EPL Exits '09 Optimistic about Future Production Growth
Energy Partners reported financial and operational results for the fourth quarter and full year 2009.
Revenue for the fourth quarter of 2009 was $56.8 million, a 48% increase compared to the same period a year ago, resulting from higher production averages from 2009 development work and the restoration of substantially all storm related shut-in production following Hurricanes Gustav and Ike in 2008.
For the fourth quarter of 2009, EPL reported a net loss to common stockholders of $21.0 million, or $0.53 per diluted share. The majority of the net loss for the fourth quarter of 2009 was attributable to $21.7 million of pre-tax non-cash unrealized losses on derivative instruments and $8.5 million of pre-tax non-cash costs attributable to property impairments. Excluding the after-tax impact of the non-cash unrealized losses on derivatives and the non-cash impairment costs, $14.1 million and $5.5 million respectively, EPL's adjusted fourth quarter net loss, a non-GAAP measure, would have been $1.4 million or $0.04 per diluted share (see reconciliation of adjusted net loss in the tables). The Company reported that the non-cash impairments resulted from the depletion of one property in early 2010 and from one well that experienced mechanical issues.
For the nine months ended September 30, 2009, the net loss was $36.1 million. Due to the Company's Chapter 11 reorganization and emergence from bankruptcy in September 2009 and the application of fresh start accounting as of September 30, 2009, the net loss for the full year 2009 would not be meaningful and is not discussed.
For the fourth quarter of 2009, EBITDAX was $35.4 million and discretionary cash flow was $34.6 million (see reconciliation of EBITDAX and discretionary cash flow in the tables). Cash flow from operating activities in the fourth quarter of 2009 was $16.9 million, compared with negative cash flow from operating activities of $15.3 million in the same quarter a year ago.
For full year 2009, revenue totaled $191.6 million, and EBITDAX and discretionary cash flow totaled $101.8 million and $71.0 million, respectively. Cash flow from operating activities in 2009 decreased to $31.2 million from $184.6 million in 2008, primarily from a 46% decrease in revenues compared to 2008 revenues caused by significantly lower realized oil and gas prices.
Gary C. Hanna, the Company's CEO, stated, "With our improved balance sheet and liquidity position following our reorganization less than six months ago, we have focused on and made significant strides in realigning our cost structure and generating greater cash flow by stepping up our development activity levels where we have concentrated on high quality projects. We have already seen the positive effects of our efforts in our production levels, which are projected to grow in the first quarter of 2010 over those realized in the fourth quarter of 2009. Average daily production is projected to stabilize if not increase for full year 2010 versus the fourth quarter of 2009 with our 2010 planned spending. We have entered 2010 with a continuing focus on achieving meaningful cost reductions, and believe we are now positioned favorably against our peers."
Production and Price Realizations
Production for the fourth quarter of 2009 averaged 13,712 Boe per day. Oil production averaged 6,091 barrels of oil per day and natural gas production averaged 45.7 million cubic feet (Mmcf) per day. Fourth quarter 2009 production volumes were 58% higher than fourth quarter 2008 production volumes of 8,683 Boe per day, primarily as a result of workover activities and restoration of shut-in production from the 2008 storm season. Price realizations, all of which are stated before the impact of derivative instruments, averaged $68.03 per barrel of oil and $4.42 per thousand cubic feet (Mcf) of natural gas in the fourth quarter of 2009, compared to $56.39 per barrel of oil and $6.51 per Mcf of natural gas in the fourth quarter of 2008.
Full year 2009 production increased 14% to 14,899 Boe per day compared to 2008 production averages of 13,120 Boe per day due to the startup of new production in the deepwater Gulf of Mexico. Price realizations, all of which are stated before the impact of derivative instruments, averaged $55.07 per barrel of oil and $3.99 per Mcf of natural gas in 2009, compared to $97.42 per barrel of oil and $9.46 per Mcf of natural gas in 2008.
Lease operating expenses for the fourth quarter totaled $13.4 million, or $10.63 per Boe, while general and administrative expenses were $4.5 million, or $3.60 per Boe. Lower lease operating expenses and general and administrative expenses were realized in the fourth quarter of 2009 compared to prior periods as a direct result of material cost reductions associated with the Company's restructuring, as well as lower service industry costs. The cost reductions include significant reductions in the Company's workforce and office space in EPL's New Orleans and Houston offices, reductions in the use of third party contractors and consultants, lower marine transportation and liftboat costs and lower corporate governance costs. Reported general and administrative expenses include non-cash stock based compensation of $0.4 million recorded in the fourth quarter of 2009.
Lease operating expenses for full year 2009 totaled $59.7 million, or $10.98 per Boe, while general and administrative expenses were $24 million, or $4.42 per Boe, for the same period. Reported general and administrative expenses for full year 2009 include non-cash stock based compensation of $4.1 million. However, $3.7 million of this non-cash stock based compensation was recorded in the first three quarters of 2009 and related to equity grants that were either completely or substantially extinguished when EPL emerged from chapter 11 reorganization in September 2009.
Capital Expenditures and P&A Operations
For full year 2009, capital expenditures for exploration and development activities totaled approximately $11.3 million. Operations included one successful exploratory well, which reached its objective depth in late 2009 and was completed in January 2010, and five successful workover operations.
In addition, the Company spent approximately $24 million in 2009 for plugging and abandonment and other decommissioning activities primarily undertaken in the first nine months of the year.
Liquidity and Capital Resources
As of December 31, 2009, the Company had unrestricted cash on hand of $26.7 million and $22.1 million of restricted cash. Total debt equaled $77.3 million at year-end 2009, and net debt equaled $50.6 million or $1.62 per Boe. EPL repaid all outstanding debt on the revolving portion of its post-reorganization senior credit facility in the fourth quarter of 2009, and continues to have $45 million of borrowing capacity available. The Company estimates net debt should be below $30 million by the end of the first quarter 2010.
Year-End 2009 Reserves
EPL's proved reserves at year-end 2009 stood at 19.9 million barrels of oil and 67.4 billion cubic feet of natural gas, or 31.2 million Boe. EPL's proved reserves at year-end 2009 were 64% oil and 36% natural gas, and 79% were classified as proved developed. The Company produced 5.4 million Boe, added 0.4 million Boe from its limited exploration and development program, and recorded 0.6 million Boe in negative revisions to its proved reserves in 2009. The Company's total expenditures for exploration and development in 2009 were $11.3 million (see reconciliation in the tables).
The present value of the future net cash flows before income taxes of the Company's estimated proved oil and natural gas reserves at the end of 2009 using a discount rate of 10% (PV-10) was approximately $396 million as calculated in accordance with the new SEC guidelines and pricing. The 2009 value was determined based on computed prices of $57.70 per barrel of oil and $3.96 per Mcf of natural gas. Had prior SEC guidelines for prices been used, year end 2009 PV-10 would have been over $700 million. Using NYMEX forward prices as of December 31, 2009, the year-end 2009 PV-10 would have been over $900 million. (PV-10 is a non-GAAP measure; see discussion of PV-10 in the appendix).
All of the Company's proved reserve figures are based upon third party engineering estimates prepared by Netherland, Sewell & Associates, Inc. and Ryder Scott Company, L.P.
Since EPL's recent reorganization the Company has participated in three successful exploration wells on the Gulf of Mexico Shelf, starting with its previously announced East Cameron 111 #1 well in December 2009.
Hanna commented, "Since our new management team has been in place and began drilling operations just a few months ago in December 2009, I am pleased with our outcome to date. We have aligned our capital program to be balanced over a number of projects with high return potential and to have a blended low risk profile. I am excited about the numerous, high quality development projects we have lined up as we continue to execute on our front-loaded initial 2010 capital budget."
The Company reported two successful exploratory drillwells on the GOM shelf, the Bay Marchand OCS 0166 CC4st2 and the OCS 0166 CC6st2. The CC4st2 well, which reached its objective depth of 9,610 feet true vertical depth (tvd) in late February 2010, found one oil sand. The CC6st2 well, which reached its objective depth of 10,116 feet tvd in March 2010, found two oil sands. The wells are expected to commence production in late March and early April through batch completion operations currently in progress. EPL has 17% and 27% working interests in the CC4st2 and CC6st2 wells, respectively.
The Company reported the Grand Isle 49 Badger #1 well reached its objective depth of 10,397 feet tvd. The well successfully found two high quality, thin gas sands and one lower quality probable oil sand, but the Company determined the well did not meet its economic threshold and was plugged and abandoned. The Company had a non-operated 50% working interest in this well and will incur exploration expenses of approximately $1.9 million in the first quarter 2010.
The Company has also recently commenced its 2010 rig workover and drilling program in the East Bay field. The 2010 initial capital budget includes at least eight drilling and rig workover operations in the East Bay field throughout 2010 as well as numerous other development projects in the Company's GOM asset base. The Company also began its 2010 plugging and abandonment and other decommissioning activities in late February.
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