Cash flow from operating activities for the quarter ended March 31, 2004 totaled $20.6 million compared with $24.8 million in the first quarter of 2003. Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expenses, rose to $41.1 million, another record high for EPL, from $37.5 million in the first quarter last year.
The Company said that its strong financial performance, excluding the impact of the impairment, was primarily due to ongoing strength in oil and natural gas prices. Cash operating costs per barrel of oil equivalent (Boe) in the first quarter of 2004, consisting of lease operating expense, production taxes, and general and administrative costs, was $10.19 per Boe, compared to $10.06 per Boe in the same quarter of 2003.
Commenting on the Company's performance, Richard A. Bachmann, EPL's Founder, Chairman, President, and CEO, said, "Operating conditions in the first quarter of 2004 were challenging, particularly with the fog and other weather related downtime that is typical for the first quarter. Nonetheless, our team worked every problem that arose, and with the benefit of high commodity prices, we were able to turn in record results for both revenue and discretionary cash flow."
Compared to the first quarter of last year, natural gas production in the first quarter of 2004 rose 10% to 77.1 million cubic feet (Mmcf) per day from 70.0 Mmcf per day in 2003. Oil production declined slightly compared to the first quarter of 2003, totaling 7,989 barrels of oil (Bbls) per day versus 8,012 Bbls per day in the same period a year ago. On a Boe basis, production for the first quarter of 2004 rose 6% to 20,845 Boe per day from 19,680 Boe per day in the first quarter of 2003. The Company said that its current production capability is almost 23,000 Boe per day.
Realized prices for the quarter, net of hedging, were $31.87 per barrel of oil and $5.73 per thousand cubic feet (Mcf) of natural gas. Last year, first quarter realized prices were $30.24 per barrel of oil and $5.58 per Mcf of natural gas. A complete and regularly updated schedule of hedging positions can be found under "Hedging" in the Investor Relations section of the Company's web site.
EPL's expenditures for exploration and development in the first quarter 2004 totaled $40.6 million. On March 31, 2004, cash and cash equivalents totaled $95.3 million while long-term debt stood at $150.3 million. The Company's debt to total capitalization ratio was 36% excluding the impact of cash on the balance sheet at quarter-end. The Company has $60 million in unused capacity under its bank credit facility.
The Company completed drilling three successful wells in the first quarter of 2004: High Island 55L #5, South Pass 27 #98ST, and South Timbalier 180 #A-7. Since the end of March, EPL announced an additional exploratory success, the Eugene Island 277 #A-3, and two successful development wells, the South Pass 11 #192 and the South Timbalier 26 #G-2. EPL also successfully completed three well workovers and recompletions.
At East Cameron 378, EPL recently deepened the #3 sidetrack well to test the lowest objective, but this deepest objective was found to be non-commercial. The Company plans to complete the well in the previously logged and cased upper zone. EPL plans to recognize a dry hole expense of approximately $1.0 million in the second quarter related to the deepening and recorded an impairment of $6.9 million in the first quarter in connection with the well. EPL is the operator of the well and holds a 33% working interest.
The Company currently has rig operations underway at three exploratory locations. The exploratory tests currently underway include: West White Lake in Vermilion Parish, Louisiana; South Timbalier 41; and East Cameron 161.
EPL submitted bids on a total of twelve blocks at the March 2004 Central Gulf Lease Sale and was high bidder on eight blocks. The Minerals Management Service has awarded four of the eight blocks to date, and awards of the remaining four blocks are currently pending.
Bachmann added, "While we are disappointed that the deepest objective at East Cameron 378 was determined to be non-commercial, we are still expecting initial production from the well by year-end 2004, as planned. So far this year, we have successfully drilled four exploratory wells, and we are currently drilling our first onshore well, West White Lake, in the marshlands of Vermilion Parish. With two more exploratory wells drilling offshore, we are demonstrating the great strides we have made in balancing our drilling program throughout the year. Later this year, we expect to drill prospects on at least four of the blocks where we were high bidder at the recent lease sale. We are well on our way to our target of 30 exploratory wells this year."
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