Devon Energy Corp.’s production growth is expected to remain on a fast track through the rest of the year, but its oil and natural gas output hit a slight bump when Hurricane Ivan crossed the Gulf of Mexico. Its production dropped 2% in the third quarter compared to the same period last year.

Devon, headquartered in Oklahoma City, achieved a 26% increase in earnings in the quarter on high commodity prices, reporting $517 million ($2.12/share), compared with $412 million ($1.76) in 3Q2003. Total gas production was 222.1 Bcf, compared with 234.7 Bcf a year earlier. Combined oil, gas and natural gas liquids production was 679,000 boe/d in 3Q2004, 2% below the 689,000 boe/d a year ago. Hurricanes in the Gulf of Mexico reduced production by about 4,600 boe/d, the company said. Approximately 8,800 boe/d of Devon’s production remains shut-in due to the storm, the company said Thursday.

Total U.S. gas output in the quarter was 150 Bcf, down from 162.7 Bcf in 3Q2003. In its U.S. onshore regions, Devon reported 120.8 Bcf, down from 126.3 Bcf, while U.S. offshore rates were 29.2 Bcf, down from 36.4 Bcf. Canadian output was flat at 70.1 Bcf. Daily U.S. gas production was 1.6 Bcf/d, down from 1.77 Bcf/d in 3Q2003, while daily Canadian production was slightly up at 762.2 Bcf/d from 761.5 Bcf/d.

In a research note, Lehman Brothers’ analyst Thomas Driscoll said that Devon’s 3Q production, although lower than a year earlier, was still 0.4% higher than his estimate, “even with a 4,600 boe/d impact from Hurricane Ivan. Without weather-related issues, production would have been higher than our estimate by 1.1%, and the market is likely to view this as a modest positive.”

Combined sales of oil, gas and natural gas liquids were $1.9 billion in the quarter, a 15% increase from a year ago. Realized gas prices increased 16% to $5.17/Mcf, up from $4.47/Mcf in 3Q2003. Marketing and midstream revenues increased 22% to $408 million. After $319 million of related expenses, Devon’s marketing and midstream margin reached $89 million, a 33% increase over last year’s margin of $67 million.

Meanwhile, independent Vintage Petroleum Inc., which focuses its production onshore, reported a 36% increase in gas output, giving credit to strong-than-expected success in U.S. exploitation. Tulsa-based Vintage reported quarterly net earnings of $32.2 million (49 cents/share), compared with $11.8 million (18 cents) in 3Q2003. Income for the quarter was below analysts’ consensus view of 63 cents/share because of higher-than-estimated exploration expenses and a higher income tax rate.

Continued strong organic growth resulted in 3Q production of 7.3 million boe, a 6% increase over the 6.8 million boe reported in 3Q2003, and a 7% sequential increase over the second quarter. Total production from continuing operations for the quarter (excluding Canada) was 6.4 million boe, or 10% above 5.8 million boe reported in 3Q2003. The production increase was driven by a 36% increase in gas output, while oil production was relatively flat.

Canada’s production numbers were excluded from continuing operations numbers because Vintage agreed to sell its poorly performing assets in September (see Daily GPI, Sept. 24).

“Total gas production continues to be significantly ahead of the company’s expectations to date as a result of exploitation successes in the U.S. more than offsetting temporary production interruptions in Argentina,” the company said in a statement. For 2004, Vintage increased its production guidance slightly to 27.6 million boe from 27.5 million boe.

Lehman’s Driscoll said Vintage’s long-term investors “are likely to view the increase in 2004 production guidance and strong 3Q2004 production performance as a positive and a reversal of the disappointing production guidance trends of 2003. The sale of Canada, and Vintage’s renewed focus on domestic exploitation activities is bearing fruit in the former of higher production (pro forma for Canada) trends.”

Driscoll said the increase in 2004 production guidance “is particularly impressive since it comes despite a 0.2 million boe impact from temporary production shut-ins in Argentina during 3Q2004, and the loss of roughly 0.3 million boe as a result of the sale of Canadian assets. The increased production guidance reflects the success that Vintage is having with its lower risk exploitation activities in the U.S.”

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