The Company’s refining and marketing operations lost $12.9 million in the 2003 quarter compared to a loss of $4.4 million in the 2002 quarter. North American margins were lower during the 2003 quarter as refined product sales prices did not keep pace with crude oil prices. In addition, U.S. crude oil refining throughput was down significantly in 2003. Part of the fourth quarter was spent restarting the Meraux, Louisiana, refinery after a plant-wide turnaround and completion of the tie-in and start-up of a new hydrocracker unit. U.K. refining and marketing income improved significantly in the 2003 fourth quarter compared to 2002 due to better margins. The after-tax costs of corporate functions were $12.5 million in 2003, up from a net cost of $6.8 million in 2002. The added costs were caused by lower corporate income tax benefits, higher retirement plan costs and higher net interest costs. Year 2003 compared to Year 2002 Total income from exploration and production operations was $326.2 million in 2003 compared to $161 million for 2002. Full-year 2003 oil and natural gas sales prices realized by the Company increased by 7% and 62%, respectively, compared to 2002. Worldwide crude oil and condensate prices averaged $25.27 per barrel in 2003 and $23.59 in 2002. The Company’s average sales price for North American natural gas improved from $2.94 per MCF in 2002 to $4.77 in 2003. Hydrocarbon production totaled 119,341 barrels of oil equivalent per day in 2003 compared to 125,859 in 2002. Total oil production rose by 9% in 2003 and averaged 83,452 barrels per day for the year – the highest annual oil production in Company history. Natural gas sales volumes declined by 27% in 2003 and averaged 215 MMCF per day. Higher oil production was mostly due to start up of the West Patricia field, offshore Malaysia. The lower natural gas sales volume was primarily caused by a production decline at the Ladyfern field in Canada. Exploration expense totaled $151.1 million in 2003, down slightly from $159.4 million in 2002, mostly due to lower costs in Malaysia in the latter period. A $34 million gain was realized in 2003 from the sale of the Ninian and Columba fields in the U.K. The Company’s hedging program reduced the worldwide crude oil and North American natural gas sales prices in 2003 by $2.25 per barrel and $.17 per MCF, respectively. The Company’s refining and marketing operations lost $11.2 million in 2003 compared to a loss of $39.9 million in 2002. North American operations lost $21.2 million in 2003 and $39.2 million in 2002, with the lower loss primarily related to better results in the retail marketing business. The 2003 loss included after-tax costs of $17.5 million related to a fire that destroyed the Residual Oil Supercritical Extractor (ROSE) unit at the Meraux refinery in June. Operations in the U.K. improved in 2003, with income amounting to $10 million compared to a loss of $.7 million in 2002, as margins were significantly stronger in the latter year. After-tax corporate costs amounted to $13.8 million in 2003 compared to costs of $23.6 million in 2002. The cost decrease was mostly caused by higher income tax benefits and a larger portion of interest costs being capitalized in 2003. These savings were partially offset by higher selling and general expenses in 2003. Comments and Look Forward Claiborne P. Deming, President and Chief Executive Officer, commented, “As we enter 2004, we have an exciting combination of a growing production profile, continued expansion of our retail marketing program at Wal-Mart stores, and several important exploration prospects to be drilled. The Medusa and Habanero fields will continue to ramp up production, and the Front Runner field starts up near the end of the third quarter. In our deepwater Gulf of Mexico exploration program, we will soon spud the Thunderhawk prospect (37.5%) in Mississippi Canyon Block 734. The Siakap exploration well, drilled in Block K (80%), offshore Sabah Malaysia, encountered non-commercial amounts of oil and will be plugged and abandoned. The rig will now move to drill the Kikeh No. 7 well to explore the down dip reservoir limit of the previously announced Kikeh discovery. Total hydrocarbon production in the first quarter of 2004 is projected to be 136,000 barrels of oil equivalent per day. Our retail marketing group will build approximately 160 more gasoline stations at Wal-Mart sites in the U.S. in 2004, after opening 117 stations during 2003. The Meraux refinery has signed a contract to rebuild the ROSE unit, and the unit is scheduled to be operational in the fourth quarter of 2004. While the ROSE unit is being rebuilt, the refinery will run a more expensive, lighter crude oil slate. We currently expect first quarter earnings to range between $.80 and $1.10 per share, with the primary variables being drilling results and refining and marketing margins.”
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