Dominion Power 2003 Annual Report Download - page 40

38.Dominion 2003
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
colder winter weather, resulting in increased sales in both electric
and gas service territories;
• A decrease in interest expense, resulting primarily from lower
interest rates and
• A decrease in the effective income tax rate for reasons
described for Dominion on a consolidated basis.
Dominion Exploration & Production
Dominion Exploration & Production manages Dominion’s gas and
oil exploration, development and production business.
2003 2002 2001
(millions, except EPS)
Net income contribution $ 415 $ 380 $ 320
EPS contribution $ 1.30 $ 1.34 $ 1.27
Gas production (bcf) 384 385 283
Oil production (million bbls) 910 7
Average realized prices with
hedging results:(1)
Gas (per mcf)(2) $ 3.95 $ 3.40 $ 3.80
Oil (per bbl) 24.29 23.28 23.42
Average prices without hedging results:
Gas (per mcf)(2) 4.99 3.03 3.87
Oil (per bbl) 29.82 24.44 23.53
DD&A (per mcfe) $ 1.20 $ 1.12 $ 1.08
Average production (lifting) cost
(per mcfe) 0.80 0.60 0.65
(1) Excludes the effects of the economic hedges discussed in the operating results
of Dominion Energy under Selected Information — Energy Trading Activities.
(2)Excludes $43 million of revenue recognized in 2003 under the volumetric
production payment agreement described in Note 12 to the Consolidated
Financial Statements.
Presented below are the key factors impacting Dominion
Exploration & Production’s operating results:
2003 vs. 2002 2002 vs. 2001
Increase Increase
(Decrease) (Decrease)
Amount EPS Amount EPS
(millions, except EPS)
Gas and oil — prices $133 $ 0.47 $ (88) $(0.35)
Gas and oil
—
production (18) (0.06) 277 1.10
VPP revenue 27 0.10 ——
DD&A — rate (22) (0.08) 14 0.06
DD&A — production 3 0.01 (105) (0.42)
Operations and
maintenance (41) (0.15) (21) (0.08)
Severance taxes (18) (0.06) (7) (0.03)
Income taxes (20) (0.07) (5) (0.02)
Other (9) (0.03) (5) (0.03)
Share dilution — (0.17) — (0.16)
Change in net
income contribution $ 35 $(0.04) $ 60 $ 0.07
2003 vs. 2002
Dominion Exploration & Production’s net income contribution rose
$35 million from 2002, primarily reflecting:
• Higher average realized prices for gas and oil;
• Lower oil production, reflecting declines in Gulf of Mexico
shelf and deepwater production. Lower gas production, reflecting
the sale of minerals rights under a volumetric production payment
agreement (VPP) and declines in Rocky Mountain and Michigan
production, was largely offset by increased Gulf of Mexico gas
production;
• A higher rate for depreciation, depletion and amortization in
2003, primarily reflecting increased acquisition, finding and
development costs;
• Higher operations and maintenance expenses which
increased in connection with overall higher commodity prices in
2003, that caused an increase in the demand for equipment,
labor and services;
• Higher severance taxes, resulting from higher gas and oil rev-
enue associated with higher commodity prices in a higher com-
modity price environment and
• Higher income taxes, primarily reflecting the expiration of Sec-
tion 29 production tax credits beginning in 2003 ($34 million),
partially offset by a reduction in tax rates applied to deferred
taxes associated with Canadian operations ($14 million).
2002 vs. 2001
Dominion Exploration & Production’s net income contribution rose
$60 million, primarily reflecting a full year of Louis Dreyfus oper-
ations following its acquisition in the fourth quarter of 2001.
These new operations, as well as ongoing drilling programs,
resulted in increased gas and oil production, and higher operat-
ing expenses, such as depreciation, depletion and amortization
and gas well expenses.
Corporate and Other
Corporate and Other includes the operations of DCI, DFV and
related telecommunications operations, and Dominion’s corporate
and other operations.
2003 2002 2001
(millions, except EPS amounts)
Specific items attributable to
operating segments $ (221) $ 7 $(297)
DCI operations (95) 14 (225)
Telecommunications operations(1) (750) (26) —
Other corporate operations (342) (264) (344)
Total net expense (1,408) (269) (866)
Earnings per share impact $ (4.41) $(0.94) $(3.43)
(1) $642 million is classified as discontinued operations in 2003.