For the first six months of 2004, net income totaled $448.1 million, $4.81 per share, compared to $166.8 million, $1.80 per share, for the 2003 period. Income from discontinued operations was $199.3 million, $2.14 per share, in the first half of 2004, while the same period in 2003 totaled $18.6 million, $.20 per share. Continuing operations earned $248.8 million, $2.67 per share, in 2004 and $155.2 million, $1.68 per share, in 2003.
Second Quarter 2004 vs. Second Quarter 2003
Reviewing quarterly results by type of business, the Company's income contribution from continuing exploration and production operations was $139.8 million in the second quarter of 2004 compared to $80.3 million in the same quarter of 2003. The earnings improvement in 2004 was primarily caused by higher oil and natural gas sales prices and sales volumes. The 2003 period included a $34 million after-tax gain on sale of North Sea properties. The Company's worldwide crude oil and condensate sales prices averaged $34.14 per barrel for the current quarter compared to $24.60 per barrel in the second quarter of 2003. Total crude oil and gas liquids production from continuing operations was 97,375 barrels per day in the second quarter of 2004 compared to 75,624 barrels per day in the 2003 quarter, with the net increase primarily attributable to production at the Medusa and Habanero fields in deepwater Gulf of Mexico, both of which commenced production in the fourth quarter of 2003, and higher volumes at the West Patricia field in Malaysia due to a full quarter of production in 2004. Production at the West Patricia field commenced in May 2003. Crude oil sales volumes from continuing operations averaged 99,819 barrels per day in the second quarter of 2004 compared to 67,452 barrels per day in the 2003 period. North American natural gas sales prices averaged $6.22 per thousand cubic feet (MCF) in the most recent quarter compared to $5.22 per MCF in the same quarter of 2003. Natural gas sales volumes from continuing operations increased from 112 million cubic feet per day in the second quarter of 2003 to 123 million cubic feet per day in the just completed quarter, primarily due to production from the Medusa and Habanero fields in the Gulf of Mexico. Exploration expenses were $23.2 million in the second quarter of 2004 compared to $28.1 million in the same period of 2003.
The Company's refining and marketing results generated a profit of $39.5 million in the most recent quarter compared to a profit of $.3 million in the 2003 quarter. The improvement was due to significantly better margins in North America and the United Kingdom in the current quarter. A fire that destroyed the ROSE unit at the Meraux, Louisiana refinery in June 2003 lowered earnings in the second quarter of 2003 by $12.3 million.
The after-tax costs of the corporate functions were $11.2 million in the 2004 quarter compared to $8.3 million in the 2003 quarter. Higher administrative expenses were the primary reasons for increased net costs in 2004.
The Company sold most of its conventional oil and gas assets in Western Canada in the second quarter of 2004 for cash proceeds of $582.7 million, which generated an after-tax gain in discontinued operations of $166.7 million. The operating results of these sold assets have also been reported as discontinued operations for all periods presented.
First Six Months 2004 vs. First Six Months 2003
Income from both the exploration and production and refining and marketing businesses improved significantly in the first half of 2004 compared to the same period in 2003. The Company's exploration and production continuing operations earned $241 million in the first half of 2004 and $156 million in the same period of 2003. Higher oil and natural gas sales prices and sales volumes in 2004 were the primary reasons for better earnings in this business. Exploration expenses were $72.3 million in 2004 compared to $43.5 million in 2003, with the increase mostly due to higher costs for dry holes in the U.S. deepwater Gulf of Mexico and Malaysia. Crude oil and gas liquids production from continuing operations for the first six months of 2004 averaged 96,255 barrels per day compared to 71,722 barrels per day in 2003. The higher production in 2004 was attributable to start-up of Medusa and Habanero in late 2003 and a full six months of production at West Patricia in Malaysia. Natural gas sales from continuing operations were up from 114 million cubic feet per day in 2003 to 124 million cubic feet per day in 2004. Crude oil and condensate sales prices averaged $32.58 per barrel in the 2004 period compared to $26.28 per barrel in 2003. North American natural gas was sold for $6.05 per MCF in 2004, up from $5.58 in 2003.
The Company's refining and marketing operations generated a profit of $33.1 million in 2004, but incurred a loss of $3.2 million in 2003. The improved current year result was based on strong margins in both the North American and U.K. businesses in the second quarter of 2004 coupled with $12.3 million of after-tax costs in the 2003 period from a fire at the Meraux refinery.
Corporate after-tax costs were $25.3 million in the first six months of 2004 as compared to a profit of $2.4 million in the 2003 period. The prior year included a benefit on U.S. tax settlements of $20.1 million. Higher net interest and administrative expenses were also components of the higher costs in the 2004 period.
Claiborne P. Deming, President and Chief Executive Officer, commented, "The Company made two significant discoveries in the second quarter of 2004. One of these was the Kakap #1 well (80%) in Block K, Malaysia, where a large oil deposit was encountered approximately six miles from our Kikeh discovery. The other was the Thunderhawk discovery (37.5%) in Mississippi Canyon Block 734 in the Gulf of Mexico. Other successful drilling occurred at the Kenarong well (75%) offshore peninsular Malaysia Block 311. Our downstream operations provided strong income and cash flow contributions in the second quarter, most notably in June when crude oil prices fell back. We opened our 700th gasoline station at Wal-Mart stores on July 21. We currently expect earnings in the third quarter to be in the range of $1.00 to $1.50 per share. Results could vary based on commodity prices, drilling results and timing of oil sales."
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