Kerr-McGee Corp. reported record first-quarter earnings last month. So did Devon Energy Corp., Newfield Exploration Co. and HS Resources Inc. Other U.S. independent producers simply posted sharply higher results for the first three months of 2000. The dramatic year-to-year improvements were not surprising because their cause was so obvious. Crude-oil prices were as high this past quarter as they were low in 1999's initial three months. "We anticipated this recovery in oil and gas prices, which has resulted, at least in part, from last year's industrywide slashing of capital expenditures," said Anadarko Petroleum Corp. chairman Robert J. Allison Jr. Independents did more than simply wait for commodity prices to improve last year, however. As results grew better sequentially with each passing quarter, many used the higher cash flow to strengthen their balance sheets and make acquisitions. "Our shareholders currently are realizing the benefits of the strategic initiatives that we have undertaken in the last few years," said James E. Duffy, HS Resources chief financial officer. "During periods of generally lower product prices and depressed industry conditions, we acquired properties from Amoco Production, developed our Gulf Coast exploration program and acquired the Wattenberg gathering system. "At the same time, we minimized the issuance of new equity and, in fact, repurchased a number of our shares at substantially lower prices." Steadily improving conditions helped 23 of the 25 top U.S. independent producers report higher full-year earnings for 1999. The result was a 549.2% improvement in their total income on revenues that rose 20.5% from the prior-year total. EOG Resources Corp., where earnings dropped 65.9% from 1998, clearly missed the contribution of operations it turned over to Enron Corp. as it completed its separation from its former parent last year. The divestiture resulted in a decline of 3.4% in its gas production, 30% in its crude oil, condensate and gas liquids output, and 38.4% in its total reserves during the year. Pioneer Natural Resources Co. also shed assets during 1999 that lowered its production and reserves totals. But the Dallas independent also reduced its operating losses by 98.1% to $5.2 million from $271.3 million in 1998 on revenues that declined only 1.6% during the period. It reported earnings, before special items, of $19.9 million for the first quarter of 2000. At the opposite extreme, Devon Energy led the 25 top independents as it increased its reserves last year by 123.8% and replaced 805.7% of its production. The Oklahoma City independent's production of crude, condensate and gas liquids jumped 40.4% year-to-year as the average price per barrel climbed 46.6%. Devon's gas production rose 49.1% as the average price per thousand cubic feet rose 23.6% during the same period. These improvements, as well as its 78% higher full-year earnings and 89.5% higher revenues, were clearly a consequence of its buying PennzEnergy Co. Overall, however, independents showed relative restraint last year in production and reserve increases. Despite a 33.3% increase in the average price per barrel, the 25 producers' latest year-end scoreboard increased their total crude, condensate and gas liquids production only 4.2% from 1998. Natural gas production climbed only 2% in response to a 6.4% in the average price per Mcf during the same period, while total reserves rose 9.7% and the companies replaced 176.7% of their total 1999 production. That's more than the 8.3% growth of reserves and 169.2% reserve replacement rate in 1998. But it's less than the 10.9% increase in total reserves and 191.6% replacement rate in 1997. -Nick Snow