Can a large-cap E&P company create both growth and returns? The answer underlies the transformation that Burlington Resources has undergone in the past two years. "We have accepted a strategy of modest growth of 3% to 8% annually, but with sector-leading cash flow return," said Steven J. Shapiro, the firm's chief financial officer, speaking to Houston Producers' Forum members recently. "We say you have to show differential based on your asset quality and return on capital employed (ROCE). Capital discipline is necessary and possible, but not likely without other things lined up: the right assets, the right skills that fit those assets, and culture, alignment and focus." In the past two years, the Houston company has lowered its reinvestment risk and now has a ROCE that is 150 to 200 basis points above that of its peers. In 1999 Burlington's ROCE was just 2% but in 2002 it was 8%. Production per share grew 11% last year. The company has reduced its cash costs by 11 cents per thousand cubic feet equivalent and slowed its production decline rate to about 20% annually. "That means about $400 million per year we don't have to spend on replacement, but can spend on value-creation instead." -Leslie Haines