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Top U.S. Independents Surge Earnings-Wise, Most See Higher Production
Top U.S.-based independent Devon Energy Corp.‘s earnings and production surged in 2003 on higher commodity prices and its acquisition of Ocean Energy, the company said Thursday. Net earnings climbed more than 1,500%, assuring last year as the most profitable in Devon’s history.
The Oklahoma City-based company reported 2003 net earnings of $1.7 billion ($8.32/share), compared with 2002’s $104 million (61 cents). In the fourth quarter, Devon reported net earnings of $543 million ($2.32/share), compared with $84 million (52 cents) in 4Q2002.
Devon also scored highly in worldwide and domestic production. In the fourth quarter, U.S. natural gas production reached 160.9 Bcf, compared with 117.1 Bcf in 4Q2002. For the year, U.S. gas production also rose, to 589.3 Bcf, compared with 482.2 Bcf. Total gas production worldwide for the quarter was 232.2 Bcf, up from 185 Bcf, while for the year, it reached 863.3 Bcf, compared with 761.1 Bcf in 2002.
Combined sales of oil, gas and natural gas liquids increased 78% last year, which Devon attributed to rising production and higher prices. Devon increased production 21% to a record 228 MMboe. The increase came from the Ocean merger as well as growth from development projects in North America, West Africa and China. The average price realized for its 2003 natural gas production increased 61% to $4.51/Mcf, up from $2.80 in 2002. Average realized price for oil increased 18%, while natural gas liquids prices increased 33%.
Estimated proved oil and gas reserves at the end of 2003 were 2,089 MMboe, a 30% increase over year-end 2002 estimated proved reserves of 1,609 MMboe. Devon acquired 556 MMboe in 2003, predominately through its merger with Ocean, and it added another 188 MMboe through discoveries and extensions.
After scrutinizing its proved reserve numbers, Devon revised downward its estimated total reserves by 11 MMboe. Oil and gas produced decreased total proved reserves by 228 MMboe, and Devon also sold non-core properties in 2003 with associated proved reserves of 25 MMboe. Proved reserves, which represented 76% of proved developed reserves in 2003, include 661 million bbl of crude, 7.3 Tcf and 209 million bbl of natural gas liquids. At the end of 2002, Devon’s proved developed reserves represented 73% of total proved reserves.
Houston-based EOG Resources Inc. nearly doubled its earnings in the fourth quarter, while its annual income soared on higher commodity prices, strategic acquisitions and strong production growth in North America and Trinidad.
Quarterly net income was $71.8 million (61 cents/share), compared with $41.7 million (36 cents) for 4Q2002. For the year, net income reached $419.1 million ($3.60/share), significantly higher than 2002’s $76.1 million (65 cents).
Like other producers in recent weeks, EOG took special care to explain its production reserve picture, and to stress that they had been externally audited. At the end of 2003, EOG had approximately 5.2 Tcfe in reserves, a 13% increase (614 Bcfe) over 2002. Total production reserve replacement worldwide was 249%, and total finding costs were $1.28/Mcfe.
On drilling alone, EOG replaced 183% of its production base at a cost of $1.21/Mcfe. And, for the 16th consecutive year, EOG reported that its internal reserve estimates were within 5% of external reserve estimates prepared by an independent engineer. In North America, EOG achieved 259% reserve replacement at a total finding cost of $1.36/Mcfe. This finding cost is approximately 4% lower than in 2002 and below the three-year average of $1.44, EOG noted.
CEO Mark Papa noted that while EOG’s focus “remains North American gas, we see an increasing linkage between North American gas demand and Trinidad supply. We anticipate our existing position with the supply contracts to the two ammonia plants and the new methanol plant will continue to prove positive, giving our portfolio an even broader exposure to North American natural gas fundamentals, the cornerstone of our company.
Coming in above its estimate for oil and gas production last year, Pioneer Natural Resources also reported a new record for net income, with $410.6 million ($3.46/share), compared with $26.7 million (23 cents) in 2002. The Dallas-based independent’s production levels were up 36% year-over-year, and were “above the range,” according to CEO Scott Sheffield. He attributed the strong growth to Pioneer’s Falcon ramp-up in the Gulf of Mexico (GOM), as well as new production in Argentina, Africa and Tunisia.
Pioneer added 108.8 MMboe of proved reserves during 2003, replacing 193% of production at a finding cost of $6.64/boe. The company added 94.9 MMboe from extensions, discoveries and revisions and acquired 13.9 MMboe. Pioneer produced 56.5 MMboe last year, and said that no reserves were sold during the year.
Fourth quarter oil and gas sales averaged 167,690 boe/d. Oil sales averaged 43,574 bbl/d, while natural gas liquids sales averaged 22,889 bbl/d. Gas sales in the fourth quarter averaged 607 MMcf/d. North American gas prices averaged $4.06/Mcf. In 4Q2002, Pioneer reported oil sales of 31,248 bbl/d, natural gas liquids sales of 22,591 bbl/d and gas sales of 380 MMcf/d. Realized prices were $2.75/Mcf.
As of Dec. 31, 2003, total proved oil and gas reserves were 789.1 MMboe (4.7 Tcfe), including 422.8 million bbl of crude oil and natural gas liquids and 2.2 Tcf. Proved developed reserves account for approximately 65% of total proved reserves.
Houston-based Noble Energy Inc. attributed a 2% decrease in its year-over-year production figures last year to the sale of about 108 Bcfe, or 4% of 2002’s proved reserves. The independent, which expects to record total proved reserves of 2.7 Tcfe for 2003, said Tuesday that its reserve replacement rate was 118% for 2003 in global production from all sources except for sales. “Excluding the impact of property sales, total proved reserves would have increased nearly 2% year-on-year,” the company noted.
Noble operates throughout major basins in the United States including the Gulf of Mexico, as well as internationally, in Argentina, China, Ecuador, Equatorial Guinea, the Mediterranean Sea and the North Sea.
Reserve additions from extensions, discoveries and other additions totaled 217 Bcfe, revisions added 39 Bcfe and purchases accounted for another 6 Bcfe. Worldwide production totaled 222 Bcfe in 2003. Reserve replacement for international operations is estimated to be 265% of production for 2003; international production totaled 71 Bcfe in 2003.
Excluding sales, Noble’s domestic reserve replacement is estimated to be 48% of production, with an average finding and development cost of $3.26 per Mcfe. Domestic reserve additions from extensions, discoveries and other additions are expected to total 56 Bcfe, with revisions adding 11 Bcfe and purchases contributing 6 Bcfe. Domestic production totaled 151 Bcfe. Domestic onshore is expected to replace 118% of 2003 production, predominantly from the Gulf Coast drilling program.
Noble CEO Charles D. Davidson said several international projects have been completed and those capital commitments are “rapidly declining.” Moving forward, Davidson said that the company “is now in the early stages of a significant transformation to a company with enhanced financial flexibility, and our 2004 capital budget reflects that.”
Noble’s 2004 domestic capital budget is $270 million, with approximately two-thirds earmarked for the offshore division and one-third for the onshore division. Of the total domestic capital budget, approximately 55% is earmarked for exploration, and 45% for production and development. Average boe from continuing operations this year is expected to increase from 10-17% over 2003.
Along with its production estimates, Noble also reported that for 2003, net income was $78.0 million ($1.37/share). In the final quarter, Noble reported a net loss of $21.1 million (minus 37 cents/share).
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