Spinnaker Exploration Reports 76% Increase in Second Quarter

Spinnaker Exploration reported second quarter 2004 earnings of $17.6 million, or $0.51 per diluted share, compared to second quarter 2003 earnings of $10.0 million on revenues of $55.9 million, or $0.30 per diluted share. Net income increased 24% to $31.3 million, or $0.90 per diluted share, in the first six months of 2004 compared to net income of $25.3 million, or $0.75 per diluted share, in the first six months of 2003.

Production
Production increased 11% from the second quarter of 2003 and 32% from the first quarter of 2004. Production was 13.6 billion cubic feet of gas equivalent ("Bcfe") in the second quarter of 2004, including approximately 10.1 billion cubic feet of gas ("Bcf") and 582,000 barrels of oil ("BO"), compared to 12.3 Bcfe in the second quarter of 2003 and 10.3 Bcfe in the first quarter of 2004. Production decreased 8% to 23.9 Bcfe in the first six months of 2004 compared to 26.0 Bcfe in the first six months of 2003. The Company's net current producing capacity is approximately 130 million cubic feet of gas equivalent ("MMcfe") per day.

Cash from Operations
Cash from operations in the second quarter of 2004 increased 45% to $68.8 million compared to $47.6 million in the second quarter of 2003. Cash from operations in the first six months of 2004 increased 9% to $120.6 million compared to $110.6 million in the first six months of 2003. Cash from operations is a non-GAAP financial measure and 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    Six Months Ended
                                 June 30,              June 30,
                              2004       2003      2004       2003

    Net cash provided by
     operating activities    $55,010   $80,618   $102,477   $130,140
    Changes in operating
     assets and liabilities   13,801   (33,068)    18,138    (19,582)
    Cash from operations     $68,811   $47,550   $120,615   $110,558


Revenues
Revenues increased 43% in the second quarter of 2004 to $79.8 million compared to $55.9 million in the second quarter of 2003. The increase in revenues was primarily due to higher realized natural gas and oil prices (after the effects of hedging activities) and higher production in the second quarter of 2004 compared to the second quarter of 2003. Revenues increased 9% to $139.6 million in the first six months of 2004 compared to $127.6 million in the first six months of 2003. The increase in revenues was due to higher realized natural gas and oil prices, offset by lower production in the first six months of 2004 compared to the same period in 2003.

The average natural gas price increased approximately 15% and the average oil price increased approximately 27% in the second quarter of 2004 compared to the second quarter 2003. The average natural gas price decreased approximately 3% and the average oil price increased approximately 14% in the first six months of 2004 compared to the first six months of 2003. The average sales prices per unit were as follows:



                             Three Months Ended        Six Months Ended
                                  June 30,                  June 30,
                              2004         2003        2004         2003

    Natural gas revenues
     from production
     (per Mcf)               $6.14        $5.36       $5.88        $6.07

    Effects of hedging
     activities (per Mcf)    (0.32)       (0.89)      (0.08)       (1.24)
    Average realized price
     (per Mcf)               $5.82        $4.47       $5.80        $4.83

    Oil and condensate
     revenues from
     production (per Bbl)   $36.61       $28.89      $35.95       $31.62
    Effects of hedging
     activities (per Bbl)      ---          ---         ---          ---
    Average realized price
     (per Bbl)              $36.61       $28.89      $35.95       $31.62

    Total revenues from
     production (per Mcfe)   $6.13        $5.27       $5.91        $5.94
    Effects of hedging
     activities (per Mcfe)   (0.24)       (0.75)      (0.07)       (1.04)
    Total average realized
     price (per Mcfe)        $5.89        $4.52       $5.84        $4.90



Expenses
Lease operating expenses (LOE), inclusive of severance taxes and workover expense, were $0.48 per thousand cubic feet equivalent ("Mcfe") in the second quarter of 2004 compared to $0.42 per Mcfe in the second quarter of 2003 and $0.46 per Mcfe in the first quarter of 2004.

The depreciation, depletion and amortization ("DD&A") rate was $2.97 per Mcfe in the second quarter of 2004 compared to $2.55 per Mcfe in the second quarter of 2003 and $2.82 per Mcfe in the first quarter of 2004. Of the total increase in the DD&A rate from the first quarter of 2004, $0.12 per Mcfe resulted from the retraction of royalty suspension volumes of 2.4 million BO, or 14.3 Bcfe, on Green Canyon 338/339/382 ("Front Runner"). The Minerals Management Service ("MMS") has estimated a 2004 oil price threshold of $33.29 per barrel that is applicable to Green Canyon Blocks 338 and 339 and $29.86 per barrel that is applicable to Green Canyon Block 382. Based on the average oil price as of June 30, these thresholds were exceeded, and we believe these leases will not qualify for royalty relief in 2004. The oil and gas price thresholds are re-determined annually. The base prices change by the percentage the implicit price deflator for the gross domestic product changed during the preceding calendar year. Should future annual oil and gas prices fall below the calculated thresholds, the royalty suspension volumes that remain to be recovered would be reinstated to the benefit of Spinnaker's interest.

General and administrative expenses increased $1.2 million from the second quarter of 2003 and $0.7 million from the first quarter of 2004. The increase from the second quarter of 2003 was primarily due to higher employment-related expenses and catastrophic loss insurance expense for the period prior to first production related to Front Runner of $0.5 million.

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

Property Activity
Second quarter 2004 additions to property and equipment were $68.1 million and included lease acquisition and related costs of $9.9 million, exploration costs of $39.0 million and development costs of $19.0 million. Additions to property and equipment in the first six months of 2004 were $143.0 million, including lease acquisition and related costs of $10.0 million, exploration costs of $68.6 million and development costs of $63.3 million. Dry hole costs, including associated leasehold costs, were approximately $9.3 million and $32.0 million in the three and six months ended June 30, 2004, respectively.

Exploration
Since April 29, 2004, Spinnaker has participated in three successful wells in seven attempts. A summary of successful wells follows:


                                                  Net Revenue
                                     Working        Interest
      Well                        Interest (WI)      (NRI)      Operator

    Minuteman (EI 213)                 33%            28%       Spinnaker
    Thunder Hawk (MC 734 #1 ST1)       25%            22%*      Dominion
    West Cameron 72 #2                 25%            20%       Dominion


* The lease stipulates that the block is eligible for royalty suspension on the first 87.5 million BO equivalent (MMBoe), subject to prevailing oil and gas prices as compared to MMS price thresholds. The estimated threshold prices for 2004 are $33.29 per BO and $4.16 per MMBtu. If eligible for royalty suspension, Spinnaker's NRI in the Thunder Hawk field would be 25%. The Company's unsuccessful exploratory attempts included its Zorin prospect at Mississippi Canyon 124 and its Jed prospect at Mississippi Canyon 617. Spinnaker's working interests in the Zorin and Jed prospects were 28% and 47%, respectively. Spinnaker has participated in 97 successful wells in 162 attempts since inception (60% gross/61% net).

Reserves
The Company's outside reserve engineers, Ryder Scott Company, L.P., estimated proved oil and gas reserves net to the Company's interest to be 319.0 Bcfe at June 30, 2004. The reserve total is comprised of 159.1 Bcf and 26.7 million BO (MMBO). Absent the downward revision of 14.3 Bcfe resulting from retraction of royalty suspension volumes, proved reserves were flat compared to proved reserves as of December 31, 2003. Should future annual oil and gas prices fall below the calculated thresholds, the royalty suspension volumes that remain to be recovered would be reinstated to the benefit of Spinnaker's interest. The present value of future net cash flows, using prices in effect as of June 30 and after consideration of future capital expenditures, LOE, transportation and abandonment expenditures, is estimated to be $1.1 billion. The mid-year report includes no reserves attributable to either the Thunder Hawk or Minuteman discoveries.

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