Soaring

Conservative exploration and development strategies andacquisitions, coupled with a growing demand for energy, enabled theworld’s largest oil and gas companies to reduce reserve replacementcosts 14% from a year ago, and dramatically increase net profits -by as much as 900%, according to an analysis by energy researchfirm John S. Herold Inc.

Conservative exploration and development strategies andacquisitions, coupled with a growing demand for energy, enabled theworld’s largest oil and gas companies to reduce reserve replacementcosts 14% from a year ago, and dramatically increase net profits— by as much as 900%, according to an analysis by energyresearch firm John S. Herold Inc.

With June natural gas futures soaring to a dizzying high of$4.50 last week, projections by Lehman Brothers and Salomon SmithBarney that spot prices will average $3.50 the rest of the yearseem a bit too conservative. A few weeks ago, those price levelswould have seemed astronomical.

In what traders called a purely screen-driven cash market,prices achieved double-digit increases at virtually every pointexcept for PG&E citygates, which rose by a little less than adime.

With commodity prices soaring, first quarter producer earningsare coming in at record levels. Vastar Resources reported a massive307% increase first-quarter 2000 net income. Income was tallied at$77.4 million ($0.78 per diluted share), the company’s thirdconsecutive quarterly record, compared to $19 million ($0.19 perdiluted share) in 1Q99. Vastar’s gas production was down nearly 10%to 1,054 MMcf/d, but realized gas prices were up 57 cents to $2.19on average. Crude and condensate production came in at 46.0thousand barrels per day (Mb/d) down from 46.7 Mb/d in the sameperiod last year, but realized oil prices rocketed to $24.73 from$11.16. And gas liquids production increased to 20.8 Mb/d from 9.2Mbd in 1Q99, while realized liquids prices soared to $19.11 from$8.10.

After a lengthy absence, “following the screen” was back invogue Friday among trader explanations for cash market movement.”How else are you going to justify rising Northeast prices for whatis normally a lower-demand weekend period?” asked a largeaggregator. A stormy front was moving beyond the East Coast intothe Atlantic, but the temperatures it left behind were still on themild side for December, he observed.

Cash prices rode a soaring October futures contract,stilll-strong power generation demand and the remote threat ofTropical Storm Floyd to higher levels again Thursday. Gains wereslowing down from Wednesday’s pace but ranged from 2-3 cents at afew points to about a dime at many of them.

Storms and screen-those were the two big “S” words thatdominated trader conversations Monday. Yet despite weekend lossesof South Texas production to Hurricane Bret, more tropicaldisturbances lining up in the Atlantic and a spectacular push bythe September Henry Hub futures contract to finish above $3, cashprices found themselves hard-pressed to do much more than standtheir ground. Except for some small upticks in the West, mostpoints saw little if any price movement.

Much of the U.S. bore some resemblance to a lit oven Thursday,and the Nymex screen was soaring like a space shuttle takeoff fromCape Canaveral. The two events combined to give strong support toeastern cash prices, which rose between a nickel and a dime atalmost every point. Gas demand was especially intense at theNortheast and Chicago citygates; both were up about a dime. TranscoZone 6-NYC deliveries topped all points with a high of $2.70.