UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended September 30, 2004

OR

Commission File Number 1-9971

BURLINGTON RESOURCES INC.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)

See accompanying Notes to Consolidated Financial Statements.

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BURLINGTON RESOURCES INC.
CONSOLIDATED BALANCE SHEET

See accompanying Notes to Consolidated Financial Statements.

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BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

See accompanying Notes to Consolidated Financial Statements.

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BURLINGTON RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

     The 2003 Annual Report on Form 10-K (“Form 10-K”) of Burlington Resources Inc. (the “Company”) includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q (“Quarterly Report”). The financial statements for the periods presented herein are unaudited and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. In the opinion of management, all material adjustments necessary to present fairly the results of operations have been included. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year. The consolidated financial statements include certain reclassifications that were made to conform to current period presentation.

     Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 392 million and 398 million for the third quarter of 2004 and 2003, respectively, and 393 million and 399 million for the first nine months of 2004 and 2003, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 395 million and 401 million for the third quarter of 2004 and 2003, respectively, and 396 million and 402 million for the first nine months of 2004 and 2003, respectively. Shares related to all prior periods included herein have been retroactively adjusted to reflect the 2-for-1 split on the Company’s Common Stock effective June 1, 2004.

     For the third quarter ended September 30, 2004 and 2003 and nine months ended September 30, 2004 and 2003, zero, approximately 5 million, zero and approximately 5 million shares, respectively, attributable to the potential exercise of outstanding options were excluded from the calculation of diluted EPS because the effect was antidilutive. The Company has no convertible securities affecting EPS, therefore, no adjustments related to convertible securities were made to reported net income in the computation of EPS.

Other

     Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Intangible Assets, was issued in June 2001 and became effective for the Company January 1, 2002. SFAS No. 142 established new guidelines for accounting for goodwill and other intangible assets. Subsequent to issuing SFAS No. 142, questions arose as to whether oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract reserves for both undeveloped and developed leaseholds should be classified separately from oil and gas properties, and included as intangible assets on the Company’s Consolidated Balance Sheet.

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     In September 2004, the FASB staff issued a FASB Staff Position affirming that oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract reserves for both undeveloped and developed leaseholds need not be classified separately from oil and gas properties. Therefore, the Company will continue to include amounts related to undeveloped and developed leaseholds in oil and gas properties on its Consolidated Balance Sheet.

2. STOCK-BASED COMPENSATION

     The Company uses the intrinsic value based method of accounting for stock-based compensation, as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under this method, the Company records no compensation expense for stock options granted when the exercise price for options granted is equal to the fair market value of the Company’s Common Stock on the date of the grant.

     The following table illustrates the effect on net income and EPS if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, to stock-based employee compensation. The fair value of stock options included in the pro forma amounts is not necessarily indicative of future effects on net income and EPS. The EPS amounts for prior periods have been retroactively adjusted to reflect the 2-for-1 split on the Company’s Common Stock effective June 1, 2004.

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3. COMPREHENSIVE INCOME (LOSS)

4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company uses derivative instruments to manage risks associated with natural gas and crude oil price volatility as well as interest rate and foreign currency exchange rate fluctuations. Derivative instruments that meet the hedge criteria in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, are designated as cash-flow hedges, fair-value hedges, or foreign-currency hedges. Derivative instruments designated as cash-flow hedges are used by the Company to mitigate the risk of variability in cash flows from natural gas and crude oil sales due to changes in market prices. Fair-value hedges are used by the Company to hedge or offset the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment. In addition to hedges of commodity prices, the Company also uses foreign-currency swaps to hedge its exposure to exchange rate fluctuations related to its Canadian subsidiaries. Derivative instruments that do not meet the hedge criteria in SFAS No. 133 are not designated as hedges.

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     As of September 30, 2004, the Company had the following derivative instruments outstanding with average underlying prices that represent hedged prices of commodities at various market locations.

     As of September 30, 2004, the Company had the following derivative instruments outstanding related to interest rate and foreign currency swaps.

     Based on commodity prices and foreign exchange rates as of September 30, 2004, the Company expects to reclassify losses of $79 million ($49 million after tax) to earnings from the balance in accumulated other comprehensive loss during the next twelve months. At September 30, 2004, the Company had derivative assets of $8 million and derivative liabilities of $95 million. Of the derivative assets of $8 million, $7 million and $1 million are included in Other Current Assets and Other Assets, respectively, on the Consolidated Balance Sheet. Of the derivative liabilities of $95 million, $9 million are included in Other Liabilities and Deferred Credits on the Consolidated Balance Sheet.

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     The derivative assets and liabilities related to commodities represent the difference between hedged prices and market prices on hedged volumes of the commodities as of September 30, 2004. Hedging activities related to cash settlements decreased revenues $9 million, $6 million, $23 million and $58 million in the third quarter of 2004 and 2003 and the first nine months of 2004 and 2003, respectively. In addition, non-cash gains of $1 million were recorded in revenues associated with ineffectiveness of cash-flow and fair-value hedges during the third quarter of 2004 and 2003. Non-cash gains of $2 million and non-cash losses of $1 million were recorded in revenues associated with ineffectiveness of cash-flow and fair-value hedges during the first nine months of 2004 and 2003, respectively. Also, non-cash gains of $8 thousand and $23 thousand were recorded in revenues associated with changes in the fair value of derivative instruments that do not qualify for hedge accounting during the third quarter of 2004 and 2003, respectively. Non-cash gains of $4 hundred and $9 million were recorded in revenues associated with changes in the fair value of derivative instruments that do not qualify for hedge accounting during the first nine months of 2004 and 2003, respectively.

5. COMMITMENTS AND CONTINGENCIES

     The Company and numerous other oil and gas companies have been named as defendants in various lawsuits alleging violations of the civil False Claims Act. These lawsuits were consolidated during 1999 and 2000 for pre-trial proceedings by the United States Judicial Panel on Multidistrict Litigation in the matter of In re Natural Gas Royalties Qui Tam Litigation, MDL-1293, United States District Court for the District of Wyoming (“MDL-1293”). The plaintiffs contend that defendants underpaid royalties on natural gas and NGLs produced on federal and Indian lands through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies during the period of 1985 to the present. Plaintiffs allege that the royalties paid by defendants were lower than the royalties required to be paid under federal regulations and that the forms filed by defendants with the Minerals Management Service (“MMS”) reporting these royalty payments were false, thereby violating the civil False Claims Act. The United States has intervened in certain of the MDL-1293 cases as to some of the defendants, including the Company. The plaintiffs and the intervenor have not specified in their pleadings the amount of damages they seek from the Company. On December 5, 2003, the United States Judicial Panel on Multidistrict Litigation entered an order transferring the cases alleging claims of below-market prices, improper deductions, and transactions with affiliated companies for further pre-trial proceedings and trial in Wright v. AGIP, 5:03CV264, United States District Court for the Eastern District of Texas, Texarkana Division. The cases alleging improper measurement techniques remain pending in MDL-1293.

     Various administrative proceedings are also pending before the MMS of the United States Department of the Interior with respect to the valuation of natural gas produced by the Company on federal and Indian lands. In general, these proceedings stem from regular MMS audits of the Company’s royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. Most of these proceedings involve production volumes and royalties that are the subject of Natural Gas Royalties Qui Tam Litigation.

     Based on the Company’s present understanding of the various governmental and civil False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. The Company is also exploring the possibility of a settlement of these claims. Although there has been no formal demand for damages, the Company currently estimates, based on its communications with the intervenor, that the amount of underpaid royalties on onshore production claimed by the intervenor in these

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proceedings is approximately $68 million. In the event that the Company is found to have violated the civil False Claims Act, the Company could also be subject to double damages, civil monetary penalties and other sanctions, including a temporary suspension from bidding on and entering into future federal mineral leases and other federal contracts for a defined period of time. The Company has established a reserve that management believes to be adequate to provide for this potential liability based upon its evaluation of this matter.

     The Company has also been named as a defendant in the lawsuit styled UNOCAL Netherlands B.V., et al v. Continental Netherlands Oil Company B.V., et al, No. 98-854, filed in 1995 in the District Court in The Hague and currently pending in the Court of Appeal in The Hague, the Netherlands. Plaintiffs, who are working interest owners in the Q-1 Block in the North Sea, have alleged that the Company and other former working interest owners in the adjacent Logger Field in the L16a Block unlawfully trespassed or were otherwise unjustly enriched by producing part of the oil from the adjoining Q-1 Block. The plaintiffs claim that the defendants infringed upon plaintiffs’ right to produce the minerals present in its license area and acted in violation of generally accepted standards by failing to inform plaintiffs of the overlap of the Logger Field into the Q-1 Block. Plaintiffs seek damages of $97.5 million as of January 1, 1997, plus interest. For all relevant periods, the Company owned a 37.5 percent working interest in the Logger Field. Following a trial, the District Court in The Hague rendered a Judgment in favor of the defendants, including the Company, dismissing all claims. Plaintiffs thereafter appealed. On October 19, 2000, the Court of Appeal in The Hague issued an interim Judgment in favor of the plaintiffs and ordered that additional evidence be presented to the court relating to issues of both liability and damages. After receiving additional evidence from the parties, the Court of Appeals subsequently issued a ruling in favor of defendants. In an interim judgment issued on December 18, 2003, the Court of Appeals found that defendants should not have assumed that they were extracting oil from the Q-1 Block, that Unocal was not entitled to compensation for any production occurring prior to 1992 and that damages, if any, would be limited to the proceeds Unocal would have received for oil extracted from the Q-1 Block, less the costs Unocal would have incurred to produce the oil from an existing well in the L16a Block. The Court of Appeals ordered that further evidence be presented to a court appointed expert to determine whether any damages had been suffered by Unocal. The Company and the other defendants are continuing to present evidence to the Court and vigorously assert defenses against these claims. The Company has also asserted claims of indemnity against two of the defendants from whom it had acquired a portion of its working interest share. If the Company is successful in enforcing the indemnities, its working interest share of any adverse judgment could be reduced to 15 percent for some of the periods covered by plaintiffs’ lawsuit. The Company currently does not believe that an unfavorable outcome is probable nor, in the event of an unfavorable outcome, is the Company reasonably able to estimate the possible loss, if any, or range of loss in this lawsuit. Accordingly, there has been no reserve established for this matter.

     The Company and its former affiliate, El Paso Natural Gas Company, have also been named as defendants in two class action lawsuits styled Bank of America, et al. v. El Paso Natural Gas Company, et al., Case No. CJ-97-68, and Deane W. Moore, et al. v. Burlington Northern, Inc., et. al., Case No. CJ-97-132, each filed in 1997 in the District Court of Washita County, State of Oklahoma and subsequently consolidated by the court. Plaintiffs contend that defendants underpaid royalties from 1982 to the present on natural gas produced from specified wells in Oklahoma through the use of below-market prices, improper deductions and transactions with affiliated companies and in other instances failed to pay or delayed in the payment of royalties on certain gas sold from these wells. The plaintiffs seek an accounting and damages for alleged royalty underpayments, plus interest from the time such amounts were allegedly due. Plain