inventories. It does not provide net profit estimates.

Within its Exploration and Production segment, earnings were $2.78 billion, up from $1.45 billion a year ago. “The increase mainly reflected significantly higher hydrocarbon prices,” Shell said in a statement. However, “hydrocarbon production was the highest in recent history and increased 6% to 4.2 MMboe/d.” For the quarter, natural gas production available for sale was 10.6 Bcf/d, compared with 10.45 Bcf/d a year ago, a gain of 2%. Oil production was up 9% compared with a year ago.

Shell’s gas realizations overall were 61% higher than a year ago, and the largest increase came from U.S. operations, where they increased 191%. Oil realizations were up 53%. Shell’s liquefied natural gas (LNG) production and sales were up as well. “LNG sales remain strong and the 6% volume growth target up to 2005 has already been achieved through newly agreed long-term contracts,” the company said in a statement.

“We have a clear strategic direction for what we believe is the best portfolio in the sector and we continue to deliver value for our shareholders,” said Sir Philip Watts, chairman of the Committee of Managing Directors of the Royal Dutch/Shell Group. At the end of the first quarter, Shell’s debt level stood at 19%.

BP p.l.c. reported record first quarter results of $3,729 million compared with $1,582 million a year ago, a 136% increase, spurred by a large jump in exploration and production’s volumes and prices, and increases across the board in natural gas and power trading, oil refining and chemicals.

While announcing the “strong quarterly result,” BP Group Chief Executive Lord John Brown pointed to an uncertain future. “World economic activity has remained weak during the first quarter with few signs of an imminent recovery. Confidence has declined in the USA, Europe and more recently in parts of Asia.”

There is much uncertainty surrounding oil prices, he said, while in the U.S. natural gas prices “remain above oil parity in face of the challenge to refill gas storage while production continues to fall. The opening of new pipeline infrastructure later in the second quarter has the potential to narrow differentials in the Rockies.”

BP’s E&P totals were double those of a year ago, coming in at $4.9 billion, adjusted for special items, up from $2.4 billion in the first quarter of 2002.

BP cited the strong realizations for liquids, up $11.05/bbl, and natural gas, up $1.60/Mcf from a year ago. North American natural gas realizations lagged the increase in the Henry Hub marker price, as the effects of cold weather and low inventories were partly offset by an increase in regional differentials caused by pipeline constraints.

Nevertheless, BP collected an average of $5.27/Mcf in the U.S. in 1Q 2003, compared to $2.13/Mcf in 1Q 2002 and $3.31/Mcf in the fourth quarter of 2002. BP noted its prices compared unfavorably to the Henry Hub prices of $6.53, $2.35 and $3.99 respectively. U.S. gas production dropped from about 3.6 Bcf/d to 3.4 Bcf/d, despite a ramp up in production in the deepwater Gulf of Mexico.

For liquids BP collected an average $29.36/bbl for the quarter, compared to $17.26/bbl in 1Q 2002 and $23.28/bbl in 4Q 2002.

North American marketing margins were up significantly, driven by the prolonged cold weather in the Northeast and Midwest markets and an unusually large draw-down of gas in storage. Overall, BP’s marketing of gas, power and renewables brought in $194 million, compared to $111 million a year ago.

North American marketed gas volumes were 35% above the same period last year. The first quarter natural gas liquids result was up due to higher liquids prices and improved margins on winter propane sales, partly offset by the negative processing margins that resulted from gas prices increasing more than liquids prices. BP marketed 11.7 Bcf/d in the U.S. in 1Q 2003, compared to 8.7 Bcf/d in 1Q 2002 and 10.7 Bcf/d in 4Q 2002. Its natural gas liquids volumes in the U.S. were nearly even with the same quarter last year at 232 million b/d.

BP said its global LNG business continued to grow profitably as supply and shipping flexibility allowed the capture of additional business in Asia and the United States.

Measuring its progress against an operating plan unveiled last October, ConocoPhillips reported both net income and quarterly production up for the quarter. Upstream production averaged 1.65 MMboe/d, while downstream, the company ran at 92% of capacity.

“This is the first quarter in which we can measure our progress against the operating plan we presented in November,” said CEO Jim Mulva. “Our solid operating performance allowed us to secure the benefits of higher oil and gas prices and higher worldwide refining margins. These factors contributed to our debt reduction of $1.5 billion. Also contributing to our strong performance were business improvements resulting from progress made on implementing the synergy initiatives we incorporated into our 2003 operating plans.”

Within its exploration and production segment, ConocoPhillips saw improved results from a year ago not only because of higher commodity prices, but also increased production with the addition of Conoco’s upstream assets. In the United States, COP produced 44,000 bbl of natural gas liquids, up from 28,000 bbl a year ago. Of that total, 25,000 bbl was produced from Alaskan assets, while 19,000 bbl was from Lower 48 properties. Total worldwide NGL production was 67,000 bbl for the quarter compared with 37,000 bbl a year earlier.

For the quarter, ConocoPhillips produced 1,427 MMcf/d in the United States, with 189 MMcf/d from Alaska and 1,338 MMcf/d from the Lower 48. A year ago, gas production in the United States totaled 902 MMcf/d, with 168 MMcf/d from Alaska and 734 MMcf/d from Lower 48 assets. Total gas production worldwide for the quarter was 3,605 MMcf/d, compared with 1,349 MMcf/d. COP also had 130 million bbl/d of liquefied natural gas sales in the quarter, up from 117 million bbl a year ago.

Independent Kerr-McGee Corp. , based in Oklahoma City, said natural gas sales averaged 761 MMcf/d in the quarter, up 5% from a year ago. CEO Luke R. Corbett said the company completed $1 billion worth of noncore property sales, and said proceeds were used to repay debt and strengthen the balance sheet.

“Our 2003 exploratory drilling program already has seen success in the Gulf of Mexico, North Sea and China’s Bohai [Bay]” said Corbett. “Recent confirmation of the Constitution and Hornet fields in the Gulf is very encouraging, as we hope both become potential developments that could enhance production volumes in future years.”

At Noble Energy Inc. based in Houston, CEO Charles D. Davidson noted that high commodity prices had a strong “positive” impact for the company’s quarterly results, and its “domestic drilling and production programs are off to a strong start this year, resulting in growth in domestic production over the fourth quarter of 2002.”

Compared with a year earlier, Noble’s first quarter production volumes declined 1% to 101,235 boe/d from 102,416 boe/d. The decline in volumes was attributed to natural decline rates for domestic natural gas in the Gulf of Mexico and the onshore Gulf Coast region, partially offset by increased international volumes from China, Ecuador and Equatorial Guinea. However, the first quarter production was higher than that for the fourth quarter of 2002, with overall volumes increasing more than 4% from 96,898 boe/d.

“Domestic operations had a production increase of 0.5% compared to the fourth quarter 2002,” said Davidson. International volumes increased 14% compared with the fourth quarter, primarily because of increased crude oil volumes from production in China.

Meanwhile, Houston-based Cabot Oil & Gas Co. may be one of the few producers reporting income losses for the quarter because of a $54 million field impairment on its Kurten field and $6.8 million for accounting changes. Also, consistent with its guidance, Cabot’s production was off 3% compared with a year ago and also slightly off its fourth quarter production volumes.

Cabot reported quarterly equivalent production of 21.9 Bcfe, compared with 22.5 Bcfe a year ago. Total gas production was 17.2 Bcf compared with 18.4 Bcf a year ago.

“Operationally we continued to make progress through our accelerated development drilling program that yielded a 96% success rate and the Hayworth exploration project that is now producing 13 MMcfe/d (gross),” said CEO Dan O. Dinges. “We have also positioned the company for future opportunities in the Gulf Coast with our success at the recent offshore lease sale and in Canada with the first quarter opening of our office in Calgary.”

Magnum Hunter Resources Inc. saw its production up 30% while Chesapeake Energy gained 35% on the production side for the first quarter, with both of the gas-heavy independents growing reserves despite some industry forecasts to the contrary. Production volumes totaled 17.1 Bcfe, or 189.6 MMcfe/d. Natural gas production was 66% of total equivalent production volumes, and gas alone increased 25% over volumes reported a year ago. At Chesapeake, production reached 56.7 Bcfe, which was comprised of 50.4 Bcf (89%) and 1.06 million bbl. A year ago, its quarterly gas production was 36.9 Bcf. Average daily production at Chesapeake was 641 MMcfe, compared with 466 MMcfe/d a year ago.

However, with a decline rate in the offshore of about 40% (onshore it’s 20%), Magnum Hunter is considering the sale of some of its offshore assets. “We don’t want to be too focused in the Gulf,” said Evans. “We might sell some Gulf production for other opportunities and we are constantly looking at that. Our goal is really to…get the debt-to-capital under 60%,” helped by current commodity prices.

Actual production numbers in the first quarter were down 2% compared with the fourth quarter of 2002, but Magnum Hunter attributed the decline to asset sales in South Louisiana, which impacted one month of the fourth quarter’s production and all of the first quarter. There also was higher-than-expected recompletion activity in the Gulf of Mexico, which temporarily shut in production. With those operations now restored, the company’s current daily production is averaging around 200 MMcf/d, and it expects to maintain that figure through the year.

Meanwhile, Oklahoma City-based Chesapeake reported a production increase of 35% from a year ago and 15% from the fourth quarter. The first quarter of this year was Chesapeake’s seventh consecutive quarter of production growth. During the past seven quarters, Chesapeake’s production has increased 45%, for an average per quarter growth rate of 6%. Reserve growth during the first quarter was also significant. as 57 Bcfe was replaced by 660 Bcfe of new proved reserves (a 1,150% reserve replacement rate). Of that, 564 Bcfe came from acquisitions, 82 Bcfe from drilling and 14 Bcfe from positive revisions.

Pioneer Natural Resources reported a vast improvement in first quarter 2003 earnings over last year and a 45% growth in daily production over the last 12 months. Company officials predicted production would continue to grow at a 12% compounded annual rate over the next five years.

Pioneer’s gas sales in the first quarter averaged 447 MMcf/d, compared to 328 MMcf/d in the same quarter last year. Realized prices for oil and natural gas liquids for the first quarter were $25.82 and $22.00 per barrel, respectively, compared to $23.17 for oil and $10.73 for liquids in 1Q 2002. The realized price for gas was $4.06/Mcf, compared to $2.47/Mcf last year. North American gas prices averaged $4.68/Mcf in first quarter 2003.

The company said second quarter 2003 production is expected to average 150,000 to 165,000/boe/d. About 58% of production is natural gas.

©Copyright 2003 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.