Declines

Plummeting gas prices took a toll on Burlington Resources’ first quarter net income, which tumbled to $48 million, or $0.24 per diluted share, compared to $336 million, or $1.56/share in the first quarter of 2001. Despite a 13% production increase to a record of 2,716 MMcfe/d, including volumes from recently acquired properties, natural gas price realizations averaged only $2.88/Mcf compared to $5.71 in the first quarter of 2001.

With almost 40 of the largest public producers reporting year-end 2001 reserve data — representing two-thirds of total domestic gas production — Salomon Smith Barney (SSB) determined in a report issued last week that only 101% (120% excluding revisions) of production was replaced by new reserves in 2001. By comparison, this same group replaced 131% of production (101% excluding revisions) in 2000. However, proved undeveloped natural gas reserves (PUDs) rose, which failed to add to the reserve base.

Houston-based international drilling contractor GlobalSantaFe reports that declines in the Gulf of Mexico’s Summary of Current Offshore Rig Economics, or SCORE, “have slowed considerably,” with the international SCORE near its highest level since early 1999. Overall, the SCORE for February 2002 was down from January by 1.1%. “The improving U.S. economy, which has strengthened U.S. natural gas prices, bodes well for the outlook in the Gulf of Mexico jackup market — the source of significant weakness over the last six to eight months,” said Sted Garber, GlobalSantaFe CEO. According to the latest data, the Gulf of Mexico SCORE for February was 29.7, down from 29.9 the month earlier. For the year, the SCORE is off 41.2%, and is down 45.5% over the past five years. Worldwide, the February SCORE was 44.7, down from 45.2 in January and 0.9% off from a year earlier. SCORE compares the profitability of current mobile offshore drilling rig dayrates to the profitability of dayrates in the 1980-81 peak of the offshore drilling cycle. In the 1980-81 period, when SCORE averaged 100%, new contract dayrates equaled the sum of daily cash operating costs plus approximately $700/day/million dollars invested. SCORE calculates the jackup and semisubmersible rig rates in the Gulf, the North Sea, West Africa and Southeast Asia.

The “steep” natural gas declines in the third quarter of 2001 are “unlikely” to be part of a trend, and so far have not been repeated in fourth quarter reports, according to Lehman Brothers latest exploration and production update. The analyst found that “early returns” from 45 of the largest producers “lead us to estimate that wellhead gas production fell 0.1-0.5%” compared to the third quarter. The analyst also expects a production decline this year to fall between 1.5-2.5%, and import growth and storage to “meet demand growth” in 2002.

Financial accounting worries and a wave of bad news from several energy companies added to the negative pressure in the larger stock market early Wednesday before investor sentiment took a turn for the better in the late afternoon.

The “steep” natural gas declines in the third quarter of 2001 are “unlikely” to be part of a trend, and so far have not been repeated in fourth quarter reports, according to Lehman Brothers latest exploration and production update. The analyst found that “early returns” from 45 of the largest producers “lead us to estimate that wellhead gas production fell 0.1-0.5%” compared to the third quarter. The analyst also expects a production decline this year to fall between 1.5-2.5%, and import growth and storage to “meet demand growth” in 2002.

Prices continued to drift lower again Thursday, but the declines were getting smaller and traders reported detecting hints of a strong possibility for a rebound today. Most of yesterday’s drops were around a dime or less, and scattered points such as intra-Alberta, Sumas, Texas Eastern-East Texas, the Florida and Algonquin citygates, Kern River and the California border-PG&E were flat to a tad higher.

This week’s price rally ran out of steam Thursday with nearly all points declining in double digits. Traders anticipated a moderation of the blast of winter that had invaded most of the nation except for the Southeast and Mid-Atlantic states, and also noted considerable weakness in the natural gas, crude oil and heating oil futures contracts.

Prices fell at all points Thursday, with the largest declines of about a quarter or more concentrated in the Rocky Mountains. It was hardly a surprise to encounter a weakening market, one trader said. A static screen had no influence on cash, he added, but the key factors were familiar to everyone: mild weather everywhere and essentially full storage approaching the winter.