EEA: No relief in sight for winter gas prices

GAS DAILY - Friday, November 5, 2004

      U.S. gas prices will stay above $7/MMBtu through the winter thanks to production losses in the Gulf of Mexico, increased fuel-switching by industrial customers and higher power generation demand, Energy and Environmental Analysis predicted Thursday.

And the supply crunch won’t ease after the heating season ends, the Arlington, Va.-based consultant said in its monthly gas market report, projecting that prices will average $7.25/MMBtu during the storage refill season that begins April 1.

      “Hurricane Ivan brought devastating winds to the Gulf Coast of (Mexico) and gas prices.”

      A Raymond James and Associates analyst echoed those sentiments about Devon. “They are continuing to generate solid financial results given the robust commodity price environment,” he said. “There’s a lot of cash on the balance sheet and they have done a good job of paying down a lot of debt over the last couple of months.”

     However, he warned that Devon’s “organic growth rate is very close to zero. Year-over year their production volume is down 2%. They are still not growing at organic rates that are similar to the peers.”

     Devon said hurricanes in the Gulf of Mexico reduced third-quarter production by about 4,600 barrels of oil-equivalent/day. However, that was minor compared with the damage suffered by some of its competitors operating in the Gulf, the company noted.

     Houston Exploration reported third-quarter net earnings of $43 million, up 36% from the $34.7 million posted. Like Devon, the company pointed to higher gas and oil prices as the main driver.

     Production in the third quarter totaled 343,000 Mcf-equivalent/day, up 19% from 288,000 Mcfe/day a year ago. Houston Exploration said its average gas sales price was $5.46/Mcf—$5.06/Mcf after hedging—vs. $4.84/Mcf and $4.45/Mcf, respectively, a year ago.

     Houston Exploration said it plans to boost its 2004 capital spending for exploration and development to an estimated $370 million from $315 million.

     In a conference call with analysts, Chairman, President and CEO William Hargett noted the company recently completed two acquisitions in the shallow waters of the Gulf totaling approximately 79 Bcfe of reserves for $145 million. “We are enthused that we were able to negotiate an acquisition of two offshore packages during a time within our industry when prices are at extremely high levels,” he said.

JM