A post-mortem of 3Q earnings suggests that U.S. natural gas production declined 2.8% sequentially and 4.2% year-over-year, according to a report issued on Monday by Southwest Securities.
The decline rate indicates that U.S. gas rig productivity is deteriorating at higher levels than previously expected, and “should conservatively result in year-over-year production declines of roughly 3% in both 2003 and 2004.”
The survey report, written by analyst John Gerdes, “confirmed our view that current $4.50-$5.00/MMBtu natural gas prices are necessary to rationalize sufficient demand in the face of production declines and support development of liquefied natural gas (LNG) contracts/facilities and pipelines required to meet rising gas import needs.” Southwest Securities surveyed 43 companies, which account for about 75% of the trend in U.S. gas production.
“Overall, our coverage universe outperformed our expectations principally due to better-than-expected production and commodity price realizations,” Gerdes said.
Of the top 12 independents in Southwest Securities survey, production actually was up 1% overall, while the top five integrated majors all reported gas production declines in the quarter. Production from the top five (BP, Exxon Mobil Corp., ChevronTexaco, ConocoPhillips, Unocal) declined 5.4% sequentially and 9.7% year-over-year, as “capital spending is diverted to projects such as LNG.”
Southwest Securities’ top 12 U.S. gas producers are Anadarko Petroleum Corp., Apache Corp., Burlington Resources, Chesapeake Energy, Cimarex, Devon Energy, EOG Resources, Magnum Hunter, Murphy Oil, Newfield Exploration, Pioneer Natural Resources and XTO Energy. The leading gas producers were Pioneer and XTO, up 5%, while Chesapeake was up 3% and Anadarko was up 2%. Meanwhile, Newfield and Apache both reported a 3% loss year-over-year.
Pioneer’s positive results, said Southwest Securities, were mostly because of strong performance from its Canyon Express and Falcon deepwater Gulf of Mexico (GOM) fields. XTO “surprised through continued superior development results” from its core areas of East Texas, Arkoma and San Juan basins. Apache “fell short…due to lower production from the Forties Field and the GOM,’ while Newfield was short because of “overly aggressive production estimates.”
Producers with a lot of gas production in Canada and the Rocky Mountains experienced tighter-than-expected gas price differentials to the Henry Hub, Gerdes said. Expected gas price realizations for EOG and Burlington Resources were exceeded by 7%. Differentials to a Henry Hub are expected to stabilize at third quarter levels. Mid Continent and Gulf Coast predominant producers Newfield and Chesapeake had slightly lower-than-expected realizations, Gerdes noted.
Meanwhile, CreditSights noted that the U.S. rig count lost three rigs in the first week of November to stand at 1,111, which is “still firmly above five-year seasonal highs,” said analyst Brian Gibbons. “The U.S. trend is driven largely by the natural gas rig count, which makes up the lion’s share of the rig count. Gas rigs declined four to 948 but remain above the seasonal highs of 824 reached in November 2000.
According to data, the U.S. land rig count fell to 987, down three rigs, while the GOM rig count was down one rig to 104, “where it has been all year,” Gibbons noted. The Canadian rig count, however, spiked 45 rigs to 423 “as the cold weather allowed more rigs to come on line. The increase leaves the Canadian rig count well above five-year seasonal highs of 379.
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