Weaker

British energy giant BP said Tuesday it expects to report a decline in fourth-quarter earnings because of weaker-than-expected performance by its refining and marketing division. The news came a day after BP announced $1.3 billion in asset sales in the North Sea and the Gulf of Mexico. In a brief interim update on fourth quarter financial and operating statistics, BP said U.S. gas price realizations are expected to rise slightly ahead of the change in Henry Hub prices. However, the overall refining, marketing and trading environment deteriorated relative to the third quarter of 2002. Liquids realizations are expected to be broadly in line with last quarter. But chemicals margins are expected to weaken as prices lagged the rise in feedstock costs. Demand remains sluggish, BP said. Hydrocarbon production is expected to be up about 3% and 1.5% for the full year and 4Q, respectively, compared with 2001. North American NGL margins are expected to be slightly lower than in the third quarter. Retail margins are expected to be down from 3Q02 due to seasonal declines compounded by significant crude price increases at year-end. All these financial data, however, are subject to change and may differ considerably from the final numbers that will be reported on Feb.11, BP said.

Natural gas wellhead deliverability is weaker than many observers realize, and the natural gas futures strip is undervalued, according to Kevin Petak, director at Arlington, VA-based consulting firm Energy and Environmental Analysis Inc. (EEA). Petak believes $5 Henry Hub gas prices will arrive very soon — most likely in January or February — and prices should average $5.35 next year.

Natural gas wellhead deliverability is weaker than many observers realize and the natural gas futures strip is undervalued, according to Kevin Petak, director at Arlington, VA-based consulting firm Energy and Environmental Analysis Inc. (EEA).

Resisting the temptation to drop lower in concert with weaker cash prices, natural gas futures rebounded off early session lows Monday as traders bought contracts at levels that, in weeks to come, might prove to be bargains. The October contract finished at $3.399, up 13.4 cents for the session and within striking distance of last week’s $3.445 high. Meanwhile, Henry Hub cash prices for September dropped 14 cents to average $3.24 on the day.

Cool breezy weather across much of the nation, new predictions of a weak hurricane season and expectations of another relatively large storage injection despite last week’s record heat were some of the major fundamental factors that helped the bears pressure the September gas futures contract down 5.6 cents Wednesday to $2.660.

Conoco: The Houston-based top five major said that weaker worldwide crude oil and North American natural gas prices resulted in lower earnings for the third quarter. Net income before special items totaled $404 million, or 64 cents per diluted share, 23% below last year’s record third quarter of $523 million, or 83 cents per share. Revenue for the quarter amounted to $9.7 billion, down 9% from $10.7 billion last year on lower prices for refined products, crude oil and natural gas. For the first nine months, net income before special items totaled a record $1.6 billion, or $2.56 per share, up 18% versus $1.4 billion, or $2.17 per share, earned last year. Revenue for the first three quarters exceeded $30.7 billion, up 6% from $28.9 billion last year. Special items during the quarter totaled $147 million, or 24 cents per share,attributed mostly with its Gulf Canada acquisition and related actions to reduce debt (see Daily GPI, May 30). These included a net charge of $44 million for assets sold or held for sale; a $24 million premium paid for the early retirement of Gulf Canada debt; and a $38 million currency loss. Additionally, a $41 million charge resulted from an adverse ruling on a patent dispute. Including special items, net income totaled $257 million, or 40 cents per share, down from $497 million, or 79 cents per share, earned during the same period last year. Year-to-date net income was $1.5 billion, up 8% from $1.4 billion in 2000. For complete financial details, visit the web site at www.conoco.com.

Weak natural gas prices in the third quarter have so far moved Alberta Energy Co. Ltd. to escalate a maintenance program and reduce its produced gas volumes by about 50 MMcf/d. Dominion and Occidental Petroleum Corp. also reported their third quarter earnings last week, and like many of their peers, both had slight production declines.

Weak natural gas prices in the third quarter have so far moved Alberta Energy Co. Ltd. to escalate a maintenance program and reduce its produced gas volumes by about 50 MMcf/d. At Burlington Resources Inc., total third quarter production actually increased 2%, but analysts noted on Thursday that the Houston-based producer probably will be an exception to the rule for the next three quarters — as producers face the likelihood of lower earnings until energy prices rebound.

The October aftermarket was dividing along geographical lines as it began Friday. Eastern points fell off sharply from both first-of-month indexes and end-of-September levels. However, except for mild Permian/Waha softness, the West was realizing gains in both of the aforementioned cases. Sources attributed the relative western firmness largely to the region’s having a near-monopoly on any hot weather remaining in the U.S.