Spinnaker Exploration Reports 88% Increase in 3Q04 Earnings

Spinnaker Exploration Company (NYSE: SKE) reported third quarter 2004 earnings of $9.1 million, or $0.26 per diluted share, an increase of 88%, compared to third quarter 2003 earnings of $4.8 million, or $0.14 per diluted share, on revenues of $50.1 million. Net income increased 34% to $40.4 million, or $1.16 per diluted share, in the first nine months of 2004 compared to net income of $30.1 million, or $0.89 per diluted share, in the first nine months of 2003.

Production
Production was 11.3 billion cubic feet of gas equivalent ("Bcfe") in the third quarter of 2004 compared to 11.5 Bcfe in third quarter of 2003. Production in the third quarter of 2004 included approximately 9.1 billion cubic feet of gas ("Bcf") and 365,000 barrels of oil ("BO") compared to 9.4 Bcf and 351,000 BO in the third quarter of 2003. Production decreased 3% from the third quarter of 2003 and 17% from the second quarter of 2004 due primarily to weather-related shut-ins as previously announced in our release of October 22, 2004, and normal production declines. The Company's net current producing capacity is approximately 110 million cubic feet of gas equivalent ("MMcfe") per day.

Revenues
Revenues increased 26% in the third quarter of 2004 to $63.2 million compared to $50.1 million in the third quarter of 2003. The increase in revenues was primarily due to higher realized natural gas and oil prices (after the effects of hedging activities), partially offset by lower production in the third quarter of 2004 compared to the third quarter of 2003. Revenues increased 14% to $202.8 million in the first nine months of 2004 compared to $177.7 million in the first nine months of 2003. The increase in revenues was due to higher realized natural gas and oil prices, partially offset by lower production in the first nine months of 2004 compared to the same period of 2003.

The average natural gas price increased approximately 27% and the average oil price increased approximately 38% in the third quarter of 2004 compared to the third quarter of 2003. The average natural gas price increased approximately 22% and the average oil price increased approximately 21% in the first nine months of 2004 compared to the same period in 2003. The average sales prices per unit were as follows:


                                       Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                          2004      2003      2004      2003

    Natural gas revenues from
     production (per Mcf)               $  5.60   $  4.87   $  5.79   $  5.71

    Effects of hedging activities
     (per Mcf)                            (0.28)    (0.68)    (0.15)    (1.07)
    Average realized price (per Mcf)    $  5.32   $  4.19   $  5.64   $  4.64

    Oil and condensate revenues
     from production (per Bbl)          $ 41.10   $ 29.50   $ 37.42   $ 30.91
    Effects of hedging activities
     (per Bbl)                            (0.25)      ---     (0.07)      ---
    Average realized price (per Bbl)    $ 40.85   $ 29.50   $ 37.35   $ 30.91

    Total revenues from production
     (per Mcfe)                         $  5.85   $  4.88   $  5.89   $  5.61
    Effects of hedging activities
     (per Mcfe)                           (0.24)    (0.56)    (0.12)    (0.89)
    Total average realized price
     (per Mcfe)                         $  5.61   $  4.32   $  5.77   $  4.72



Cash from Operations
Cash from operations in the third quarter of 2004 increased 34% to $52.1 million compared to $38.8 million in the third quarter of 2003. Cash from operations in the first nine months of 2004 increased 16% to $172.7 million compared to $149.4 million in the first nine 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       Nine Months Ended
                                  September 30,            September 30,
                                  2004       2003         2004         2003

    Net cash provided by
     operating activities       $56,299    $36,367     $158,776     $166,507
    Changes in operating
     assets and liabilities      (4,184)     2,479       13,954      (17,103)
    Cash from operations        $52,115    $38,846     $172,730     $149,404


Expenses
Lease operating expenses (LOE), inclusive of severance taxes and workover expense, were $0.59 per thousand cubic feet of gas equivalent ("Mcfe") in the third quarter of 2004 compared to $0.63 per Mcfe in the third quarter of 2003 and $0.48 per Mcfe in the second quarter of 2004.

The depreciation, depletion and amortization ("DD&A") rate was $3.17 per Mcfe in the third quarter of 2004 compared to $2.63 per Mcfe in the third quarter of 2003 and $2.97 per Mcfe in the second quarter of 2004. The DD&A rate increased 7% from the second quarter of 2004 to the third quarter of 2004 primarily due to a net downward revision of oil and gas reserves of 11.2 Bcfe, or 3.5% of oil and gas reserves as of the beginning of the quarter, and costs associated with unsuccessful drilling activities during the third quarter of 2004. The net downward reserve revision primarily resulted from unsuccessful sidetrack operations at a High Island 202 well in the related Rob L-3 and Rob L-5 sands.

General and administrative expenses increased approximately $0.3 million in the third quarter of 2004 compared to the third quarter of 2003. General and administrative expenses increased approximately $2.0 million in the first nine months of 2004 compared to same period of 2003 primarily due to higher employment-related expenses and business interruption loss insurance expense of $0.7 million for the period prior to first production at Green Canyon 338/339/382 ("Front Runner").

Income tax and cash tax (actual cash paid for taxes) rates in the third quarter of 2004 were 40% and 0%, respectively, and 37% and 0%, respectively, in the first nine months of 2004. The increase in the effective tax rate relates to a provision for additional deferred state income taxes. Income tax and cash tax rates in the third quarter and first nine months of 2003 were 36% and 0%, respectively.

Property Activity
Third quarter 2004 additions to property and equipment were $60.6 million and included lease acquisition and related costs of $3.0 million, exploration costs of $48.3 million and development costs of $8.8 million. Additions to property and equipment in the first nine months of 2004 were $203.6 million, including lease acquisition and related costs of $13.0 million, exploration costs of $116.8 million and development costs of $72.2 million. Dry hole costs, including associated leasehold costs, were approximately $26.7 million and $58.7 million in the third quarter and first nine months of 2004, respectively.

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


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

    Front Runner Northwest
     (GC 338 #9)                        25%          22%*    Murphy
    High Island 206 #B-2                34%          25%     Spinnaker
    Ship Shoal 72 #31                   20%          16%     PetroQuest


* 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 $33.91 per BO and $4.24 per MMBtu. If eligible for royalty suspension, Spinnaker's NRI in the Front Runner field would be 25%.

Spinnaker has participated in 100 successful wells in 169 attempts since inception (59% gross/60% net).

Current Operations
The Company is currently involved in eight rig operations. Five of the operations are located on the shelf and three are located in deep water. Two of the operations are operated by Spinnaker. Five of the operations are exploratory and three are in completion mode.

Various activities are ongoing in several field areas in which the Company owns interests. The following summary information updates the Company's progress on many of these projects:

Eastern Gulf of Mexico

Spiderman/Amazon Development (DeSoto Canyon 620/621)
The Spiderman/Amazon development plan is progressing. It is likely that the field will be developed via subsea tieback to a Floating Production Facility ("FPF") located in southern Mississippi Canyon. Project sanction is imminent. The Company anticipates first production during 2007.

Spinnaker owns an 18% WI and 16% NRI (or 18% NRI if eligible for royalty suspension) in the Spiderman/Amazon field.

San Jacinto Development (DeSoto Canyon 618/619)
The San Jacinto development plan is nearing completion. It will most likely be jointly developed with Spiderman/Amazon via subsea tieback to the FPF located in southern Mississippi Canyon. An additional exploratory/delineation well is currently drilling. A third well could be drilled prior to installation of the FPF.

Spinnaker owns a 27% WI and 23% NRI (or 27% NRI if eligible for royalty suspension) in the San Jacinto discovery.

High Island 206 #B-2 Discovery
The HI 206 #B-2 well found a productive Rob L interval. Production casing was run and the well is currently being completed. The well was drilled from Spinnaker's HI 206 platform. First production is scheduled for fourth quarter 2004. The field is located in 54 feet of water, approximately 34 miles southeast of Galveston, Texas.

Spinnaker operates the HI 206 field and owns a 34% WI and 25% NRI in the HI 206 field.

Front Runner/Front Runner South/Quatrain Field Development (Green Canyon 338/339/382)
The Front Runner spar is complete. The completion rig was mobilized in early August. The first top-tensioned production riser has been installed and the first of eight wells is being completed after a delay due to Hurricane Ivan. First production is scheduled for late November.

Additionally, an exploratory test at the Front Runner Northwest prospect (GC 338 #9) was successful and will be produced via a subsea tieback to the Front Runner spar. At least one other exploratory well will be drilled in the Front Runner/Quatrain Field area during 2005.

Spinnaker owns a 25% WI and 22% NRI (or 25% NRI if eligible for royalty suspension) in the Front Runner project.

Thunder Hawk Discovery (Mississippi Canyon 734 #1 ST1)
The MC 734 #1 ST1 discovery well has been temporarily abandoned. An additional well to explore deeper sediments and to further delineate the field will likely commence in the fourth quarter of 2004. The prospect is located approximately 150 miles southeast of New Orleans in a water depth of 5,724 feet. Several development options are currently under consideration.

Spinnaker owns a 25% WI and 22% NRI (or 25% NRI if eligible for royalty suspension) in the Thunder Hawk discovery.

Shiraz Discovery (Ship Shoal 72 #31)
Spinnaker and its partners drilled an oil discovery at SS 72. The SS 72 #31 well was drilled from PetroQuest's SS 72 production platform to total measured depth of 11,210 feet, encountering two high quality productive intervals. The well was cased and the drilling rig was released. A completion rig will be mobilized in the next few weeks to complete the well. Other prospective fault blocks exist on the block and are being evaluated for drilling. First production from the discovery well is expected in the fourth quarter of 2004.

Spinnaker owns a 20% WI and 16% NRI in the SS 72 #31 well.

Minuteman Discovery (Eugene Island 213 #1)
The EI 213 #1 well was sidetracked successfully and encountered high quality hydrocarbon pay in the objective interval. Production casing was run in the well. A caisson has been over-driven and the drilling rig demobilized. A completion rig will be mobilized in early November to complete the well. A flow line is currently being laid to a nearby production facility. First production is anticipated in the late fourth quarter of 2004.

Spinnaker operates the Minuteman discovery and owns a 33% WI and 28% NRI in the field.



                                            Actual      Guidance      Guidance
                                           Q3 2004      Q4 2004      Year 2004

           Income Statement Parameters:
    Avg Daily Production (MMcfe/day)          122          111           123
    % Gas                                     81%          75%           77%

    Avg Daily Hedged Gas
     Volumes (Bbtus/day) - Swaps             30.0          8.4          27.1
    Avg Price - Swaps                      $ 5.13       $ 4.92        $ 5.50

    Avg Daily Hedged Gas Volumes
     (Bbtus/day) -  Collars                  20.0         18.4          19.6
    Avg Ceiling Price - Collars            $ 5.48       $ 6.56        $ 6.03
    Avg Floor Price - Collars              $ 4.38       $ 4.73        $ 4.68

    Avg Daily Hedged Oil Volumes
    (MBbls/day) - Swaps                       0.3          1.0           0.3
    Avg Price - Swaps                      $42.86       $42.86        $42.86

    Avg Daily Hedged Oil Volumes
    (MBbls/day) - Collars                     ---          1.0           0.3
    Avg Ceiling Price - Collars            $  ---       $50.25        $50.25
    Avg Floor Price- Collars               $  ---       $40.00        $40.00

    Avg LOE, Workover & Severance
     Taxes / Mcfe                          $ 0.59       $ 0.64        $ 0.54
    Avg DD&A / Mcfe                        $ 3.17       $ 3.20        $ 3.04

    G&A (in millions)                      $  4.2       $  4.0        $ 16.0
    Interest Expense, Net (in millions)    $  0.4       $  0.6        $  1.5
    Capitalized Interest (in millions)     $  0.8       $  0.9        $  2.8
    Accretion Expense (in millions)        $  0.9       $  0.8        $  3.0

    Avg Cash Income Tax Rate                   0%           1%            1%
    Avg Accrual Income Tax Rate               40%          37%           37%

    Weighted Average Shares Outstanding -
     Diluted (in millions)                   34.9         35.0          34.8

          Spending Parameters:
    Shelf Wells Drilled:
       Gross Wells                              2            9            17
       Net Wells                              1.0          4.1           7.8

    Deepwater Wells Drilled:
       Gross Wells                              4            3            12
       Net Wells                              0.9          0.6           2.7

    Total Wells Drilled:
       Gross Wells                              6           12            29
       Net Wells                              1.9          4.7          10.5

    Capital Expenditures (in millions):    $   61       $   71        $  275
       Exploration                         $   52       $   50        $  181
       Development                         $    9       $   21        $   94
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