Lower commodity prices sent earnings tumbling for both majors and independents in the third quarter, with the newly merged ChevronTexaco reporting that its net income from operations declined 27%. Apache Corp., a Houston-based independent, had record production in the third quarter, but also had its earnings decline. And across town, Anadarko Petroleum Corp. said reduced prices will cause it to slow the pace of its production schedule through this year and into next. “Now is not the time to grow gas production just for the sake of growth,” said Anadarko CEO Robert Allison.

San Francisco-based ChevronTexaco Corp. separated its earnings out for Chevron and Texaco, with Chevron reporting net income of $1.168 billion ($1.82 per share/diluted) for the third quarter for the former operations of Chevron Corp., compared with third quarter 2000 net income of $1.531 billion ($2.35 per share/diluted). Excluding net charges for special items in both quarters, earnings on an operational basis declined 27% to $1.199 billion ($1.86 per share/diluted).

The former Texaco Inc. reported an earnings drop in the quarter as well, with net income of $101 million ($0.19 per share-diluted), compared with net income of $798 million ($1.46 per share-diluted) in the year-ago period. Excluding net charges for special items in both quarters, earnings on an operational basis declined to $531 million ($0.98 per share-diluted) from $815 million ($1.49 per share-diluted).

Net special charges for Texaco in the 2001 third quarter included $393 million associated with the write-down of investments in U.S. downstream operations and partially offsetting tax benefits that will be realized upon completion of the divestiture. In connection with its completed merger on Oct. 9, the downstream investments were transferred into a trust for sale under a consent order approved by the Federal Trade Commission (see Daily GPI, Oct. 10).

Meanwhile, as expected, Anadarko, still the largest U.S. independent, also posted a third quarter loss after taking a large non-cash charge on its oil and gas assets in Western Canada. The producer reported a net loss of $270 million, or $1.08 per share, compared with net income of $247 million, or $1.03 per share, in the third quarter of 2000. Anadarko had warned about the writedown last week, noting that the charge was necessary to comply with U.S. accounting rules (see Daily GPI, Oct. 22).

Third quarter earnings, excluding the one-time charge, were $213 million or 81 cents per share, which surpassed analysts’ estimates of 69 cents (in a range of 57 cents to 90 cents). The Canada charge and similar but much smaller charges in Latin America amounted to $483 million or $1.81 per share after taxes.

Allison said that in response to relatively weak natural gas prices and higher service costs in recent months, Anadarko has slowed the pace of U.S. gas development drilling. “We’re certain these are the right strategies to protect shareholder value,” he said. The CEO said Anadarko’s fourth quarter production volumes will be flat compared with the third quarter, and that the company now expects full-year 2001 production to be about 202 MMboe.

In Apache’s third quarter announcement, Apache CEO Raymond Plank blasted what he called a “debacle” of “excessive speculation inherent in a gas market driven by paper trades” during the company’s third quarter earnings announcement, warning that the declining natural gas prices have caused North American drilling activity to plummet and threaten energy supplies. “Regrettably,” he said, “at a time when stability and rationality should be the call words, we find ourselves in the most volatile natural gas pricing environment in history.”

The Houston-based company actually saw its production reach record levels in the third quarter, with a 90,000 boe/d increase to 360,000 boe/d. However, lower fuel prices sent earnings tumbling, with fully diluted net income of $1.19 per common share, or $151.9 million, compared with $1.58 per common share, or $197.3 million, for the third quarter of 2000. The company realized an average price of $2.80/Mcf, down 24% from the prior-year period. Apache’s average oil price dropped 17% to $24.15/bbl. Apache’s per-share earnings, though, were 9 cents ahead of consensus analysts’ estimates. Basic net income was $1.22 per common share, compared with $1.64 in the year-earlier period.

Natural gas production increased to a record 1.19 Bcf/d in the third quarter, up 35% from the prior-year period and a slight increase from the second quarter. Apache produced 162,050 barrels of liquid hydrocarbons per day, up 30% from a year ago, with gains coming despite the second quarter sale of non-strategic properties that had a net production of 6,900 bbl/d and 18 MMcf/d. the year-earlier period.

“Declining natural gas prices are causing North American drilling activity to plummet, threatening energy supplies at a time when the nation’s security and economic strength are the two highest priorities throughout the free world, which looks to the United States and our allies for capability to prevail over terrorism,” said Plank. “As Americans, we want to contribute to our country’s energy security in every way we can. Regrettably, at a time when stability and rationality should be the call words, we find ourselves in the most volatile natural gas pricing environment in history.”

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