For the six months ended June 30, 2004, the Company reported net income of $7.7 million, or $.77 per share, compared to net income of $22.6 million, or $2.40 per share for the six months ended June 30, 2003. Cash flow from operations during the first six months of 2004 was $49.4 million compared to $69.7 million for the same period in 2003.
Higher exploration costs and lower oil and gas sales accounted for most of the decrease in earnings during the second quarter of 2004. Exploration costs related to abandonments and impairments were $15.3 million during the second quarter as compared to $10.5 million during the 2003 quarter. Included in the current period was $10.7 million related to the unproductive sections of the State Lease 17378 No. 1 (Fleur) in south Louisiana. Oil and gas sales for the second quarter of 2004 decreased 4% to $41.1 million as compared to $43 million in the 2003 quarter due primarily to lower gas production offset by higher oil production and higher product prices.
Gas production in the second quarter of 2004 dropped 42% to 4.1 Bcf, or 45,110 Mcf per day, from 7 Bcf, or 77,209 Mcf per day in 2003. Most of the decline stems from the Cotton Valley area and south Louisiana. Oil production, on the other hand, increased 19% primarily as a result of the recent acquisition of Southwest Royalties Inc. Reported production only includes the effects of the Southwest Royalties acquisition from May 21, 2004, through June 30, 2004.
Overall, product prices continue to be strong. Realized oil prices in the second quarter of 2004 increased 43% from $25.91 to $37.04 per Bbl, while gas prices increased 24% from $4.57 to $5.68 per Mcf. The 2003 prices include realized losses on hedging transactions totaling $6.6 million. Realized losses of $2.8 million on hedging transactions for the 2004 period are included in other income/expense since the hedges were not designated as cash flow hedges under applicable accounting standards.
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