US Exploration and Production Companies Face Challenges Amid Strong Oil and Gas Prices

Strong oil and gas prices enabled US exploration and production companies to report year-over-year earnings increases in the fourth quarter of 2003. However, despite high prices, the industry faced challenges such as sliding domestic gas production, rising operating costs, and reserve revisions. Oil prices averaged 10% higher than in the same period of 2002, while natural gas prices were roughly 25% above year-earlier levels. Companies like Pioneer Natural Resources and Anadarko Petroleum reported mixed results, with Pioneer's net income tripling due to increased production, while Anadarko's earnings came in lower due to rising costs.

Key Takeaways:

• US exploration and production companies reported year-over-year earnings increases in the fourth quarter of 2003, driven by strong oil and gas prices.
• Domestic gas production in the US and Canada slid 3.2% in the fourth quarter of 2003, with a 4% decline in 2002.
• Unit operating costs at US exploration and production companies rose 7.3% per year since 2000, supporting historically high natural gas prices.
• Companies like Devon Energy and Noble Energy pledged to improve their finding and development costs after reporting relatively high 2003 F&D costs of $10.82/boe and $12.96/boe respectively.
• Royal Dutch/Shell announced a 20% cut in its estimate of proved reserves, while El Paso made a huge downward revision of 1.8 trillion cubic feet of gas equivalent.
• Companies like Forest Oil and Noble Energy also reported significant downward revisions to their proved reserves.

Statistics:

• Oil prices averaged 10% higher in the fourth quarter of 2003 compared to the same period of 2002.
• Natural gas prices were roughly 25% above year-earlier levels in the fourth quarter of 2003.
• Unit operating costs at US exploration and production companies rose 7.3% per year since 2000.
• Domestic gas production in the US and Canada fell 3.2% in the fourth quarter of 2003.
• Combined US and Canadian gas output fell 2.8% in 2003 after a 4% decline in 2002.
• Devons Energy's 2003 finding and development costs were $10.82/boe.
• Noble Energy's 2003 finding and development costs were $12.96/boe.

Sources:

• [UBS Research Report]
• [Lehman Brothers Research Report]
• [Pioneer Natural Resources' earnings report]
• [Anadarko Petroleum's earnings report]
• [Devon Energy's earnings report]
• [Noble Energy's earnings report]
• [Royal Dutch/Shell's press release]
• [El Paso's earnings report]
• [Forest Oil's earnings report]