Despite record results in drilling and earnings in the quarter just completed, Seneca Resources, the E&P subsidiary of National Fuel Gas (NFG), is changing its strategy over the next several years, gradually decreasing drilling in the Gulf of Mexico and “moving our drilling dollars to California, Canada and Appalachia,” Seneca President James A. Beck said.

Going forward Seneca will be drilling “a great many smaller wells onshore, continuing our efforts to stabilize production” with “low risk, strong potential, development wells.” While the company will still do some drilling in the Gulf in the next couple years, “we’re beginning a gradual transition out of the Gulf before the 30% decline hits,” Beck said. In the next couple years the company will have increased production in other areas “to offset large declines everybody is seeing in the Gulf of Mexico.”

Reporting on its third quarter, which ended June 30, Seneca recorded net income of $19.9 million, a 98% increase from the third quarter in 2000. Seneca contributed 50 cents per basic share to Buffalo, NY-based National Fuel’s 93 cents per share results. National Fuel’s third quarter earnings totaled $36.6 million, up from earnings of $9.1 million for the quarter ended June 30, 2000.

Despite the record returns, the company’s stock has languished, along with that of other energy companies in recent months. “No good performance goes unpunished,” NFG Chairman Bernard J. Kennedy told investment analysts in a conference call. However, “the current phenomena will pass and common sense will prevail.” The company is expected to return record earnings of $4.25 to $4.35 per share for fiscal 2001, which ends Sept. 30.

National Fuel President Phil Ackerman said natural gas prices had fallen “faster than I expected,” and despite the company’s hedging activities, they were revising their 2002 outlook to about $4.10 to $4.20 per share. Production is expected to be about 88 Bcfe in 2001 and 100 Bcfe in 2002. The company’s production is about 50-50 oil and gas. Previously NFG had expected to see returns in the $4.75-4.85 area in 2002. NFG is striving for “strength and stability,” Ackerman said, and would use earnings to increase dividends and pay down debt.

NFG expects to see gas prices “around $3.00 for most of 2002.” The company has hedged at an average price of $3.80, company officials said.

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