Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expense, also was the highest in the Company's history totaling $53.7 million, up 49% over second quarter 2003 discretionary cash flow of $36.1 million (see reconciliation of discretionary cash flow in table.) Cash flow from operating activities in the most recent quarter was $48.0 million, compared to $36.1 million in the second quarter of 2003.
The Company said that growing production volumes and strong commodity prices were the primary drivers in the results reported today. Cash operating costs, which includes lease operating expenses, taxes other than on earnings, and general and administrative expenses, declined to $8.78 per barrel of oil equivalent (Boe), down 6% from $9.32 per Boe in the second quarter of 2003.
In the second quarter of 2004, production volumes averaged 22,920 Boe per day, another record high for EPL. Natural gas production averaged 87.1 million cubic feet (Mmcf) per day, an increase of 18% over second quarter 2003 volumes of 73.6 Mmcf per day. Oil production in the second quarter of 2004 averaged 8,411 barrels per day, a 12% increase over volumes of 7,483 barrels per day in the same period a year ago. On a Boe basis, production grew 16% over second quarter 2003 levels of 19,751 Boe per day. The Company also said that production is currently averaging over 24,000 Boe per day.
Natural gas price realizations in the second quarter 2004, net of hedging, averaged $6.26 per thousand cubic feet (Mcf), a 17% increase over second quarter 2003 realizations of $5.36. Oil realizations net of hedging averaged $33.20 per barrel, a 24% increase over realizations of $26.84 in the same period of 2003.
Richard A. Bachmann, EPL's Founder, Chairman, President, and CEO commented, "We have been fortunate to achieve all time high production volumes at a time when commodity prices are at or near record levels. That combination has allowed the Company to set new highs on a number of fronts, continuing a streak of record results over the last several quarters for EPL. We have also been quite successful in controlling our unit operating costs. We take great satisfaction in demonstrating the ability to grow while creating value in the Gulf of Mexico."
For the six months ended June 30, 2004, net income available to common stockholders was $20.4 million, or $0.58 per diluted share. Net income available to common stockholders in the same period of 2003 was $19.9 million, or $0.63 per diluted share, inclusive of an after tax benefit of $2.3 million, or $0.06 per diluted share, related to the cumulative effect of a change in accounting principle as a result of adoption of Financial Accounting Standards Board Statement No. 143, ("Accounting for Asset Retirement Obligations"), which was effective January 1, 2003.
Discretionary cash for the first two quarters of 2004 totaled $94.8 million, rising 29% over $73.7 million in the same period a year ago. (See reconciliation of discretionary cash flow in table.) Cash flow from operating activities in the first six months of 2004 was $68.7 million, up 13% compared to $60.9 million in the same period of 2003. First half 2004 results benefited from higher production volumes compared to the same period in 2003 as well as higher commodity prices.
For the first half of 2004, natural gas volumes averaged 82.1 Mmcf per day, a 14% increase over first half 2003 natural gas volumes of 71.8 Mmcf per day. Oil production averaged 8,200 barrels per day in the first half of 2004, a 6% increase over production of 7,746 barrels per day in the first half of 2003. On a Boe basis, production averaged 21,882 Boe per day for the first six months of 2004, representing an 11% increase over the average of 19,716 Boe per day in the same period a year ago.
For the first six months of 2004 natural gas price realizations net of hedging averaged $6.01 per Mcf, a 10% increase over realizations of $5.46 in the same period a year ago. Oil price realizations net of hedging for the first two quarters of 2004 were $32.55 per barrel, a 14% increase from $28.59 in the same period of 2003.
For the first six months of 2004, exploration and development expenditures totaled $95.8 million, a 72% increase over exploration and development expenditures of $55.8 million in the first six months of 2003. EPL has increased its 2004 exploration and development budget on two occasions since the end of the first quarter. The budget for 2004 currently stands at $175 million, up 40% from EPL's initial exploration and development budget of $125 million and up 56% from actual expenditures of $112 million in 2003.
On June 30, 2004, cash and cash equivalents totaled $94.6 million while long-term debt stood at $150.3 million. The Company's debt to total capitalization ratio was 34% excluding the impact of cash on the balance sheet at quarter-end.
On July 16, 2004, after the close of the second quarter, the Company filed a universal shelf registration which, when declared effective, will allow EPL to issue an aggregate of $300 million in common stock, preferred stock, senior debt, and subordinated debt. The Company does not currently have plans to raise additional capital under this shelf.
The Company also recently amended its bank credit facility. On August 3, 2004, EPL entered into a four year $200 million credit facility with a group of six banks that has a $60 million initial borrowing base. The Company currently has no amount outstanding under this facility. Hedging
EPL has recently established hedging positions in 2005 for both oil and natural gas. To view a complete and regularly updated schedule of all hedging positions, please visit the Investor Relations section of the Company's website, www.eplweb.com, under "Hedging".
In the second quarter of 2004, EPL had five exploratory discoveries and one dry hole. The five successful wells were East Cameron 161 #A-3, South Timbalier 41 #2, High Island 56L #1, Eugene Island 277 #A-3ST and Eugene Island 242 #1; the one dry hole was at West White Lake in Vermilion Parish, Louisiana. After the end of the quarter, the operator of the High Island A-6 #5 well, where EPL holds a 17% working interest, announced that the well was an exploratory success.
For the year to date, EPL drilled nine exploratory discoveries in ten attempts, and five exploratory tests are currently underway with results pending. Those wells are East Buck Point in Vermilion Parish, Louisiana, East Cameron 43 #1, South Pass 27 #92, South Marsh Island 192 #A-2, and South Timbalier 41 #3.
EPL initiated production from two exploratory successes in the quarter, East Cameron 161 #A-3 and South Timbalier 41 #1. Since June 30, production has begun from four more exploratory successes, the East Cameron 44 #2 well, Eugene Island 242 #1 and two wells at High Island 55L. The Company also finished ten well workovers and recompletions in the quarter.
At the March 2004 Central Gulf Lease Sale, EPL submitted bids on twelve blocks and was the high bidder on eight of the twelve blocks. All of the blocks on which EPL submitted the high bid were subsequently awarded. The blocks include Eugene Island 52, Eugene Island 248, Ship Shoal 115, South Marsh Island 79, South Timbalier 42, Vermilion 237, West Cameron 145 and West Cameron 242. EPL plans to drill prospects on five of these blocks in 2004.
In May 2004, EPL participated in the Louisiana State Lease Sale and submitted high bids on three tracts covering state water portions of South Pass blocks 26, 27, 38, and 39. The three tracts together cover a total of 5,200 acres, which are contiguous to and extend the Company's East Bay field. All of the tracts have been awarded.
Bachmann continued, "At this point, we are nearly halfway through the largest and most exciting exploratory program in the Company's history. As pleased as we are with our success in the first half of the year in drilling wells, installing facilities, initiating new production, and adding prospective acreage, we are even more excited at the potential that the second half of 2004 holds for us. All the ingredients are in place for an excellent second half and full year 2004, and we will continue to work diligently to deliver value to our shareholders."
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