Energy Partners, Ltd. (�EPL� or the �Company�) (NYSE:EPL) today
provided an update on its production operations and preliminary
information on its 2008 results.
Production Update
The Company reported its current daily production is 16,500
barrels of oil equivalent (�Boe�) per day, with an additional 2,000
Boe per day temporarily curtailed and set to resume production this
weekend. EPL�s current production capability of 18,500 Boe per day
is above the level immediately prior to the hurricanes last summer
of approximately 16,500 Boe per day, and above the average
production reported in the first half of 2008 of 15,794 Boe per
day. Both the Bluewater and Discovery third-party operated
pipelines have been repaired and began accepting EPL�s volumes late
January, which led to the majority of the recent volume increment.
The Company has approximately 1,750 Boe per day of primarily
non-operated shut-in production that is partner dependent; the
exact timing of restoration of these volumes is not yet certain.
However, based on current estimates by the operators of these
fields, the majority of this production is expected to ramp up
within the first half of 2009. Based on the latest information
available, the Company said it expects first quarter 2009
production to average between 15,000 and 16,000 Boe per day.
Richard A. Bachmann, EPL�s Chairman and CEO commented, �The
restoration of production volumes to levels that now exceed
pre-storm amounts is a significant milestone for us. Our operations
group did an excellent job of preparing our production facilities
to be immediately ready when the third-party pipelines were
repaired.�
Financial Results
EPL expects its Lease Operating Expenses (LOE) for calendar year
2008 to total approximately $68 million, which is below 2007 LOE of
$69.9 million despite the incurrence of hurricane repair expenses.
EPL estimates, absent the hurricane disruptions to production and
operations, its ongoing LOE for calendar year 2008 would have been
approximately $57 million. General and administrative expenses
(G&A) are expected to total approximately $45 million. Included
in G&A is approximately $11 million of insurance premium costs,
of which approximately $9 million is related to property on
developed leases, as well as approximately $5 million in non-cash
stock based compensation. LOE and G&A, the largest components
of cash operating expenses, are estimated to have fallen
approximately $21 million in 2008, excluding the impact of the
hurricanes in 2008 and $9.4 million of 2007 legal and financial
advisory fees not present in 2008. This decline in expenses is in
line with the Company�s goal to reduce its ongoing LOE and G&A
costs by a total of $20 million in 2008. In 2009, EPL is currently
targeting to reduce its combined ongoing LOE and G&A costs by
at least $5 million as compared to 2008.
EPL said it expects to record approximately $125 to $150 million
of pre-tax, non-cash impairment charges associated with its oil and
natural gas properties in the fourth quarter of 2008. These
impairments primarily resulted from a combination of lower oil and
natural gas prices, anticipated reduced capital spending on certain
fields based on this lower price environment, and expiring
leases.
The Company expects to record approximately $21 million of other
operating expense related to plugging and abandonment work
performed in the fourth quarter of 2008 and for estimated costs for
work continuing into 2009 in excess of the amounts recorded for
asset retirement obligations (ARO) for certain properties in its
Western asset base. The excess costs resulted from factors
including scope changes, weather delays and changes in the
equipment used in the planned work, which, for certain properties,
included the use of a drilling rig previously under contract in the
fourth quarter of 2008. The Company incurred approximately $22
million on abandonments in 2008 and estimates its ARO will be
approximately $99 million at year-end 2008, compared with $77.9
million at year-end 2007.
At December 31, 2008, total debt was $497.5 million, which
included $43.0 million of borrowings during the fourth quarter
under the Company�s revolving credit facility. These borrowings,
which are continuing to occur during the first quarter 2009, are
necessary due to production volumes being severely curtailed as the
Company awaited repairs to third party pipelines caused by the 2008
hurricanes.
Operational Results
In 2008, EPL drilled 14 wells on the Gulf of Mexico Shelf
(Shelf) of which 13 were successful, resulting in a 93% success
rate in its exploitation focused drilling program. Based on
preliminary estimates from its third party reserve engineering
firms still being conducted, EPL said its year end reserves will
total approximately 37 million Boe compared with 45.3 million Boe
at year-end 2007. Production during 2008 totaled approximately 4.8
million Boe. While the Company will add approximately 1.5 million
Boe from its drilling program, the drill-bit additions will be more
than offset by price-related negative revisions in the range of
approximately 3 to 4 million Boe due to end of year prices being
down significantly in 2008 compared to 2007. Year-end oil and gas
prices are down 57% and 18%, respectively, compared to 2007
year-end prices.
Bachmann continued, �The continued delays in third-party
pipelines coming back online along with sharply lower commodity
prices resulted in additional pressure on our balance sheet as we
were required to utilize our credit facility to maintain our
operations. The suspension of our exploratory drilling program in
the second half of 2008 took a toll on our reserve replacement and,
as was the case with most of our peer companies, lower commodity
prices at year-end resulted in impairments and uneconomic reserves
being removed from our ledgers. Despite these challenges, we
continued to focus on cost reductions and accomplished our goal to
reduce ongoing G&A and LOE by $20 million despite the impact of
the storms.
�We have delayed our drilling program so far in 2009, and we
continue to monitor commodity prices and expect drilling and
service costs will continue to decrease to levels more in line with
current oil and gas prices. We will continue to work toward our
goal of reducing LOE and G&A by at least $5 million over the
savings we achieved last year and we are reviewing a variety of
possible options to improve our financial position in the current
environment.�
The Company will post on its website today first quarter 2009
production guidance as provided in this release, as well as the
Company�s latest hedging schedule reflecting gas hedges added
during the first quarter of 2009 for certain periods within 2009
and early 2010. These postings can be found under �Guidance� and
�Hedging� in the Investor Relations section of the Company�s
site.
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
This press release may contain forward-looking information and
statements regarding EPL. Any statements included in this press
release that address activities, events or developments that EPL
expects, believes, plans, projects, estimates or anticipates will
or may occur in the future are forward-looking statements. These
include statements regarding:
- reserve and production
estimates;
- estimated timing of production
restoration;
- 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 filings with the Securities and Exchange Commission.
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 filings with the
SEC, including Form 10-K for the year ended December 31, 2007 and
Form 10-Q as of September 30, 2008, for a discussion of these
risks.
Additional Information and Where to Find It. Security holders
may obtain information regarding the Company from EPL's website at
www.eplweb.com, from the Securities and Exchange Commission's
website at www.sec.gov, or by directing a request to: Energy
Partners, Ltd. 201 St. Charles Avenue, Suite 3400, New Orleans,
Louisiana 70170, Attn: Secretary, (504) 569-1875.
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