Burlington Resources Says 4Q05 Earnings at $927 Million

Burlington Resources Inc. (NYSE: BR) announced earnings and production for the fourth quarter and full year of 2005. Estimated fourth-quarter earnings were $927 million, or $2.45 per diluted share, including after-tax charges of $0.09 per diluted share for impairment of natural gas properties in China, $0.09 per share for various compensation programs and $0.05 per share for merger and legal expenses. The fourth-quarter earnings also included an after-tax gain on the sale of Permian Basin Royalty Trust units of $0.20 per share.

This compares to prior-year fourth-quarter earnings of $400 million, or $1.02 per diluted share, which included a $0.15 per share after-tax impairment charge. Net cash provided by operating activities increased to $1,573 million during the fourth quarter from $962 million during the prior year's fourth quarter. Discretionary cash flow(1) was $1,439 million, compared to $884 million during the prior year's fourth quarter.

Full-year financial results for 2005 included estimated net income of $2.683 billion, or $7.00 per diluted share, compared to the prior year's $1.527 billion, or $3.86 per diluted share. Net cash provided by operating activities increased to $4.536 billion, from $3.436 billion in 2004. Discretionary cash flow(1) during 2005 was $4.537 billion, compared to the prior year's $3.342 billion.

Total production during the fourth quarter of 2005 was 2,887 million cubic feet of natural gas equivalent per day (MMcfed) versus 2,846 MMcfed produced during the prior year's fourth quarter. Natural gas production was 1,928 million cubic feet per day (MMcfd). Natural gas liquids production was 65.9 thousand barrels per day (Mbd). Oil production was 94.0 Mbd. For the full year, total production increased 1.6 percent on an absolute basis or 4.8 percent on a per-share basis to 2,863 MMcfed, from 2,817 MMcfed in the prior year, despite downtime from major storms in the U.S. and greater than normal industry maintenance requirements in the San Juan Basin that together reduced annual volumes by approximately 40 MMcfed.

Fourth-quarter 2005 price realizations for natural gas were $9.43 per thousand cubic feet (Mcf), compared to $5.97 per Mcf during the prior year's quarter. Natural gas liquids price realizations were $38.86 per barrel, compared to $29.04 per barrel during the prior year's quarter. Oil price realizations were $52.80 per barrel, compared to $39.28 per barrel during the prior year's quarter. Full-year 2005 price realizations for natural gas were $7.22 per Mcf, compared to $5.49 per Mcf during 2004. Natural gas liquids price realizations were $32.88 per barrel, compared to $25.38 per barrel in 2004. Oil price realizations were $50.77 per barrel, compared to $36.25 per barrel in 2004.

Capital expenditures during 2005 totaled $2.687 billion, including $328 million for acquisitions. Burlington has approved a capital budget for 2006 of $3.1 billion, excluding acquisitions.

Additional highlights during 2005 included:

  • Proposed Acquisition by ConocoPhillips - On Dec. 12, 2005, ConocoPhillips and Burlington announced that they signed a definitive agreement under which ConocoPhillips would acquire Burlington for consideration that includes $46.50 in cash and 0.7214 shares of ConocoPhillips stock for each share of Burlington stock. The transaction is subject to shareholder and regulatory approval and other customary terms and conditions. It is anticipated that the transaction will be completed during the first half of 2006.
  • Volumes - Burlington increased volumes in the U.S. through successful drilling and development in the East Texas Bossier and Barnett Shale plays, and the Bakken trend and Cedar Creek Anticline in the Williston Basin. Volumes in Canada benefited from a successful early ramp-up in the winter 2005 drilling season. Volumes were negatively impacted throughout 2005 by weather events, including an unusually wet winter in the San Juan Basin, hurricanes Katrina and Rita in the Gulf of Mexico, and typhoon activity in the East China Sea. Volumes from Burlington's Algerian operations were also negatively impacted as a result of certain contractual provisions related to higher oil prices.
  • Reserve replacement performance - Total reserves at year-end 2005 increased to 12.5 trillion cubic feet of natural gas equivalent (Tcfe), an increase of 4 percent from 12.0 Tcfe at year-end 2004. Reserve additions from all sources totaled 1,558 billion cubic feet equivalent (Bcfe) and included 1,416 Bcfe from extensions, discoveries, other additions and revisions and 142 Bcfe from acquisitions. The company's reserve replacement ratio for 2005 was 149 percent from all sources and 136 percent excluding acquisitions, as calculated by dividing the sum of reserve revisions, extensions, discoveries, other additions and acquisitions by 2005 actual production. Burlington's reserve replacement cost was $1.68 per Mcfe, compared to a three-year average of $1.17 per Mcfe from 2002 through 2004. The increase was primarily attributable to industry service cost inflation and the acquisition of undeveloped lands. Reserve replacement cost was calculated by dividing total oil and gas capital costs, including acquisitions, of $2.614 billion, by the sum of reserve revisions, extensions, discoveries, other additions and acquisitions.
  • Drilling Inventory Growth - Through resource studies and acreage acquisitions, Burlington increased its year-end drilling inventory to more than 9 Tcfe, of which approximately 3.4 Tcfe are currently booked as proved undeveloped (PUD) reserves. Total inventory is up from 7 Tcfe at the end of 2004. During 2005 Burlington acquired or committed to acquire more than 600,000 net acres predominantly in North America including the producing and acreage assets of our privately held partner in the highly successful Bossier play. The Bossier acquisition closed as expected on Jan. 4, 2006.
  • Share repurchases and dividends - During the fourth quarter Burlington repurchased approximately 2.9 million shares of its common stock for $209 million at an average price of $70.97 per share. For the full year, repurchases totaled approximately 15.7 million shares for $902 million at an average price of $57.36 per share. Burlington's ordinary share dividend increased by 18 percent during 2005, following a 13 percent increase in 2004.
  • Balance sheet strength - Total debt to total capitalization improved to 30 percent at year-end 2005, down from 36 percent the year before. Net debt to total capitalization(1) declined to 4 percent at year-end, from 20 percent the year before. At Dec. 31, 2005 Burlington's balance sheet included approximately $3.5 billion in cash and cash equivalents, compared to $2.2 billion at the end of 2004.
  • Favorable investment returns - Burlington's return on capital employed(1) increased to 31.9 percent during 2005, from 19.8 percent during 2004. Total shareholder return was 99.4 percent.

2006 Outlook

Production - Burlington expects total production of 2,940 to 3,100 MMcfed during 2006. The company anticipates growth from its North American operations.

                                  1st-Quarter 2006    Full-Year 2006
                                      Estimate           Estimate
                                  ----------------   -----------------
Gas (MMcfd)
    U.S.                          1,025   - 1,060    1,085   -  1,125
    Canada                          785   -   800      785   -    805
    International                   155   -   170      160   -    190
                                  ----------------   -----------------
         Total                    1,965   - 2,030    2,030   -  2,120
Natural Gas Liquids (Mbd)
    U.S.                           41.0   -  43.0     42.0   -   44.0
    Canada                         21.5   -  22.0     21.0   -   22.5
    International                   0.0   -   0.0      0.0   -    0.0
                                  ----------------   -----------------
         Total                     62.5   -  65.0     63.0   -   66.5
Crude Oil (Mbd)
    U.S.                           50.5   -  52.5     53.0   -   55.5
    Canada                          5.5   -   6.0      5.0   -    6.0
    International                  28.0   -  32.5     31.0   -   35.5
                                  ----------------   -----------------
         Total                     84.0   -  91.0     89.0   -   97.0

      Total Equiv. Prod. (MMcfed) 2,845   - 2,965    2,940   -  3,100
                                  ----------------   -----------------
                                  ----------------   -----------------

North American Natural Gas Hedges - As of Dec. 31, 2005, Burlington had hedged the following volumes of future North American natural gas production using costless price collars or fixed price contracts. All prices are weighted averages adjusted to a NYMEX equivalent price.

                         1st-Q. 2006     2nd-Q. 2006     3rd-Q. 2006
                         --------------  --------------  -------------
Costless collar volumes  416 MMcfd       120 MMcfd       120MMcfd
    Floor price          $7.69/Mcf       $8.50/Mcf       $8.51/Mcf
    Ceiling price        $9.98/Mcf       $10.34/Mcf      $10.35/Mcf
Sell swap                4 MMcfd         4 MMcfd         4 MMcfd
    Sales price          $4.82/Mcf       $4.45/Mcf       $4.35/Mcf

Additional information on North American natural gas hedging subsequent to the third quarter of 2006, as well as on natural gas hedging in the U.K. and crude oil hedging, is available on Burlington's Web site at www.br-inc.com/docs/hedge.pdf.

Other 2006 Financial Parameters - Estimated expenses for the first quarter follow. The administrative range does not include merger-related costs.

                                        1st-Q. 2006
Operating costs                         $0.72 to $0.76/Mcfe
Administrative costs                    $0.16 to $0.20/Mcfe
Transportation expense                  $0.46 to $0.50/Mcfe
Depreciation, depletion & amortization  $1.40 to $1.50/Mcfe
Interest expense                        $68 MM to $72 MM
Exploration costs                       $60 MM to $80 MM

In addition, Burlington anticipates an effective income tax rate of 32 to 36 percent for the full year of 2006. The breakdown between current and deferred taxes for the year could vary widely depending on commodity prices and other factors.


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