North American Gas Production Mixed

ExxonMobil Corp., Royal Dutch Shell plc and Marathon Oil Co., along with independents Apache Corp. and EnCana Corp. all reported soaring second quarter profits as expected on Thursday. However, North American gas production continued to be a mixed bag, with a few surprises. Shell, recovering from a reserves accounting scandal last year, and Houston-based Apache both reported slightly higher North American gas output for the quarter, while Exxon, Marathon and EnCana's gas volumes all fell.

On an oil-equivalent basis, Irving, TX-based Exxon's worldwide oil and gas production in the second quarter decreased by 4.3% from 2Q2004. Excluding divestment and entitlement effects, production decreased by 2%, the company said, with its "mature fields continuing to perform as expected and for those fields we operate, maintenance has been as anticipated." Worldwide, natural gas production decreased to 8.686 Bcf/d, compared with 9.061 Bcf/d in 2Q2004. Exxon said the higher volumes in its Qatar operations were more than offset by mature fields decline, maintenance activities, and the impact of divestments.

Exxon's net income in the quarter grew to $7.64 billion ($1.20/share), an increase of $1.85 billion from the same period a year ago. Capital and exploration expenditures of $4.537 billion were up $920 million compared with last year. Exxon Chairman Lee R. Raymond said the net income reported was the "highest second quarter ever" for the company, and he credited the continued strength in crude and natural gas prices.

Although Exxon has been criticized for not investing in new projects for the past few quarters, Raymond said that the company's "disciplined project management systems remain a competitive advantage. ExxonMobil-operated projects that are key to future volume growth continue to be on budget and on or ahead of schedule."

Royal Dutch Shell plc, which reported its quarterly results on Thursday for the first time as a unified company, posted a 35% rise in net profit. However, executives said Thursday that oil and gas output worldwide has dropped, and they warned that industrywide costs would continue rising.

Shell's oil and gas production was nearly flat from a year ago, falling to 3.526 MMboe/d, compared with 3.578 MMboe/d in 2Q2004. Still, the output numbers were "slightly above our expectations," said CEO Jeroen Van der Veer. Shell previously said it expected its 2005 production in the lower range of its 3.5-3.8 MMboe/d.

On the plus side, natural gas production available for sale in the United States was slightly higher than in 2Q2004, to stand at 1.357 Bcf/d, compared with 1.327 Bcf/d in 2Q2004, but down sequentially from 1Q2005's 1.385 Bcf/d. For the first six months of 2005, Shell's U.S. production was nearly flat, at 1.371 Bcf/d, up slightly from 1.366 Bcf/d for the same period of 2004.

Shell, the world's third-largest publicly traded oil company after BP plc and Exxon by market capitalization, said net profit rose to $5.236 billion for 2Q2005, up from $3.897 billion in 2Q2004. Wall Street had pegged income at $5.509 billion. However, quarterly earnings were impacted by several charges, including a settlement with U.S. pension holders related to last year's reserves accounting scandal.

Houston-based Apache's North American gas volumes increased during the second quarter, pushed by a 16% increase in Canadian gas output. Overall, gas volumes in North America rose 4.19%, to 1.034 Bcf/d from 992 MMcf/d in 2Q2004. In the United States, volumes fell to 653 MMcf/d from 665 MMcf/d for the same period a year ago, while in Canada, volumes rose to 380.5 MMcf/d from 327.5 MMcf/d for 2Q2004. For the first six months of 2005, Apache's Canadian gas production has risen 13%.

Worldwide, oil and gas production averaged 470,000 boe/d in the second quarter, 6% ahead of 2Q2004 production. For the first six months, Apache's production was up 7% to 466,000 boe/d.

"A number of factors -- including our active drilling program and development projects in Canada, Egypt, the North Sea and Australia -- point to continued production growth in the second half of 2005," said CEO G. Steven Farris.

Apache generated quarterly earnings of $587 million ($1.76/share), up from $382 million ($1.16) in 2Q2004. It was the company's sixth consecutive quarter of record earnings. Cash from operations before changes in operating assets and liabilities totaled a record $1.1 billion in the quarter, up 53% from $721 million in the year-earlier period.

Houston-based Marathon Oil Corp. said total oil and gas production available for sale worldwide averaged 353,000 boe/d in the second quarter. In the United States, gas production available for sale fell 9.6% in the quarter, to 597 MMcf/d, from 641 MMcf/d in 2Q2004. Worldwide, however, Marathon's gas and liquid sales rose to 379.9 MMboe/d, from 338.8 MMboe/d a year earlier.

The producer reported quarterly net income of $673 million ($1.92/share), compared with $352 million ($1.02) in 2Q2004. Net income adjusted for special items was $755 million ($2.16), up from $407 million ($1.18) a year ago.

"A key contributor to Marathon's strong second quarter results was the consistent and successful execution of the company's strategy and business plans," said CEO Clarence P. Cazalot Jr. "While we continued to realize the benefits of high commodity prices and margins throughout the quarter, our results were also positively impacted by the strong operating performance of each of our businesses. In particular, the solid results of our exploration and production operations demonstrate the improvements being made, which are positioning Marathon for long-term value growth."

EnCana, based in Calgary, attributed improved cash flow and earnings in the quarter to higher sales, but following several stellar quarters of production increases in North America, gas output was flat in the second quarter. Total produced gas in North America was 3.179 Bcf/d, down slightly from 3.212 Bcf/d in 2Q2004. Gas production rose slightly in the United States for the quarter, to 1.064 Bcf/d, from 1.061 Bcf/d for the same period in 2004. However, in Canada, output fell to 2.115 Bcf/d from 2.151 Bcf/d in 2Q2004. Still, EnCana expects to exit the year with production at 3.6 -3.7 Bcf/d, well above the 2.968 Bcf/d for 2004.

Quarterly cash flow rose 45% to $1.57 billion ($1.76/share).Net income totaled $839 million (94 cents), up from $250 million (27 cents) in 2Q2004. On a continuing operations basis, EnCana earned $786 million (88 cents/share), compared with $265 million (28 cents) a year earlier. Operating earnings rose to $655 million (73 cents). Wall Street had forecast earnings of 79 cents/share.

EnCana said operating costs from continuing operations in the second quarter were 66 cents/Mcfe, slightly higher than its full-year forecast range. It blamed industry inflation, the impact of a depreciating U.S. dollar and weather delays in the timing of planned production additions. EnCana expects full-year operating costs to be near the higher end of its guidance of 55-60 cents/Mcfe.

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