Spinnaker Exploration Reports First Quarter Earnings

Spinnaker Exploration Company (NYSE: SKE) reported first quarter 2004 earnings of $13.7 million, or $0.40 per diluted share, compared to first quarter 2003 earnings of $15.3 million, or $0.45 per diluted share. First quarter 2004 production was 10.3 billion cubic feet of natural gas equivalent ("Bcfe") compared to first quarter 2003 production of 13.7 Bcfe and fourth quarter 2003 production of 11.5 Bcfe. Cash from operations in the first quarter of 2004 was $51.8 million compared to $63.0 million in the first quarter of 2003. (Cash from operations is a non-GAAP financial measure that is defined and reconciled in the table below.)

Revenues in the first quarter of 2004 were $59.8 million compared to $71.7 million in the first quarter of 2003. The decrease in revenues was primarily due to lower production, partially offset by higher realized natural gas and oil prices (after the effects of hedging activities) in the first quarter of 2004 compared to the first quarter of 2003.

While the actual natural gas price was lower in the first quarter of 2004 compared to the first quarter of 2003, the realized natural gas price in the first quarter of 2004 was higher than the first quarter 2003 realized price after the effects of hedging activities in both quarters. Excluding the effects of hedging activities, first quarter 2004 prices were $5.57 per thousand cubic feet of natural gas ("Mcf") and $34.79 per barrel of oil ("Bbl") compared to first quarter 2003 prices of $6.69 per Mcf and $34.28 per Bbl. The first quarter 2004 natural gas price was positively impacted by $0.21 per Mcf related to hedging activities. Including the effects of hedging activities, the first quarter 2004 realized natural gas price was $5.78 per Mcf compared to $5.16 per Mcf in the first quarter 2003.

Lease operating expenses ("LOE") were $0.46 per thousand cubic feet equivalent ("Mcfe") in the first quarter of 2004 compared to $0.40 per Mcfe in the first quarter of 2003 and $0.39 per Mcfe in the fourth quarter of 2003.

The depreciation, depletion and amortization ("DD&A") rate was $2.82 per Mcfe in the first quarter of 2004 compared to $2.40 per Mcfe in the first quarter of 2003 and $2.68 per Mcfe in the fourth quarter of 2003. The 5% increase in the DD&A rate from the fourth quarter of 2003 to the first quarter of 2004 was primarily due to costs associated with unsuccessful drilling operations and higher finding costs. Dry hole costs, including associated leasehold costs, were approximately $22.7 million.

Cash from operations is presented because of its acceptance as an indicator of the ability of an oil and gas exploration and production company to internally fund exploration and development activities. This measure should not be considered as an alternative to net cash provided by operating activities as defined by generally accepted accounting principles. A reconciliation of cash from operations to net cash provided by operating activities is shown below:


                                                          Three Months Ended
                                                               March 31,
                                                           2004         2003

    Net cash provided by operating activities           $47,467      $49,522
    Changes in operating assets and liabilities           4,337       13,486
    Cash from operations                                $51,804      $63,008


First quarter 2004 additions to property and equipment of $74.8 million included exploration and development costs of approximately $29.5 million and $44.4 million, respectively.

Income tax and cash tax (actual cash paid for taxes) rates in the first quarter of 2004 were 36% and 0%, respectively, and 36% and 0% in the first quarter of 2003, respectively.
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