Despite record fourth-quarter production, Vastar Resourcesreported 1998 earnings that were down 43% from the previous year.Last year’s earnings were $136.4 million, compared to $240.5million in 1997.
The company also announced fourth-quarter 1998 earnings of $18.0million, compared to the previous year’s quarterly earnings of$66.9 million. The benefit of significantly higher quarterlyproduction volumes was more than offset by markedly lower commodityprices and an after-tax charge of $19.3 million for assetimpairment. Fourth-quarter production volumes increased by 23% to arecord 1,458 MMcfe/d compared to the prior year’s quarter, withgains in gas production of 28% and in crude and condensateproduction of 23%. NGLs production declined 20%.
During the full year, total production increased by nearly 9% to1,289 MMcfe/d. Also during the full year, the company set recordsfor total reserves, production and reserve replacement, andrecorded lower cash production costs. Gas production was 988MMcf/d, up from 882 MMcf/d in 1997. Average wellhead prices weredown, though, to $1.85/Mcf from $2.03/Mcf in 1997.
“Gas realizations for the full year of ’98 were down 18 centsfrom the prior year. This is in spite of about a 48-centdeterioration in the benchmark Henry Hub price,” said Vastar CFOSteve Shapiro during an analyst conference call. “The differencebetween the 48 cents and our 18 cents realized is primarily derivedfrom a tighter basis, particularly in the San Juan [Basin] andimprovement in our hedge positions year over year. Of thatdifferential, about 20 cents came from the hedge, and about fourcents from the basis. During the fourth quarter we also see thatsame trend, where benchmark prices were down about 95 cents yearover year and Vastar’s realized prices were only down about 45cents. Once again that’s a function of about nine cents betterbasis than the prior year and about 36 cents better hedge positionincluding our basic hedges as well as our cogeneration contracts.Not surprising, liquids prices were the lowest in our history.Full-year realizations were under $14.50/barrel, and during thefourth quarter we only realized a little less than $13.50 a barrel.That’s down about $6.50 from last year’s roughly $20 kind ofnumber.”
“It was an excellent year for Vastar considering the impact oflow energy prices on our industry,” said CEO Charles D. Davidson.”Our 1998 investment program, coupled with ongoing efforts toreduce costs, yielded continued growth in reserves and productionwhile enhancing our prospects for the future.”
Last year saw Vastar’s fifth consecutive year of increasedproduction despite significant production curtailments caused byfour storms in the Gulf of Mexico and curtailed extraction of NGLsin response to low prices. The company realized a 17% increase inproven reserves, resulting in a 215% replacement of 1998production. Reserve replacement costs were $1.11/Mcfe, includingacquisitions. Reserve replacement was achieved for gas, oil andNGLs, and for both the onshore and offshore areas.
The company also expanded Gulf of Mexico Shelf operationsthrough a $437-million acquisition of interests in 23 producingproperties formerly held by Mobil Exploration & Producing U.S.Inc., increasing shelf production and reserves.
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