Lower gas production, offset partially by higher oil prices, accounted for most of the decrease in earnings for the first quarter of 2004. Oil and gas sales decreased 25% to $36.3 million as compared to $48.7 million in 2003. Realized oil prices increased 17% from $29.03 to $34.04 per Bbl, while gas prices remained relatively flat. The 2003 prices include realized net losses on hedging transactions totaling $8.2 million, or $.98 per Mcf of gas and $3.59 per Bbl of oil.
Gas production for the first quarter of 2004 decreased 39% to 4.2 Bcf, or 45,901 Mcf per day, from 6.9 Bcf, or 76,622 Mcf per day, in 2003. This decrease was due primarily to the declining volumes in the Cotton Valley area and in south Louisiana. Oil production remained relatively flat for the same period.
Other income/expense for the first quarter of 2004 included a $3.1 million loss associated with the change in fair value of derivative contracts as compared to a $3.4 million gain in the 2003 quarter. In both periods, the Company held commodity derivatives that were not designated as cash flow hedges under applicable accounting standards. Changes in the fair value of these derivatives are based on the underlying commodity prices and resulted in a $6.5 million variance in other income/expense between the two quarters.
Exploration costs related to abandonments and impairments were $4.6 million in the first quarter of 2004. Included in the current period was $1.1 million associated with an unsuccessful south Louisiana well, the State Lease 17341 No. 1 (Brandi). The balance related to costs incurred during the first quarter of 2004 on previously reported dry holes.
The Company is continuing completion operations on the State Lease 17378 No. 1 (Fleur) in Plaquemines Parish, but results to date have been unsuccessful. The Company first attempted completion in one interval at a vertical depth of 19,550 feet and found the sand to be wet. A second interval at a vertical depth of 19,380 feet was also wet and has been abandoned. The Company is currently attempting completion in the third interval within the same geologic formation at a vertical depth of 18,230 feet. If this interval is not productive, the Company may abandon the lower formation and attempt completion in up to six intervals in a shallower formation between 13,170 feet and 15,900 feet. To date, the Company has incurred drilling and completion costs of approximately $11 million, net to its working interest. If the lower formation is abandoned, the Company will record a pre-tax charge of approximately $8.5 million related to the unsuccessful drilling and completion activities in the lower formation.
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