EPL Epl Oil & Gas

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