Highlights from Brigham's performance for the second quarter include:
SECOND QUARTER 2004 RESULTS
Average daily production volumes for the second quarter 2004 were 34.4 MMcfe/d and were 19% higher when compared to production volumes in last year's second quarter. Higher production combined with an improvement in our realized sales price, net of hedges, resulted in a $5.8 million, or 48%, increase in our revenues for the second quarter 2004. Increased production volumes represented approximately $2.9 million of the $5.8 million increase in revenues, while improved price realizations represented the remainder of the increase.
An increase in the number of producing wells during the second quarter 2004 led to a 3% increase in lease operating expenses. On a per unit basis, lease operating expenses for the second quarter 2004 decreased $0.06 per Mcfe to $0.42. The decrease in our per unit lease operating expenses was due to a $0.05 per Mcfe decrease in workover costs and a $0.01 decrease in ad valorem taxes. An increase in production volumes combined with an increase in the average pre-hedge sales price that we received for oil and natural gas in the second quarter 2004 were the primary reasons for the 11% increase in our total production tax expenses. Despite the increase in our total production tax expenses, on a per unit basis, production taxes were $0.02 per Mcfe lower due to reduced tax rates and tax credits on certain wells.
General and administrative expenses for the second quarter 2004 were up slightly when compared to general and administrative expenses for the second quarter last year. General and administrative expenses on a per unit basis decreased 15% in the second quarter 2004 to $0.39 per Mcfe.
Depletion expense for the second quarter 2004 was $5.6 million ($1.82 per Mcfe) compared to $3.8 million ($1.46 per Mcfe) in the second quarter last year. An increase in our depletion rate accounted for 61% of this increase, while an increase in production accounted for 39% of the increase. The increase in our depletion rate was primarily the result of increased costs of reserve additions during the first half of 2004. Operating income for the second quarter 2004 was $8.7 million and grew 77% when compared to operating income in the second quarter last year.
A decline in our weighted average debt balances outstanding under both our senior credit facility and our senior subordinated notes, combined with a decrease in the interest rate that we paid on those borrowings, were the primary reasons for the $370,000 or 30% decrease in interest expenses for the second quarter 2004. Interest expenses for the second quarter 2004 were $854,000 and $0.28 per Mcfe on a per unit basis, compared to $1.2 million and $0.47 in 2003.
We reported net income available to common stockholders of $5.1 million ($0.13 per diluted share) in the second quarter 2004 versus a net income of $2.4 million ($0.10 per diluted share) for the prior year period. Net income in the current quarter was reduced by a $2.7 million provision for deferred income taxes. There was no income tax provision incurred in last year's second quarter.
Our net capital expenditures for the second quarter 2004 increased 126%. Net capital expenditures for the second quarter of 2004 and 2003 were:
($'s in millions) Three Months Ended June 30, 2004 2003 Drilling $18.6 $7.5 Net land and G&G 2.4 1.0 Capitalized costs 1.6 1.4 Net capital expenditures for oil and natural gas activities $22.6 $9.9 Other property & equipment --- 0.1 Net capital expenditures $22.6 $10.0
THIRD QUARTER 2004 FORECAST
The following forecasts and estimates of our third quarter 2004 results are forward looking statements subject to the risks and uncertainties.
We currently expect third quarter 2004 production volumes to average between 34 and 38 MMcfe/d (72% natural gas). For the third quarter 2004, lease operating expenses are projected to be $0.43 per Mcfe, production taxes are projected to be approximately 5.5% of pre-hedge oil and natural gas revenues, and general and administrative expenses are projected to be $1.2 million ($0.35 to $0.39 per Mcfe).
Based on these production and cost estimates, assumed average NYMEX prices of $6.00 per MMBtu for natural gas and $42.20 per barrel for oil, and taking into account current derivative contracts outstanding, we forecast that our revenue will be between $18 and $20.3 million and operating income will be between $8.9 and $10.4 million for the third quarter 2004.
Gene Shepherd, Brigham's Chief Financial Officer, commented, "We are pleased with the record financial performance that the company achieved during the second quarter and first half of 2004. Our record production volumes and relatively flat costs have contributed to an expansion in our operating margins during 2004. With the expanded capital expenditure budget that has resulted from our recent equity offering, we look forward to building upon these results in the second half of 2004."
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