Nuevo Energy Reports First Quarter 2004 Results

Nuevo Energy Company (NYSE:NEV) reported income from continuing operations for the first quarter 2004 of $7.2 million, or $0.35 per diluted share versus $12.7 million, or $0.65 per diluted share in the year ago period. The decline in income from continuing operations in the first quarter 2004 versus the year ago period primarily reflects an after-tax derivative loss of $3.4 million ($0.16 per diluted share) and an after-tax loss on early extinguishment of debt of $1.5 million ($0.07 per diluted share). The derivative loss is attributable to losses on three-way crude oil derivative contracts (with price ceilings of $31.00 per barrel) which are marked-to-market through net income for the duration of the crude oil contracts at a currently robust crude oil price strip. The loss on early extinguishment of debt is due to the redemption of the remaining $75.0 million of 9 1/2% Notes.

Net income was $7.1 million, or $0.35 per diluted share in the first quarter 2004, compared to $25.7 million, or $1.33 per diluted share in the first quarter 2003. The decline in net income in the first quarter 2004 versus the year ago period reflects the aforementioned items as well as income from discontinued operations of $4.6 million ($0.24 per diluted share) and the cumulative effect of a change in accounting principle of $8.5 million ($0.44 per diluted share) which were reported in the first quarter 2003.

Net cash provided by operating activities was $15.9 million in the first quarter 2004 compared to $47.1 million in the same period in 2003 due to working capital changes related to the timing of crude oil liftings and payments in our Congo operations, and the annual settlement of certain crude oil derivative contracts made in the first quarter 2004. Discretionary cash flow, a non-GAAP financial measure, was $43.0 million in the first quarter 2004 compared to $44.3 million in the first quarter 2003 which included $4.5 million of discretionary cash flow from discontinued operations.

Production and Prices

Total production from continuing operations decreased 3% to 47.4 thousand barrels of oil equivalent (MBOE) per day in the first quarter 2004 compared to 48.7 MBOE per day in the year ago period. Production from our discontinued operations was 3.3 MBOE per day in the first quarter 2003. Crude oil production of 41.6 thousand barrels (MBbls) per day declined slightly from 42.1 MBbls per day in the comparable period in 2003. The realized crude oil price increased 9% to $23.83 per barrel in the first quarter 2004 versus $21.83 per barrel in the year ago period. Included in the realized crude oil prices are hedging losses of $4.44 per barrel in the first quarter 2004 and $3.68 per barrel in the comparable period a year ago.

Nuevo's first quarter 2004 natural gas production decreased 11% to 35.2 million cubic feet (MMcf) per day from 39.4 MMcf per day in the first quarter 2003 due to a decline in production at the Pitas Point Field, offshore California and a decline in production from a prolific well in the Pakenham Field, West Texas which was placed on production in the first quarter 2003. Nuevo's realized natural gas price was relatively flat at $4.26 per thousand cubic feet (Mcf) in the first quarter 2004 compared to $4.32 per Mcf in the year ago period. Included in the realized natural gas price is a hedging loss of $0.09 per Mcf in the first quarter 2004 and $0.48 per Mcf in the comparable period a year ago.

Costs and Expenses

Total costs and expenses in the first quarter 2004 were $72.5 million versus $65.3 million in the year ago period primarily impacted by higher lease operating expense (LOE). LOE was $44.8 million in the first quarter 2004 compared to $39.3 million in the year ago period. Excluding the natural gas cost and the increased natural gas volume, lease operating expense was $31.4 million in the first quarter 2004 versus $27.5 million in the comparable period in 2003 due to the timing of well workovers offshore California. Natural gas is used to generate steam which in turn facilitates production of heavy oil onshore California. General and administrative (G&A) costs increased to $7.8 million in the first quarter 2004 versus $6.7 million in the same period in 2003 due to legal expenses and merger-related costs. DD&A increased to $18.7 million in the first quarter 2004 compared to $17.4 million in the year ago period due to the Unocal contingent payment buyout in April 2004. The DD&A expense averaged $4.33 per barrel oil equivalent (BOE) in the first quarter 2004 compared to $3.97 per BOE in the year ago period. Interest expense declined 55% to $4.2 million in the first quarter 2004 compared to $9.3 million in the first quarter 2003 due to the redemption of $259.6 million of our 9 1/2% Notes.

Balance Sheet

At March 31, 2004, total debt outstanding was $318.3 million versus $355.0 million at year-end 2003. (Both periods include a long-term liability to unconsolidated affiliate of $115.0 million.) At the end of the first quarter 2004, Nuevo's debt to capital ratio, as defined in our credit agreement, declined to 34% compared to 38% at year-end 2003. The fixed charge coverage ratio improved to 5.4 times for the four quarters ending March 31, 2004 versus 5.0 times at year-end 2003.

Capital Expenditures

Capital expenditures in the first quarter 2004 were $11.4 million compared to $16.9 million in the first quarter 2003.
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