EPL Epl Oil & Gas

Energy Partners, Ltd. ("EPL") (NYSE:EPL) today announced financial results for the first quarter of 2006 and provided an update on operations. In the update, EPL said its total production has now returned to over 29,000 barrels of oil equivalent (Boe) per day, essentially the rate the Company was producing just prior to the storms in late August 2005. The Company also disclosed that it has recently drilled a discovery well at Little Lake onshore in south Louisiana. In addition, wells drilled at Grand Isle 66 and West Cameron 202 on the Gulf of Mexico Shelf were plugged and abandoned. Financial Results Net income available to common stockholders was $14.8 million for the first quarter of 2006 compared to $19.5 million for the first quarter of 2005. Net income per diluted share for the first quarter 2006 was $0.37 compared to $0.51 per diluted share in the same quarter a year ago. Revenue for the first quarter of 2006 rose to $110.1 million, a 13% increase over first quarter 2005 revenues of $97.5 million. Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expenses, rose to $92.9 million, up 32% from $70.2 million in the first quarter last year. (See reconciliation of discretionary cash flow schedule in the tables.) Cash flow from operating activities in the first quarter of 2006 was $63.9 million compared with $69.4 million in the same quarter a year ago. The first quarter of 2006 benefited from record oil prices and strong natural gas prices, and included $12.7 million in claims accrued under the Company's business interruption insurance coverage. These benefits were reduced by lower production volumes due to hurricane related shut ins; increased exploration expenses associated with an expanded capital expenditure program; and higher depreciation, depletion, and amortization (DD&A) expenses. The Company said DD&A per Boe, which increased in the first quarter from prior periods, is expected to trend downward in the coming quarters. Production for the first quarter of 2006 averaged 22,991 Boe per day, up 24% from 18,583 Boe per day in the fourth quarter of 2005, but down 12% from 26,007 Boe per day in the first quarter of 2005. Natural gas production in the first quarter of 2006 averaged 94.8 million cubic feet (Mmcf) per day, a 16% rise from 82.0 Mmcf per day in the fourth quarter of 2005. Oil production in the most recent quarter averaged 7,185 barrels per day, a 46% rise from the average of 4,916 Boe per day in the fourth quarter of last year. First quarter 2006 production volumes were down compared to the first quarter of 2005 due to the impact of hurricane related shut ins but were up significantly from the fourth quarter of 2005 as new wells came on line and production continued to be restored following completion of repairs to third-party pipelines and processing facilities. The Company said production is currently averaging over 29,000 Boe per day. Richard A. Bachmann, EPL's Chairman and CEO, commented, "We are pleased to get off to a strong start in 2006. The 24% increase in first quarter production from fourth quarter 2005 is a strong showing following the production disruptions related to last year's storm season. Now that the majority of the third-party infrastructure repairs that limited our production have been completed and new production has been added, we have essentially returned to pre-storm volume levels. By the end of May, we should be above last year's record production high of 30,000 Boe per day. We believe that our first quarter results and the positive indications we are seeing for the second quarter are just the start to what should be a great year for us." Oil price realizations for the first quarter of 2006 averaged $59.16 per barrel, a 30% increase from $45.68 per barrel in the same period a year ago. Natural gas price realizations in the quarter averaged $8.30 per thousand cubic feet (Mcf), increasing 27% from $6.52 per Mcf in the first quarter of 2005. All commodity prices are stated net of hedging impact. The Company maintains a complete and regularly updated schedule of hedging positions under "Hedging" in the Investor Relations section of the Company's web site, www.eplweb.com. During the quarter, the Company said capital expenditures for exploration and development activities totaled $92.5 million. The Company also said that the projected 2006 capital budget of $360.0 million will be executed with internally generated funds. As of March 31, 2006 total debt stood at $225.0 million, and the Company's debt to total capitalization ratio was 35%. Operational Highlights Lease Sale At the March 2006 Central Gulf of Mexico Lease Sale, EPL was the high bidder on 11 of 18 blocks on which the Company submitted bids. The successful bids represent approximately 52,500 gross acres, including two deepwater tracts as well as nine other areas on the Gulf of Mexico Shelf. EPL's share of the lease bonuses for the successful high bids totaled $7.9 million. To date, seven of the high bid blocks have been awarded, including the two deepwater leases. Shelf and Onshore During the first quarter, the Company announced discoveries on four Shelf properties including the East Cameron 268 #1, South Timbalier 23 #CC-4st, West Cameron 3 #1, and West Cameron 176 #13. EPL owns a 50% working interest in the East Cameron 268 #1, 27% in South Timbalier 23 #CC-4, and 25% working interest in each of the other two wells. All of these wells had moderate reserve potential, and production from each well is expected by the end of the year. In addition to restoring wells shut in by the storms, five wells from discoveries in prior years commenced production at East Cameron 111, Eugene Island 141, North Padre Island 913, and South Marsh Island 192 since January 1, 2006. In the first quarter, the Louisiana State Lease 15016 #1 well testing the Denali prospect in South Pass 26 was determined to be non-commercial. The Company recognized dry hole expense of $7.5 million in the first quarter of 2006 in connection with the well. While there is a possibility for future tests of deeper horizons in the area, none are planned for 2006. In addition, the Company announced the well at Grand Isle 66 did not encounter hydrocarbons. This moderate potential well, operated by Walter Oil and Gas Corporation in which EPL held a 50% working interest, was drilled to a total depth of 16,150 feet. The Company also announced that the non-operated high potential, high risk well at West Cameron 202, in which EPL held a 25% working interest, is being plugged and abandoned after it was drilled to a total depth of 15,876 feet, the point at which hole conditions prevented the well from being drilled deeper to test the higher potential targets. For the year to date, the Company has drilled six discoveries out of nine exploratory tests. The Company plans to drill at least 14 additional exploratory wells on the Shelf in the balance of 2006, with four of those wells having high reserve potential. Onshore in south Louisiana, the Company recently drilled a successful exploratory test in the Little Lake area in which it has 50% working interest, which should be on line late in the second quarter of 2006. EPL plans to commence drilling a deep, high risk, high potential exploratory test, the Lakeside Prospect, in Cameron Parish in mid to late May. At least one additional onshore deep exploratory test is planned for later in the year. Deepwater In February, the Company announced its entry into the deepwater Gulf of Mexico with an agreement to acquire a 25% working interest in 23 undeveloped leases with 13 identified prospects from Noble Energy, Inc. The first well, Mississippi Canyon Block 204 #1, called Redrock, was drilled to a total measured depth of 23,365 feet and encountered its intended objectives. While the resource estimation is still ongoing, high quality pay was encountered in one objective as expected. The quality and extent of a second objective is still under evaluation, and further appraisal work on this discovery will continue this year and into 2007. The second well, called Raton, which is at Mississippi Canyon 248, is currently drilling to a total measured depth of 20,000 feet and has multiple targets. Current Operations The Company is currently drilling two exploratory wells: the deepwater Mississippi Canyon 248 #1 and South Timbalier 42 #2. In addition, the Company said today that it has recently brought on line the South Timbalier 41 #B-2 well, a 2006 development well. The well, in which the Company owns a 60% working interest, is currently producing approximately 70 Mmcf and 1,200 barrels of condensate per day on a gross basis, and is EPL's highest rate well. Richard A. Bachmann continued, "Based on the operational pace we have established early in the year, we believe we are well positioned to meet our production goal to increase our annual production by 25% to 35%. With our entry into deepwater and our continued focus on the Shelf and onshore south Louisiana, we believe this will be one of our most exciting exploratory drilling programs." EPL has scheduled a conference call to review first quarter 2006 results for today, May 9, 2006 at 8:30 A.M. central time. On the call, management will discuss operational and financial results and also provide an update on guidance for 2006. 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 8556663. The call will be available for replay beginning two hours after the call is completed through midnight of May 14, 2006. 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 8556663. 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, 2005 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 ENERGY PARTNERS, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended March 31, ------------------ 2006 2005 -------- -------- Revenues: Oil and natural gas $109,124 $ 97,453 Other 994 25 -------- -------- 110,118 97,478 -------- -------- Costs and expenses: Lease operating 12,365 12,443 Transportation expense 248 160 Taxes, other than on earnings 2,995 2,764 Exploration expenditures, dry hole costs and impairments 19,596 10,755 Depreciation, depletion and amortization 47,145 25,513 General and administrative 12,456 9,900 -------- -------- Total costs and expenses 94,805 61,535 -------- -------- Business interruption recovery 12,689 - Income from operations 28,002 35,943 -------- -------- Other income (expense): Interest income 279 185 Interest expense (5,084) (4,048) -------- -------- (4,805) (3,863) -------- -------- Income before income taxes 23,197 32,080 Income taxes (8,394) (11,659) -------- -------- Net income 14,803 20,421 Less dividends earned on preferred stock and accretion of discount - (944) -------- -------- Net income available to common stockholders $ 14,803 $ 19,477 ======== ======== Basic earnings per share $ 0.39 $ 0.56 ======== ======== Diluted earnings per share $ 0.37 $ 0.51 ======== ======== Weighted average common shares used in computing earnings per share: Basic 38,028 35,026 Incremental common shares 2,340 5,241 -------- -------- Diluted 40,368 40,267 ======== ======== ENERGY PARTNERS, LTD. CONSOLIDATED STATEMENTS OF NET CASH PROVIDED BY OPERATING ACTIVITIES (In thousands) (Unaudited) Three Months Ended March 31, ---------------- 2006 2005 -------- ------- Cash flows from operating activities: Net income $ 14,803 $20,421 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 47,145 25,513 Loss on disposition of oil and natural gas assets - 92 Non-cash compensation 2,115 1,883 Deferred income taxes 8,677 11,309 Exploration expenditures 13,968 4,728 Amortization of deferred financing costs 249 247 Other 294 - Changes in operating assets and liabilities: Trade accounts receivable 11,381 (2,683) Other receivables (12,603) (81) Prepaid expenses 2,124 1,282 Other assets 850 (1,292) Accounts payable and accrued expenses (25,030) 8,152 Other liabilities (103) (128) -------- ------- Net cash provided by operating activities $ 63,870 $69,443 ======== ======= Reconciliation of discretionary cash flow: Net cash provided by operating activities 63,870 69,443 Changes in working capital 23,381 (5,250) Non-cash exploration expenditures (13,968) (4,728) Total exploration expenditures 19,596 10,755 -------- ------- Discretionary cash flow $ 92,879 $70,220 ======== ======= 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 March 31, ---------------- 2006 2005 -------- ------- PRODUCTION AND PRICING ----------------------------------------------------- Net Production (per day): Oil (Bbls) 7,185 9,978 Natural gas (Mcf) 94,833 96,172 Total (Boe) 22,991 26,007 Oil and Natural Gas Revenues (in thousands): Oil $ 38,253 $ 41,019 Natural gas 70,871 56,434 Total 109,124 97,453 Average Sales Prices (1): Oil (per Bbl) $ 59.16 $ 45.68 Natural gas (per Mcf) 8.30 6.52 Average (per Boe) 52.74 41.64 OPERATIONAL STATISTICS ----------------------------------------------------- Average Costs (per Boe): Lease operating expense $ 5.98 $ 5.32 Taxes, other than on earnings 1.45 1.18 Depreciation, depletion and amortization 22.78 10.90 (1) Prices are net of hedging transactions which had the following impact: -- Reduced natural gas price realizations by $0.11 per Mcf and none for the first quarter of 2006 and 2005, respectively; and -- Reduced oil price realizations by none and $1.17 per barrel for the first quarter of 2006 and 2005, respectively. ENERGY PARTNERS, LTD. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, December 31, 2006 2005 ----------- ---------- (Unaudited) ASSETS ------ Current assets: Cash and cash equivalents $ 2,725 $ 6,789 Trade accounts receivable 66,945 78,326 Other receivables 61,906 49,303 Deferred tax asset 3,213 5,582 Prepaid expenses 1,055 3,179 ----------- ---------- Total current assets 135,844 143,179 Property and equipment, at cost under the successful efforts method of accounting for oil and natural gas properties 1,265,479 1,189,078 Less accumulated depreciation, depletion and amortization (463,793) (418,347) ----------- ---------- Net property and equipment 801,686 770,731 Other assets 12,434 13,284 Deferred financing costs -- net of accumulated amortization 3,841 4,091 ----------- ---------- $ 953,805 $ 931,285 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ----------------------------------------------- Current liabilities: Accounts payable $ 22,685 $ 28,810 Accrued expenses 118,810 108,087 Fair value of commodity derivative instruments 4,464 9,875 Current maturities of long-term debt - 109 ----------- ---------- Total current liabilities 145,959 146,881 Long-term debt 225,000 235,000 Deferred income taxes 97,461 87,559 Asset retirement obligation 58,138 56,039 Other 6,750 11,213 ----------- ---------- 533,308 536,692 Stockholders' equity: Common stock, par value $0.01 per share. Authorized 50,000,000 shares; issued and outstanding: 2006 - 41,575,739 shares; 2005 - 41,468,093 shares 417 415 Additional paid-in capital 353,579 348,863 Accumulated other comprehensive loss (6,228) (12,619) Retained earnings 130,169 115,366 Treasury stock, at cost. 2006 -- 3,474,575 shares; 2005 -- 3,474,208 shares (57,440) (57,432) ----------- ---------- Total stockholders' equity 420,497 394,593 Commitments and contingencies ----------- ---------- $ 953,805 $ 931,285 =========== ========== *T