DBRS Confirms Burlington Resources Inc. at BBB (high)

Dominion Bond Rating Service (“DBRS”) is confirming the ratings of Burlington Resources Inc. (“Burlington” or the “Company”) and its subsidiaries for the following reasons:

(1) Burlington’s credit metrics continue to improve since leverage peaked at 54% in 2001 as a result of acquisitions. Total debt/capital has declined to 34%, or 17% net of cash, with strong cash flow support (total debt-to-cash flow of 1.1 times, 0.4 times using net debt), attributable to good commodity prices, increased production, and asset divestitures.

(2) Burlington benefits from efficient capital investment approached on a consistent, full-cycle basis. Industry-wide finding, development, and production costs have been increasing as a result of higher service, fuel, and materials costs though Burlington’s three-year average reserve replacement cost of US$7.10 per barrel of oil equivalent (boe; excludes acquisitions) is among the lowest of its peers. In addition to efficiently and consistently replacing reserves internally (2000 being the only year in the past eight that it did not replace at least 100% of production internally), Burlington has also made timely acquisitions as reflected in its five-year average reserve replacement cost of US$7.23 per boe that includes significant new Canadian reserves added in 2001 and 2002. Operating cash flow should be sufficient to cover capital investments projected at US$2.6 billion in 2005, as has been the case since 1999.

(3) Burlington has increased production 10% in each of the past two years, primarily outside of North America, while containing operating expenses. Further growth of 3%-8% through 2006 should be achievable, given good commodity prices and its deep inventory of development projects, including additional gas production (+100 MMcf per day by year-end) from the east Irish Sea and from a variety of fields in North America. Increased North American production is often a result of enhanced production methods that can be higher cost, and Burlington has seen its operating expense increase to US$7.56 per boe, a little above the industry average, though reasonable given its efficient investment.

However, despite the operational excellence, the Company manages its leverage at the 40%-45% range, which is reflected in its rating. Furthermore, continued share repurchases (totalling US$1.3 billion since 2002) reduce balance sheet liquidity, but would be manageable in the event of a softening price environment. Other limiting factors include the focus on gas production (68% in 2004) resulting in less diversification than companies with more balanced oil production.

Notwithstanding, Burlington should benefit from flat to growing production through down cycles, underscored by its consistent and efficient investment in long-lived assets, including unconventional resource plays, and a more geographically diversified international portfolio (17% of 2004 production compared to 9% in 2003). Lower leverage is expected over the next three years with cash expected to be used for US$975 million of debt maturing in 2006 and 2007.

Note:
Ratings on Burlington Resources Canada Ltd. and are based on the unconditional guarantee of Burlington Resources Inc.