EPL Epl Oil & Gas

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