April 8, 2002; Burlington Resources Outlook Improves

The same model that in mid February projected Ebitda of $1.3 billion for the year ended March 31, 2003, now projects $2.0 billion.  During that time natural gas price increased to almost $3.50 per mcf from $2.63 (see Stock Idea, Burlington Resources, February 12, 2002). In other words the company makes a lot of money when natural gas pricing is favorable. 

In management’s recent update to analysts, Senior Vice President Production Randy Limbacher declared that BR could keep production flat by spending about $1 billion per year.  Obviously that level of spending could not be justified at mid February prices, but looks like good business at current prices.

Nor can other companies easily beat BR’s economics on a large scale.  As a result there is a strong cost argument that natural gas prices ought to stay near the current level if we are to develop new volumes. 

BR appears rich in investment opportunities at a $3.50 natural gas price.  Mr. Limbacher comments that BR’s San Juan Basin reserves are likely to remain at 4 trillion cubic feet and production at 750 mmcfd for years to come.  The San Juan Basin remains BR’s most important asset accounting for 35% of North American gas production and delivering the highest cash flow per mcf. 

More of the future natural gas opportunities are in Canada that now accounts for 46% of BR’s North American production.  We highlighted the Deep Basin in our February Stock Idea.  The Canadian acquisitions give BR exploitation type opportunities that it does well.