The fourth quarter of 2004 included a $28 million benefit attributable to lower Canadian tax obligations, and during the quarter Burlington accrued $26 million for anticipated federal income taxes on the repatriation of $500 million of foreign earnings eligible for reduced tax rates under the American Job Creation Act of 2004. The prior year's quarter also included a $203 million benefit attributable to the lower Canadian tax obligations.
Financial results for 2004 included record annual net income of $1.527 billion, or $3.86 per diluted share, compared to the prior year's $1.201 billion, or $3.00 per diluted share on a post-stock-split basis. Net cash provided by operating activities increased to a record $3.436 billion, from $2.539 billion in 2003. Discretionary cash flow(1) during 2004 was $3.342 billion, also a record, compared to the prior year's $2.600 billion.
Total production during the fourth quarter of 2004 was 2,846 million cubic feet of natural gas equivalent per day (MMcfed), a 5 percent increase from the 2,723 MMcfed produced during the prior year's fourth quarter. Natural gas production was 1,900 million cubic feet per day (MMcfd), compared to 1,957 MMcfd during the prior year's quarter. Natural gas liquids production was 68.5 thousand barrels per day (Mbd), compared to 69.2 Mbd during the prior year's quarter. Oil production increased 52 percent to 89.1 Mbd, from 58.5 Mbd during the prior year's quarter. For the full year, total production increased 10 percent on an absolute basis and 12 percent on a per-share basis to 2,817 MMcfed, from 2,567 MMcfed the prior year.
Fourth-quarter 2004 price realizations for natural gas were $5.97 per thousand cubic feet (Mcf), compared to $4.40 per Mcf during the prior year's quarter. Natural gas liquids price realizations were $29.04 per barrel, compared to $20.54 per barrel during the prior year's quarter. Oil price realizations were $39.28 per barrel, compared to $25.40 per barrel during the prior year's quarter. Full-year 2004 price realizations for natural gas were $5.49 per Mcf, compared to $4.83 per Mcf during 2003. Natural gas liquids price realizations were $25.38 per barrel, compared to $20.40 per barrel in 2003. Oil price realizations were $36.25 per barrel, compared to $27.22 per barrel in 2003.
Capital expenditures during 2004 totaled $1.747 billion, including $85 million for acquisitions, compared to 2003 capital expenditures of $1.788 billion, which included $228 million in acquisitions.
"Burlington reached a number of significant milestones during 2004 attributable to our proven strategy of investing to maximize returns while generating meaningful production growth," said Bobby S. Shackouls, chairman, president and chief executive officer. "Our return on capital employed(1) was nearly 20 percent, and top-line production growth coupled with our ongoing share repurchase program enabled us to achieve 12 percent-per-share volume growth. We replaced our proven reserves at what we believe will be a very competitive cost of $1.27 per thousand cubic feet equivalent (Mcfe), while further strengthening our balance sheet. For 2005, we anticipate another year of production growth as well as new opportunities to leverage our financial strength in the evolving natural gas market."
Additional highlights during 2004 included:
-- Volume growth - Burlington's core assets yielded increases in U.S. production of natural gas, gas liquids and crude oil due to higher volumes in the Williston Basin, Madden Field and South Louisiana. International oil volumes more than doubled, with increases from China offshore operations, Algeria and Ecuador.
-- Reserve replacement performance - Total reserves at year-end 2004 were 12.0 trillion cubic feet of natural gas equivalent (Tcfe), up from 11.8 Tcfe at year-end 2003. Reserve additions from all sources totaled 1,291 billion cubic feet equivalent (Bcfe) and included 1,224 Bcfe from extensions, discoveries, other additions and revisions and 67 Bcfe from acquisitions. The company's reserve replacement ratio was 125 percent from all sources and 119 percent excluding acquisitions, and was calculated by dividing the sum of reserve revisions, extensions, discoveries, other additions and acquisitions by actual production. Burlington's reserve replacement cost was $1.27 per Mcfe, compared to a three-year average of $1.22 per Mcfe from 2001 through 2003. The increase was primarily attributable to industry service cost inflation. Reserve replacement cost was calculated by dividing total oil and gas capital costs, including acquisitions, of $1.644 billion, by the sum of reserve revisions, extensions, discoveries, other additions and acquisitions.
-- Key drilling results - Successful extension drilling established two promising development programs during 2004. Seven wells in the Bossier trend in East Texas all encountered natural gas. Burlington has significantly expanded its acreage position and plans to keep four drilling rigs active there during 2005. In the Bakken trend in Montana and North Dakota, eight wells established oil production on legacy acreage, prompting the acquisition of additional acreage with 18 wells planned during 2005.
-- Share repurchases and dividends - During the fourth quarter Burlington repurchased approximately 4.2 million shares of its common stock for $176.6 million at an average cost of $42.49 per share. For the full year, repurchases totaled approximately 14.4 million shares for $522 million at an average price of $36.37 per share. All these totals are on a post-stock-split basis. During December 2004 the board of directors restored a $1 billion share repurchase authorization, with $952 million remaining in that authorization at year-end. In addition, Burlington's ordinary share dividend increased by 13 percent during 2004, following a 9.1 percent increase in 2003.
-- Balance sheet strength - Total debt to total capitalization declined to 36 percent at year-end, from 41 percent the year before. Net debt to total capitalization(1) declined to 20 percent at year-end, from 36 percent the year before. At year-end Burlington's balance sheet included approximately $2.2 billion in cash and cash equivalents, compared to $757 million at the end of 2003.
-- Favorable investment returns - Burlington's return on capital employed(1) increased to 19.8 percent during 2004, from 17.7 percent during 2003. Total shareholder return was 58.5 percent.
The company also announced that it will no longer list its common stock on the Toronto Stock Exchange after Jan. 31, 2005, since the vast majority of trading of its stock occurs on the New York Stock Exchange.
Production - Burlington expects total production of 2,800 to 3,001 MMcfed in 2005. The company anticipates growth from its North American operations and compared to prior guidance the expected range for North America is unchanged. Compared to previous guidance the expected range for the international segment has been narrowed to reflect the impact of downtime at the Rivers facility in the East Irish Sea.
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