Denver-based Tom Brown Inc. scored well earnings-wise in the second quarter, but production-wise, the independent’s natural gas numbers were off about 8% compared with a year ago. Oil and gas production overall this year is forecast to be down from 2002 levels, but recent drilling success in the Rocky Mountains and a new acquisition should result in 14% growth from the first quarter through the end of the year, management said Friday.

Tom Brown reported net income of $21.4 million (53 cents a share), compared with $4.8 million (12 cents) in 2Q02. Most of the increase in earnings and discretionary cash flow was attributed to higher commodity prices. Natural gas production was down 9% in the period, however, to stand at 17 Bcf/d, compared with 18.7 Bcf/d for the same period a year ago. Equivalent production also was down 9%, to stand at 20.4 Bcfe/d, compared with 22.3 Bcfe/d for the same period of 2002.

“Our second quarter results were on track with our expectations due to the successful execution of our drilling programs,” said CEO Jim Lightner. “After a challenging year in 2002, when Rockies natural gas prices averaged less than $2.00 and a slow first quarter due to seasonal drilling restrictions, our development drilling projects are ramping up. This increased activity should result in approximately 14% growth in production from the first quarter through the fourth quarter of 2003,” which excludes the company’s recent acquisition of Matador Petroleum. The acquisition closed in June, and did not affect the quarter’s results.

In the first six months of the year, Tom Brown’s exploration and development capital expenditures totaled $73.7 million. However, through the rest of 2003, the company plans to spend between $245-$255 million, which includes approximately 70%-75% for development activities and the remainder for land acquisitions and exploration. Based upon this anticipated range of capital spending, full year production guidance is approximately 97-100 Bcfe/d, weighted 85% to natural gas.

Lightner said the company’s exploration drilling program “was very active in the first half of 2003, and we are encouraged with the results on a number of wells tested to date.” Besides the drilling success, the Matador Petroleum Corp. acquisition and the “opportunity it provides…will significantly add to the depth of our drilling portfolio.” Tom Brown acquired Matador in June, increasing its proved reserves by an estimated 269 Bcfe to approximately 1.02 Tcfe (see Daily GPI, June 30).

Second quarter production was impacted by reduced drilling activities, which began in the last half of 2002, “as a result of low natural gas prices in the Rocky Mountain region and the first quarter of 2003 seasonal drilling restrictions,” the company said. However, with higher commodity prices, gas, oil and natural gas liquids sales for the quarter totaled $78.5 million, an increase of $25.1 million, or 47%, from 2Q02.

The company’s marketing, trading, gathering and processing margins (revenues less combined costs) totaled $3.1 million compared to $4.3 million a year ago. Tom Brown blamed the drop on the spread between Rockies and Mid-Continent basis differentials, which were tighter in the second quarter compared with last year’s, resulting in a reduced margin on the firm transportation it held. The gathering and processing margin was $2.8 million, compared to $3.0 million because of reduced gathering volumes.

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