Energy Partners, Ltd. (EPL or the Company) (NYSE:EPL) today
announced financial results for the second quarter of 2006 and
provided an update on operations and its pending acquisition of
Stone Energy Corporation (Stone) (NYSE:SGY). Net income available
to common stockholders was $12.6 million for the second quarter of
2006 compared to $18.1 million for the second quarter of 2005. Net
income per diluted share for the second quarter 2006 was $0.31
compared to $0.45 per diluted share in the same quarter a year ago.
In its operational update, EPL disclosed that it has recently
drilled a discovery well at East Cameron 46, bringing its
year-to-date exploratory success rate to 71%. For the year to date,
the Company has drilled 12 discoveries out of 17 exploratory tests
in the Gulf of Mexico and onshore in the Gulf Coast region,
including two discoveries in the deepwater Gulf of Mexico. The
Company also reported a new record high average production level of
28,117 barrels of oil equivalent (Boe) per day and a new record
high for revenue of $121.2 million for the second quarter of 2006.
Stone Acquisition Update The acquisition of Stone was announced on
June 23, 2006 and is expected to close early in the fourth quarter.
The Company noted that EPL and Stone filed a preliminary joint
proxy statement with the Securities and Exchange Commission (SEC)
on July 21, 2006 and received clearances under the
Hart-Scott-Rodino Antitrust Improvements Act (HSR) on July 25,
2006. The Company confirmed its intention to reduce its leverage
through the repayment of acquisition related debt in an amount
approximating $700 million by the end of 2008. The reduction is
expected to come from a combination of excess cash flow and
proceeds from the disposition of non strategic properties. The
Company stated that it intends to hedge up to 80% of the projected
combined production for 2007 and 2008, implemented through a
coordinated establishment of positions with Stone to provide
significant downside protection and substantial upside
participation to the market. Richard A. Bachmann, EPL's Chairman
and CEO, commented, "Our second quarter results reflect record
levels for production and revenue and near record levels for cash
flow, along with the challenges we face with equipment constraints
and costs in the Gulf of Mexico. We remain on track to deliver the
annual production growth target of 28,000 to 30,000 Boe per day we
set for ourselves earlier this year." Bachmann continued, "We are
also very pleased with the progress we are making toward our
acquisition of Stone which we expect to close early in this year's
fourth quarter. We have thus far received HSR clearance and have
made our initial filings with the SEC. We intend to continue to
fast track the completion of the transaction to combine our
companies as quickly as possible and achieve the synergies and cost
savings we have previously outlined as well as pursue a number of
exciting exploitation and exploration opportunities on our combined
portfolio." Financial Results Revenue for the second quarter of
2006 rose to $121.2 million, a new record high for the Company and
a 14% increase over second quarter 2005 revenues of $106.4 million.
Discretionary cash flow, which is cash flow from operating
activities before changes in working capital and exploration
expenses, rose to $98.5 million, up 28% from $77.2 million in the
second quarter last year. (See reconciliation of discretionary cash
flow schedule in the tables.) Cash flow from operating activities
in the second quarter of 2006 was $111.1 million compared with
$75.1 million in the same quarter a year ago, representing a 48%
increase. EPL benefited from increased production volumes, record
oil prices and strong natural gas prices during the second quarter
of 2006, as well as $10.6 million in claims accrued under the
Company's business interruption insurance coverage. These benefits
were reduced in the second quarter by increased lease operating
expenses due to non-routine workover expenses and costs associated
with hurricane related repairs not covered by insurance. In
addition, the Company said higher exploration expenses in the
quarter were the result of dry hole costs, as well as significant
seismic expenditures and lease expiration write-offs. The Company
said depreciation, depletion and amortization (DD&A) expenses
per Boe, which had increased to $22.78 per Boe in the first quarter
of 2006 from prior periods, declined to $19.40 in the second
quarter of 2006. Production for the second quarter of 2006 averaged
28,117 Boe per day, a new record high for the Company, up 22% from
22,991 Boe per day in the first quarter of 2006, and up 4% from
27,126 Boe per day in the second quarter of 2005. Natural gas
production in the second quarter of 2006 averaged 119.6 million
cubic feet (Mmcf) per day, also a new record high for EPL, a 26%
rise from 94.8 Mmcf per day in the first quarter of 2006. Oil
production in the most recent quarter averaged 8,187 barrels per
day, a 14% rise from the average of 7,185 Boe per day in the first
quarter of this year. Second quarter 2006 production volumes were
up compared to the first quarter of 2006 due to new wells coming on
line and hurricane related shut-in production continuing to be
restored. The Company estimated it has approximately 1,100 Boe per
day of hurricane shut-in production remaining, the majority of
which should be restored during the latter part of the third
quarter. Oil price realizations for the second quarter of 2006
averaged $61.72 per barrel, a 35% increase from $45.80 per barrel
in the same period a year ago. Natural gas price realizations in
the quarter averaged $6.90 per thousand cubic feet (Mcf), remaining
essentially flat as compared to $6.88 per Mcf in the second 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. For the six months ended
June 30, 2006, net income available to common stockholders was
$27.4 million, or $0.68 per diluted share. This represents a 27%
decrease from $37.5 million, or $0.95 per diluted share in the same
period of 2005. Discretionary cash flow for the first two quarters
of 2006 totaled $191.4 million, up 30% from $147.4 million in the
same period a year ago. (See reconciliation of discretionary cash
flow in table.) Cash flow from operating activities in the first
six months of 2006 was $174.9 million, up 21% from the total of
$144.5 million in the same period of 2005. For the first six months
of 2006, the Company said capital expenditures for exploration and
development activities totaled $207.7 million. The Company
continues to anticipate that its 2006 capital budget for
exploration and development activities will total approximately
$360.0 million, which is expected to be funded from internally
generated cash flow and does not include any costs associated with
the pending acquisition of Stone. In addition, the Company has
spent $43.5 million in acquisition costs related to the merger
agreement with Stone, which is the full amount of the break-up fee
paid to Plains Exploration and Production Company (Plains) on
behalf of Stone to terminate the merger agreement between Plains
and Stone. As of June 30, 2006, the Company had cash on hand of
$12.9 million, total debt of $270.0 million, and a debt to total
capitalization ratio of 38%. The Company also had $105 million of
remaining capacity available under its current bank facility, which
was extended in early June to May 2011 with the redetermined
borrowing base of $225 million, up from $150 million. Operational
Highlights Federal Lease Sale EPL has been awarded a total of 10
leases from the 11 blocks on which the Company submitted the high
bid at the March 2006 Central Gulf of Mexico Lease Sale. The
successful bids represent approximately 48,000 gross acres,
including two deepwater tracts as well as eight other areas on the
Gulf of Mexico Shelf. EPL's share of the lease bonuses for the
successful high bids totaled $7.0 million. Gulf of Mexico and
Onshore The Company today announced a new discovery on the Shelf,
the East Cameron 46 A-6st well. The moderate risk, moderate
potential well, drilled to a total depth of 8,800 feet and
encountered high quality natural gas pay in a single interval. The
A-6st well is expected to be on line in the third quarter of 2006.
Newfield Exploration Company (NYSE: NFX), the operator, holds a 75%
working interest in the well and EPL holds the remaining 25%. The
Company also stated that an onshore South Louisiana exploratory
well at Bay Batiste in which the Company held a 25% working
interest was determined to be a dry hole. For the year-to-date, the
Company has drilled 12 discoveries out of 17 exploratory tests with
eight discoveries located on the Shelf in the Gulf of Mexico, two
onshore in the Gulf Coast region, and two in the deepwater Gulf of
Mexico, for an overall success rate of 71%. The Company also said
Thomas D. DeBrock has been named Vice President of Exploration. Mr.
DeBrock previously was the Company's Exploration Manager in New
Orleans and has been in the industry for over 21 years and an
employee of EPL since its founding. Current Operations The Company
is currently drilling two exploratory wells: a high risk, high
potential Lakeside prospect onshore in Cameron Parish and a
moderate risk, moderate potential East Cameron 109 #5 well on the
Shelf. In addition, the Company said today that it plans to
commence the drilling of ten more exploratory wells before the end
of year, four of which are high potential. These totals include a
deepwater delineation well in Mississippi Canyon 292, scheduled to
begin in September or October, 2006. This moderate risk, high
potential well is the third deepwater well for the Company since
the February announcement of 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 Company also said that the installation of the permanent
platform in the South Timbalier (ST) 41/42 area is underway, which
should allow first production through the platform by early
September 2006. The Company plans to bring on the ST 42#1, a 2005
discovery, and the recent ST 42#2 discovery concurrent with the
start up of production through the new permanent platform. This
will bring the total number of producing wells in the ST 41/42 area
to seven, with plans to flow the wells through the permanent
platform and through the facilities in EPL's adjacent ST 26 field
in which the Company holds a 100% interest. Richard A. Bachmann
concluded, "With 12 discoveries in 17 exploratory tests
year-to-date, two operations underway, and ten wells left to
commence drilling, we are very pleased with our exploratory pace to
date. While we have worked hard over the last several weeks to
expedite the completion of the Stone acquisition, we have not lost
our operational focus. We are very excited that the installation of
the permanent platform in the South Timbalier 41/42 area is well
underway, and are looking forward to ramping up production in that
area. We are also scheduled to bring on a number of new wells,
including recent drill wells, workover program wells, and
development wells, which will have a very positive impact on our
production in the fourth quarter of this year. We believe we are
well positioned to meet our annual production guidance of 28,000 to
30,000 Boe per day." Conference Call Information EPL has scheduled
a conference call to review second quarter 2006 results for today,
August 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 and the progress of the merger with
Stone. 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
3313134. The call will be available for replay beginning two hours
after the call is completed through midnight of August 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 3313134. 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.
Forward Looking Statements & Additional Information This press
release contains forward-looking information regarding EPL and
Stone that is intended to be covered by the safe harbor
"forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995. All statements included in this
press release that address activities, events or developments that
EPL or Stone expects, believes or anticipates will or may occur in
the future are forward-looking statements. These include statements
regarding: -- completion of the proposed merger, -- effective
integration of the two companies, -- reserve and production
estimates, -- oil and natural gas prices, -- the impact of
derivative positions, -- production expense estimates, -- cash flow
estimates, -- future financial performance, -- planned capital
expenditures, and -- other matters that are discussed in EPL's and
Stone's filings with the SEC. These statements are based on current
expectations and projections about future events and involve known
and unknown risks, uncertainties, and other factors that may cause
actual results and performance to be materially different from any
future results or performance expressed or implied by these
forward-looking statements. Please refer to EPL's and Stone's
filings with the SEC, including each company's Form 10-K for the
year ended December 31, 2005, for a discussion of these risks. EPL
AND STONE HAVE FILED A PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
AND OTHER DOCUMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ CAREFULLY THE
DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES
AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION REGARDING
EPL, STONE AND THE ACQUISITION. A DEFINITIVE JOINT PROXY
STATEMENT/PROSPECTUS WILL BE SENT TO SECURITY HOLDERS OF EPL AND
STONE SEEKING THEIR APPROVAL OF THE ACQUISITION. The documents
filed with the SEC by EPL may be obtained free of charge from EPL's
website at www.eplweb.com or by directing a request to: Energy
Partners, Ltd., 201 St. Charles Avenue, Suite 3400, New Orleans,
Louisiana 70170, Attn: Secretary, (504) 569- 1875. In addition, the
documents filed with the SEC by Stone may be obtained free of
charge from Stone's website at www.stoneenergy.com or by directing
a request to: Stone Energy Corporation, 625 E. Kaliste Saloom Road,
Lafayette, Louisiana 70508, Attn: Kenneth Beer, (337) 237-0410.
Investors and security holders are urged to read the joint proxy
statement/prospectus and the other relevant materials when they
become available before making any voting or investment decision
with respect to the proposed acquisition. EPL, Stone and their
respective executive officers and directors may be deemed to be
participants in the solicitation of proxies from the stockholders
of EPL and Stone in favor of the acquisition. Information about the
executive officers and directors of EPL and their direct or
indirect interests, by security holdings or otherwise, in the
acquisition will be set forth in the proxy statement/prospectus
relating to the acquisition when it becomes available. Information
about the executive officers and directors of Stone and their
direct or indirect interests, by security holdings or otherwise, in
the acquisition will be set forth in the proxy statement/prospectus
relating to the acquisition when it becomes available. -0- *T
ENERGY PARTNERS, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per share data) (Unaudited) Three Months Ended
Six Months Ended June 30, June 30, -------------------
------------------- 2006 2005 2006 2005 -------- -------- --------
-------- Revenues: Oil and natural gas $121,080 $106,230 $230,204
$203,683 Other 154 154 221 272 -------- -------- -------- --------
121,234 106,384 230,425 203,955 -------- -------- -------- --------
Costs and expenses: Lease operating 17,121 14,114 29,486 26,557
Transportation expense 563 345 811 505 Taxes, other than on
earnings 2,191 2,658 5,186 5,422 Exploration expenditures, dry hole
costs and impairments 22,783 18,872 42,379 29,627 Depreciation,
depletion and amortization 49,632 27,639 96,777 53,152 General and
administrative 12,281 10,162 24,737 20,062 Other expense 2,804 228
1,877 321 -------- -------- -------- -------- Total costs and
expenses 107,375 74,018 201,253 135,646 -------- -------- --------
-------- Business interruption recovery 10,594 - 23,283 - Income
from operations 24,453 32,366 52,455 68,309 -------- --------
-------- -------- Other income (expense): Interest income 473 110
752 295 Interest expense (5,199) (4,335) (10,283) (8,383) --------
-------- -------- -------- (4,726) (4,225) (9,531) (8,088) --------
-------- -------- -------- Income before income taxes 19,727 28,141
42,924 60,221 Income taxes (7,142) (10,091) (15,536) (21,750)
-------- -------- -------- -------- Net income 12,585 18,050 27,388
38,471 Less dividends earned on preferred stock and accretion of
discount - - - (944) -------- -------- -------- -------- Net income
available to common stockholders $ 12,585 $ 18,050 $ 27,388 $
37,527 ======== ======== ======== ======== Basic earnings per share
$ 0.33 $ 0.48 $ 0.72 $ 1.03 ======== ======== ======== ========
Diluted earnings per share $ 0.31 $ 0.45 $ 0.68 $ 0.95 ========
======== ======== ======== Weighted average common shares used in
computing earnings per share: Basic 38,315 37,558 38,185 36,299
Incremental common shares 2,253 2,968 2,323 4,121 -------- --------
-------- -------- Diluted 40,568 40,526 40,508 40,420 ========
======== ======== ======== ENERGY PARTNERS, LTD. CONSOLIDATED
STATEMENTS OF NET CASH PROVIDED BY OPERATING ACTIVITIES (In
thousands) (Unaudited) Three Months Ended Six Months Ended June 30,
June 30, ------------------ ------------------ 2006 2005 2006 2005
-------- -------- -------- -------- Cash flows from operating
activities: Net income $ 12,585 $ 18,050 $ 27,388 $ 38,471
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation, depletion and amortization
49,632 27,639 96,777 53,152 Loss on disposition of oil and natural
gas assets 2,830 - 2,830 92 Non-cash compensation 2,799 1,924 4,914
3,807 Deferred income taxes 7,142 10,091 15,819 21,401 Exploration
expenditures 18,888 16,604 32,856 21,332 Amortization of deferred
financing costs 244 250 493 497 Other 501 379 795 379 Changes in
operating assets and liabilities: Trade accounts receivable
(13,077) (5,737) (1,696) (8,420) Other receivables (11,553) (4,819)
(24,156) (4,900) Prepaid expenses (1,156) (5,224) 968 (3,942) Other
assets (518) (310) 332 (1,602) Accounts payable and accrued
expenses 43,132 16,246 18,102 24,397 Other liabilities (389) (3)
(492) (131) -------- -------- -------- -------- Net cash provided
by operating activities $111,060 $ 75,090 $174,930 $144,533
======== ======== ======== ======== Reconciliation of discretionary
cash flow: Net cash provided by operating activities 111,060 75,090
174,930 144,533 Changes in working capital (16,439) (153) 6,942
(5,403) Non-cash exploration expenditures (18,888) (16,604)
(32,856) (21,332) Total exploration expenditures 22,783 18,872
42,379 29,627 -------- -------- -------- -------- Discretionary
cash flow $ 98,516 $ 77,205 $191,395 $147,425 ======== ========
======== ======== 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 Six Months Ended June 30,
June 30, ------------------ ------------------ 2006 2005 2006 2005
-------- -------- -------- -------- PRODUCTION AND PRICING
----------------------- Net Production (per day): Oil (Bbls) 8,187
10,469 7,689 10,225 Natural gas (Mcf) 119,578 99,941 107,274 98,067
Total (Boe) 28,117 27,126 25,568 26,570 Oil and Natural Gas
Revenues (in thousands): Oil $ 45,981 $ 43,637 $ 84,234 $ 84,656
Natural gas 75,099 62,593 145,970 119,027 Total 121,080 106,230
230,204 203,683 Average Sales Prices: Oil (per Bbl) $ 61.72 $ 45.80
$ 60.53 $ 45.74 Natural gas (per Mcf) 6.90 6.88 7.52 6.71 Average
(per Boe) 47.32 43.03 49.74 42.35 Impact of hedging: Oil (per Bbl)
$ - $ (1.74) $ - $ (1.46) Natural gas (per Mcf) - - (0.05) -
OPERATIONAL STATISTICS ---------------------- Average Costs (per
Boe): Lease operating expense $ 6.69 $ 5.72 $ 6.37 $ 5.52 Taxes,
other than on earnings 0.86 1.08 1.12 1.13 Depreciation, depletion
and amortization 19.40 11.20 20.91 11.05 ENERGY PARTNERS, LTD.
CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June
30, December 31, 2006 2005 ------------ ------------ (Unaudited)
ASSETS ------- Current assets: Cash and cash equivalents $ 12,879 $
6,789 Trade accounts receivable 80,022 78,326 Other receivables
73,459 49,303 Deferred tax asset 2,291 5,582 Prepaid expenses 2,211
3,179 ------------ ------------ Total current assets 170,862
143,179 Property and equipment, at cost under the successful
efforts method of accounting for oil and natural gas properties
1,354,727 1,189,078 Less accumulated depreciation, depletion and
amortization (508,538) (418,347) ------------ ------------ Net
property and equipment 846,189 770,731 Other assets 55,452 13,284
Deferred financing costs -- net of accumulated amortization 5,225
4,091 ------------ ------------ $ 1,077,728 $ 931,285 ============
============ LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------- Current liabilities: Accounts
payable $ 56,425 $ 28,810 Accrued expenses 137,797 108,087 Fair
value of commodity derivative instruments 4,333 9,875 Current
maturities of long-term debt - 109 ------------ ------------ Total
current liabilities 198,555 146,881 Long-term debt 270,000 235,000
Deferred income taxes 104,411 87,559 Asset retirement obligation
60,831 56,039 Other 4,860 11,213 ------------ ------------ 638,657
536,692 Stockholders' equity: Common stock 420 415 Additional
paid-in capital 358,265 348,863 Accumulated other comprehensive
loss (4,929) (12,619) Retained earnings 142,755 115,366 Treasury
stock, at cost (57,440) (57,432) ------------ ------------ Total
stockholders' equity 439,071 394,593 Commitments and contingencies
------------ ------------ $ 1,077,728 $ 931,285 ============
============ *T
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