Energy Partners, Ltd. (NYSE:EPL): -- Record High Production in 2005
-- Record Annual Revenue, Cash Flow, and Net Income -- All-In
Reserve Replacement of 167% Energy Partners, Ltd. ("EPL") this
morning reported financial and operational results for the fourth
quarter of 2005 and the full year, including year end 2005 proved
reserves and reserve replacement. For the fourth quarter of 2005,
net income available to common stockholders was $28.1 million, or
$0.69 per diluted share, up 102% from $13.9 million, or $0.37 per
diluted share, in the fourth quarter of 2004. For the year 2005,
net income available to common stockholders was $72.2 million, or
$1.79 per diluted share, a 68% increase from net income in 2004 of
$43.0 million, or $1.20 per diluted share. Net income for both the
quarter and the year were record highs for the Company.
Discretionary cash flow, which is cash flow from operations before
changes in working capital and exploration expenditures, totaled
$98.6 million in the fourth quarter of 2005, a 68% increase over
$58.8 million in the fourth quarter last year. For the full year,
discretionary cash flow rose 51% to $308.8 million from $205.1
million in 2004 (see reconciliation of discretionary cash flow in
appendix). Cash flow from operations in the most recent quarter was
$16.3 million, compared to $40.2 million in the fourth quarter of
2004. Cash flow from operations for 2005 totaled $270.0 million,
rising 64% from $165.1 million in 2004. In the fourth quarter of
2005, which was significantly affected by shut ins due to tropical
weather, production averaged 18,583 barrels of oil-equivalent (Boe)
per day, compared to 22,374 Boe per day in the fourth quarter of
2004. Natural gas production in the fourth quarter of 2005 averaged
82.0 million cubic feet per day and oil production averaged 4,916
barrels per day. Production for 2005 averaged 22,722 Boe per day, a
slight increase over the 2004 average of 22,346 Boe per day.
Natural gas production averaged 88.4 million cubic feet per day in
2005, and oil production averaged 7,984 barrels per day. Price
realizations, all of which are stated net of hedging impact,
averaged $45.16 per barrel for oil in the fourth quarter and $11.39
per thousand cubic feet (Mcf) of natural gas, compared to $39.85
per barrel and $6.66 per Mcf in the fourth quarter last year. For
2005, oil price realizations averaged $46.45 per barrel and natural
gas averaged $8.26 per Mcf compared to $35.01 per barrel and $6.11
per Mcf in 2004. Fourth quarter 2005 results benefited from strong
commodity prices and $20.6 million in claims accrued under the
Company's business interruption insurance coverage. Offsetting the
effects of the insurance claims and record revenue in the quarter
were higher than expected exploration expense, including $20.8
million in dry hole costs, and $8.0 million in impairments of
certain properties. Additionally, general and administrative
expenses were $12.4 million in the quarter, which was higher than
expected due to additional insurance costs, relocation of offices
back to New Orleans, and a legal reserve associated with a contract
dispute. The annual amounts for production, net income, cash flow,
and revenues all represent record highs for the Company. The record
annual financial results were primarily due to record production in
the first half of the year along with a relatively quick recovery
from the impact of tropical weather in the second half of the year,
all during a period of high commodity prices. At year end 2005,
cash stood at $6.8 million and total debt stood at $235.1 million.
Debt to capitalization was 37%. Richard A. Bachmann, EPL's Chairman
and CEO, commented, "It is a great tribute to our staff that in a
year when Gulf producers had to contend with Katrina, Rita, and a
raft of other tropical storms, we were still able to increase
production over 2004 levels. In addition, despite all the
difficulties that we experienced as a Company and as individuals,
we were still able to deliver annual results with record highs on a
number of financial metrics. We now have 100% of our New
Orleans-based staff back in our offices in New Orleans. We are
excited about our 2006 drilling program, which is off to a great
start." Reserve Replacement and Costs EPL's proved reserves at year
end 2005 stood at 31.5 million barrels of oil and 166.9 billion
cubic feet of gas, or 59.3 million Boe, up 10% from 53.7 million
Boe at year end 2004. In 2005, the Company replaced 167% of its
reserves at an average cost of $34.55 per barrel, based on total
finding, development, and acquisition costs (see reconciliation in
appendix). EPL acquired 12.7 million Boe in 2005 at an aggregate
cost of $171.4 million and added 5.2 million Boe from its
exploration and development program in 2005 at an aggregate cost of
$307.4 million. The Company recorded 4.0 million Boe in negative
revisions to its proved reserves in 2005, reflecting positive
revisions from year end 2004 reserves and 5.4 million Boe in
negative revisions associated with its onshore south Louisiana
acquisition in January 2005. Despite good exploratory results in
south Louisiana, the negative revisions primarily resulted from
poor development drilling results and the impact of those results
on underlying reserves. All of the Company's reserve figures are
based upon third party engineering estimates by Ryder Scott
Company, L.P. and Netherland, Sewell & Associates, Inc.
Bachmann continued, "Our success with the drill bit in 2005 was
clearly below our historical track record and also below our
expectations. We have made some changes in our program which we
expect will get us back closer to the levels we saw in 2003 and
2004. Those changes, coupled with the exceptional quality of our
2006 drilling program, are designed to return us to the growth and
value creation through the drill bit that has been the hallmark of
this Company." Operational Highlights EPL drilled 44 exploratory
wells in 2005 and posted 28 discoveries, for an overall exploratory
success rate of 64%. The Company had 16 discoveries in 28 wells
offshore and 12 discoveries in 16 wells onshore. A table of EPL's
2005 offshore exploratory wells is available in appendix. In
addition to exploratory drilling, EPL drilled 11 development wells
and completed 33 workovers and recompletions in 2005. The Company
was also active in a number of state and federal lease sales in
2005, adding more than 110,000 gross acres in the year. Year end
undeveloped gross acres stood at 231,547, an 102% increase over the
year end 2004 undeveloped acreage of 114,431. Total gross acreage
at year end 2005 was 440,326 acres. Deepwater EPL recently
finalized an agreement to acquire a 25% working interest in 23
undeveloped leases in the deepwater Gulf of Mexico from Noble
Energy, Inc. (NYSE:NBL). The agreement calls for a minimum of two
exploratory wells in 2006, one of which is currently drilling,
Mississippi Canyon 204 #1, located in 3,400 feet of water targeting
the Redrock prospect. EPL holds a 25% working interest in the well,
which is presently at an intermediate casing point, and has the
option to participate with a 25% working interest in all of the 13
currently identified prospects on the 23 leases. Current Operations
EPL recently drilled its second exploratory discovery of 2006, the
East Cameron 268 #1. EPL holds a 50% working interest in the well,
which is operated by Callon Petroleum Co., (NYSE:CPE). Year to date
in 2006, EPL has two discoveries in two exploratory tests. The
Company currently has four exploratory wells underway: South Pass
26 #1 at East Bay testing the high potential Denali prospect, which
is expected to reach total depth in four to eight weeks, at 40%
working interest, Mississippi Canyon 204 #1 testing the Redrock
prospect at 25% working interest, West Cameron 3 #1 at 25% working
interest and West Cameron 202 #1 at 25% working interest. The
Company expects to drill at least 24 exploratory wells offshore in
2006 along with at least eight exploratory wells onshore. EPL's
capital budget for 2006 is currently set at $360 million, which
includes approximately $40 million for deepwater lease acquisition,
seismic, and exploration. The 2006 exploration and development
program is expected to be funded entirely through internally
generated cash flow. The Company does not budget for acquisitions.
During the month of February, production has been as high as 25,000
Boe per day, and the Company expects essentially all its productive
capacity to be online by the end of the second quarter. Bachmann
concluded, "While the storm season of 2005 prevented us from
delivering the growth last year that we projected, we will soon
have essentially all production restored, and that puts us in an
excellent position for 25% to 35% projected production growth in
2006. We feel we have one of our most exciting exploratory
portfolios ever in front of us in 2006, even before considering the
potential impact of our Denali prospect. As difficult as 2005 was
for us, the employees of EPL are demonstrating an enduring
enthusiasm going into 2006 that I believe will deliver great
returns for the Company and its shareholders in the year ahead."
EPL has scheduled a conference call to review fourth quarter and
year end 2005 results this morning , February 24, 2006, at 8:00
A.M. central time. To participate in the EPL conference call,
callers in the United States and Canada can dial (877) 612-5303 and
international callers can dial (706) 634-0487. The Conference I.D.
for callers is 5144909. The call will be available for replay
beginning two hours after the call is completed through midnight of
March 1. For callers in the United States and Canada, the toll-free
number for the replay is (800) 642-1687. For international callers
the number is (706) 645-9291. The Conference I.D. for all callers
to access the replay is 5144909. The conference call will be
webcast live as well as for on-demand listening at the Company's
web site, www.eplweb.com. Listeners may access the call through the
"Conference Calls" link in the Investor Relations section of the
site. The call will also be available through the CCBN Investor
Network. Founded in 1998, EPL is an independent oil and natural gas
exploration and production company based in New Orleans, Louisiana.
The Company's operations are focused along the U. S. Gulf Coast,
both onshore in south Louisiana and offshore in the Gulf of Mexico.
Any statements made in this news release, other than those of
historical fact, about an action, event or development, which the
Company hopes, believes or anticipates may or will occur in the
future, are "forward-looking statements" under U. S. securities
laws. Such statements are subject to various assumptions, risks and
uncertainties, which are specifically described in our Annual
Report on Form 10-K for fiscal year ended December 31, 2004 filed
with the Securities and Exchange Commission. Forward-looking
statements are not guarantees of future performance or an assurance
that the Company's current assumptions and projections are valid.
Actual results may differ materially from those projected. -0- *T
Appendix - 2005 Offshore Exploratory Wells Lease Well Number Result
EPL Working Interest ----- ----------- ------ --------------------
South Pass 40 #2 Oil and gas 100% Vermilion 237 #1 Gas 100% East
Cameron 346 #A-12 Dry 25% West Cameron 242 #1 Dry 75% South Marsh
Island 109 #A-5 Gas 27% West Delta 53 #1 Gas 67% Eugene Island 277
#5 Gas 67% South Timbalier 41 #3 Oil and Gas 60% Eugene Island 277
#A-2 ST Oil and Gas 50% Eugene Island 27 #2 Gas 100% Galveston
341-S #1 Gas 50% West Delta 51 #1 Dry 100% West Cameron 31 #1 Dry
45% East Cameron 111 #1 Gas 50% South Timbalier 23 CM-19 ST Oil 27%
Eugene Island 247 #J-3 ST Gas 98% Eugene Island 141 #1 Gas 20%
South Pass 40 #1 Gas 40% West Cameron 479 #1 Dry 50% West Cameron
455 #1 Dry 50% West Delta 52 #1 Dry 100% West Cameron 98 #3 Dry 25%
High Island 19 #1 Dry 50% Eugene Island 4 #1 Dry 50% South
Timbalier 42 #1 Oil 60% South Pass 29 #1 Dry 100% South Pass 39 #1
Dry 100% South Timbalier 23 #CC-6 ST Oil 27% ENERGY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, except per
share data) Three Months Ended Years Ended December 31, December
31, ------------------ ------------------ 2005 2004 2005 2004
-------- ------- --------- -------- (Unaudited) (Unaudited)
Revenues: Oil and natural gas $106,345 $ 82,138 $402,005 $294,531
Other 919 416 942 679 -------- -------- -------- -------- 107,264
82,554 402,947 295,210 -------- -------- -------- -------- Costs
and expenses: Lease operating 9,711 10,419 50,431 40,328
Transportation expense 258 13 1,051 289 Taxes, other than on
earnings 2,114 2,814 10,372 9,263 Exploration expenditures, dry
hole costs and impairments 29,904 9,005 82,844 35,935 Depreciation,
depletion and amortization 24,219 26,092 103,649 92,353 General and
administrative: Stock-based compensation 550 496 6,767 3,050 Other
general and administrative 12,372 7,518 36,438 27,924 --------
-------- -------- -------- Total costs and expenses 79,128 56,357
291,552 209,142 -------- -------- -------- -------- Business
interruption recovery 20,632 - 20,632 - Income from operations
48,768 26,197 132,027 86,068 -------- -------- -------- --------
Other income (expense): Interest income 263 434 781 1,219 Interest
expense (4,809) (3,593) (18,121) (14,355) -------- --------
-------- -------- (4,546) (3,159) (17,340) (13,136) --------
-------- -------- -------- Income before income taxes 44,222 23,038
114,687 72,932 Income taxes (16,118) (8,293) (41,592) (26,516)
-------- -------- -------- -------- Net income 28,104 14,745 73,095
46,416 Less dividends earned on preferred stock and accretion of
discount - (826) (944) (3,399) -------- -------- -------- --------
Net income available to common stockholders $ 28,104 $ 13,919 $
72,151 $ 43,017 ======== ======== ======== ======== Earnings per
share: Basic earnings per share $ 0.74 $ 0.42 $ 1.94 $ 1.31
======== ======== ======== ======== Diluted earnings per share $
0.69 $ 0.37 $ 1.79 $ 1.20 ======== ======== ======== ========
Weighted average common shares used in computing income per share:
Basic 37,984 33,075 37,097 32,861 Incremental common shares 2,877
6,360 3,662 5,788 -------- -------- -------- -------- Diluted
40,861 39,435 40,759 38,649 ======== ======== ======== ========
ENERGY PARTNERS, LTD. CONSOLIDATED STATEMENTS OF NET CASH PROVIDED
BY OPERATING ACTIVITIES (In Thousands) Three Months Ended Years
Ended December 31, December 31, ------------------
------------------ 2005 2004 2005 2004 -------- -------- ---------
-------- (Unaudited) (Unaudited) Cash flows from operating
activities: Net income $ 28,104 $ 14,745 $ 73,095 $ 46,416
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation, depletion and amortization
24,219 26,092 103,649 92,353 Gain on sale of oil and natural gas
assets (869) (282) (777) (282) Stock-based compensation 550 496
6,817 3,100 Deferred income taxes 16,114 8,293 41,242 26,365
Exploration expenditures 28,718 7,190 69,926 26,730 Amortization of
deferred financing costs 249 226 995 907 Other 292 189 966 293
Changes in operating assets and liabilities: Trade accounts
receivable (32,572) (19,332) (18,985) (24,931) Other receivables
(36,881) 1,651 (43,703) (5,600) Prepaid expenses 1,282 928 (894)
(179) Other assets (607) (3,840) (2,338) (4,522) Accounts payable
and accrued expenses (12,318) 3,522 40,073 6,180 Other liabilities
17 309 (97) (1,756) -------- -------- -------- -------- Net cash
provided by operating activities $ 16,298 $ 40,187 $269,969
$165,074 ======== ======== ======== ======== Reconciliation of
discretionary cash flow: Net cash provided by operating activities
16,298 40,187 269,969 165,074 Changes in working capital 81,079
16,762 25,944 30,808 Non-cash exploration expenditures (28,718)
(7,190) (69,926) (26,730) Total exploration expenditures 29,904
9,005 82,844 35,935 -------- -------- -------- --------
Discretionary cash flow $ 98,563 $ 58,764 $308,831 $205,087
======== ======== ======== ======== The table above reconciles
discretionary cash flow to net cash provided by operating
activities. Discretionary cash flow is defined as cash flow from
operations before changes in working capital and exploration
expenditures. Discretionary cash flow is widely accepted as a
financial indicator of an oil and natural gas company's ability to
generate cash which is used to internally fund exploration and
development activities, pay dividends and service debt.
Discretionary cash flow is presented based on management's belief
that this non-GAAP financial measure is useful information to
investors because it is widely used by professional research
analysts in the valuation, comparison, rating and investment
recommendations of companies within the oil and natural gas
exploration and production industry. Many investors use the
published research of these analysts in making their investment
decisions. Discretionary cash flow is not a measure of financial
performance under GAAP and should not be considered as an
alternative to cash flows from operating activities, as defined by
GAAP, or as a measure of liquidity, or an alternative to net
income. Investors should be cautioned that discretionary cash flow
as reported by us may not be comparable in all instances to
discretionary cash flow as reported by other companies. ENERGY
PARTNERS, LTD. SELECTED PRODUCTION, PRICING AND OPERATIONAL
STATISTICS (Unaudited) Three Months Ended Years Ended December 31,
December 31, ------------------ --------------- 2005 2004 2005 2004
------ ------- ------ ------ PRODUCTION AND PRICING
---------------------- Net Production (per day): Oil (Bbls) 4,916
9,348 7,984 8,663 Natural gas (Mcf) 82,001 78,156 88,430 82,098
Total (Boe) 18,583 22,374 22,722 22,346 Oil and Natural Gas
Revenues (in thousands): Oil $20,423 $34,269 $135,359 $111,006
Natural gas 85,922 47,869 266,646 183,525 Total 106,345 82,138
402,005 294,531 Average Sales Prices (1): Oil (per Bbl) $ 45.16 $
39.85 $ 46.45 $ 35.01 Natural gas (per Mcf) 11.39 6.66 8.26 6.11
Average (per Boe) 62.20 39.90 48.47 36.01 OPERATIONAL STATISTICS
---------------------- Average Costs (per Boe): Lease operating
expense $ 5.68 $ 5.06 $ 6.08 $ 4.93 Taxes, other than on earnings
1.24 1.37 1.25 1.13 Depreciation, depletion and amortization 14.17
12.68 12.50 11.29 (1) Prices are net of hedging transactions which
had the following impact: - Reduced natural gas price realizations
by $1.03 and $0.09 per Mcf for the fourth quarter of 2005 and 2004,
respectively; - Reduced oil price realizations by $6.50 and $6.68
per barrel for the fourth quarter of 2005 and 2004, respectively; -
Reduced natural gas price realizations by $0.24 and $0.04 per Mcf
for the years ended December 31, 2005 and 2004, respectively; and -
Reduced oil price realizations by $3.15 and $4.40 per barrel for
the years ended December 31, 2005 and 2004, respectively. ENERGY
PARTNERS, LTD. CONSOLIDATED BALANCE SHEETS (In Thousands, except
share data) December 31, December 31, 2005 2004 ------------
------------ (Unaudited) ASSETS ------ Current assets: Cash and
cash equivalents $ 6,789 $ 93,537 Trade accounts receivable -- net
of allowance for doubtful accounts 78,326 59,341 Other receivables
49,303 5,600 Deferred tax asset 5,582 1,906 Prepaid expenses 3,179
2,285 ------------ ------------ Total current assets 143,179
162,669 Property and equipment, at cost under the successful
efforts method of accounting for oil and natural gas properties
1,189,078 769,331 Less accumulated depreciation, depletion and
amortization (418,347) (304,997) ------------ ------------ Net
property and equipment 770,731 464,334 Other assets 13,284 15,970
Deferred financing costs -- net of accumulated amortization 4,091
4,705 ------------ ------------ $ 931,285 $ 647,678 ============
============ LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------ Current liabilities: Accounts
payable $ 28,810 $ 21,255 Accrued expenses 108,087 59,387 Fair
value of commodity derivative instruments 9,875 1,749 Current
maturities of long-term debt 109 108 ------------ ------------
Total current liabilities 146,881 82,499 Long-term debt 235,000
150,109 Deferred income taxes 87,559 53,686 Asset retirement
obligation 56,039 45,064 Other 11,213 1,271 ------------
------------ 536,692 332,629 Stockholders' equity: Preferred stock,
$1 par value, authorized 1,700,000 shares; issued and outstanding:
2005 - no shares; 2004 - 344,399 shares. Aggregate liquidation
value: 2004 - $34,440 - 33,504 Common stock, par value $0.01 per
share. Authorized 50,000,000 shares; issued and outstanding: 2005 -
41,468,093 shares; 2004 - 36,618,084 shares 415 367 Additional
paid-in capital 348,863 296,460 Accumulated other comprehensive
loss (12,619) (1,119) Retained earnings 115,366 43,215 Treasury
stock, at cost. 2005 - 3,474,208 and 2004 - 3,480,441 shares
(57,432) (57,378) ------------ ------------ Total stockholders'
equity 394,593 315,049 Commitments and contingencies ------------
------------ $ 931,285 $ 647,678 ============ ============ ENERGY
PARTNERS, LTD. SUPPLEMENTAL OIL & GAS DISCLOSURE (Unaudited)
Crude Oil Natural Gas Equivalents (Mbbl) (Mmcf) (Mboe) ---------
----------- ----------- Proved developed and undeveloped reserves:
December 31, 2002 26,353 126,957 47,513 Extensions, discoveries and
other additions 2,275 40,270 8,987 Revisions 1,698 (4,135) 1,008
Production (2,912) (28,688) (7,693) ----------- -----------
----------- December 31, 2003 27,414 134,404 49,815 Extensions,
discoveries and other additions 3,232 67,049 14,407 Revisions 1,295
(21,570) (2,300) Production (3,171) (30,048) (8,179) -----------
----------- ----------- December 31, 2004 28,770 149,835 53,743
Purchases of reserves in place 3,949 52,690 12,731 Extensions,
discoveries and other additions 1,086 24,490 5,168 Revisions 587
(27,789) (4,045) Production (2,914) (32,277) (8,294) -----------
----------- ----------- December 31, 2005 31,478 166,949 59,303
Proved developed reserves: December 31, 2003 22,306 71,531 34,228
December 31, 2004 24,737 102,760 41,864 December 31, 2005 25,646
103,627 42,917 Costs incurred for oil and natural gas property
acquisition, exploration and development activities for the
three-years ended December 31 are as follows (in Thousands): 2005
2004 2003 ----------- ----------- ----------- Business combinations
Proved properties $ 142,025 $ 2,166 $ 850 Unproved properties
29,333 - - ----------- ----------- ----------- Total business
combinations 171,358 2,166 850 Lease acquisitions 27,622 6,551
6,030 Exploration 171,859 113,278 60,170 Development 107,910 72,235
45,682 ----------- ----------- ----------- Total finding and
development costs 307,391 192,064 111,882 ----------- -----------
----------- Total finding, development and acquisition costs
478,749 194,230 112,732 ----------- ----------- ----------- Asset
retirement liabilities incurred 7,151 3,686 812 Asset retirement
revisions (247) (189) 2,519 ----------- ----------- -----------
Total cost incurred $ 485,653 $ 197,727 $ 116,063 Acquisition costs
in 2003 and 2004 and $0.9 million in 2005 relate to the contingent
consideration payments made to former Hall-Houston shareholders. *T
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