Cash flow from operating activities in the quarter grew 38% to $56.2 million from the third quarter 2003 level of $40.7 million. Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expenses, was $51.5 million for the third quarter of 2004, a 36% increase from $38.0 million in the same quarter last year.
The Company said that its third quarter 2004 earnings and cash flow benefited from higher commodity prices and record high production volumes despite the impact of Hurricane Ivan. These positive benefits were partially offset by approximately $500,000 of additional lease operating expense from storm-related repair costs that were not covered by insurance; higher exploration expenses resulting from an active exploration program; and higher unit depreciation, depletion and amortization charges due to diminished volumes from low cost base properties during the storm.
Production volumes in the quarter averaged 86.1 million cubic feet (Mmcf) of natural gas and 8,893 barrels (Bbls) of oil per day, compared to 86.3 Mmcf of natural gas and 7,841 barrels of oil per day in the third quarter last year. On a barrels of oil equivalent (Boe) basis, daily production averaged 23,235 Boe per day, a new record high for EPL, up 5% over the third quarter 2003 average of 22,225 Boe per day. Production volumes in the third quarter were reduced by approximately 1,500 Boe per day due to Hurricane Ivan. In aggregate, the Company estimates the deferred production in the quarter resulting from shut-ins to total 134,000 Boe.
Natural gas price realizations for the quarter net of hedging averaged $5.79 per thousand cubic feet (Mcf), up 16% from $4.97 per Mcf in the third quarter of 2003. Oil price realizations, net of hedging, averaged $34.41 per barrel of oil, increasing 28% from $26.84 per barrel in the third quarter of 2003.
Richard A. Bachmann, EPL's Chairman, President and CEO, commented, "Hurricane Ivan surprised the entire industry with the damage it caused, but for EPL the more surprising, and welcome, story is how well we fared. The impact on our production was less than we initially estimated, and damage to our facilities was not significant. I want to credit our operations staff not just for their excellent performance in the wake of the storm, but also for the preparations put in place before the storm hit. Their hard work and foresight allowed us to achieve our production targets for the quarter despite the unavoidable downtime. With commodity prices at their current levels, that added effort delivered considerable value to the Company and its shareholders as evidenced in the results we reported today."
Bachmann continued, "Looking ahead to the fourth quarter, we are still experiencing some minor storm-related production disruptions. Deferred production from Ivan-related shut-ins, substantially all of which is from fields not operated by EPL, is expected to reduce average daily production in the fourth quarter by 700 Boe per day. Production in the fourth quarter has also been impacted by Tropical Storm Matthew, which is expected to reduce average daily production by 400 Boe per day. Despite the negative impact of both storms, we still expect fourth quarter production to fall near the low end of our previous guidance."
For the nine months ended September 30, 2004, net income available to common stockholders was $29.1 million, or $0.82 per diluted share. In the same period a year ago, net income available to common stockholders was $25.8 million, or $0.81 per diluted share. Net income in the prior year period included 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 the adoption of Financial Accounting Standards Board Statement No. 143, ("Accounting for Asset Retirement Obligations"), which was adopted effective January 1, 2003.
For the first nine months of 2004, cash flow from operating activities totaled $124.9 million, up 23% from $101.6 million in the same period a year ago. Discretionary cash flow totaled $146.3 million, up 31% from $111.7 million in discretionary cash flow in the first nine months of 2003 (see reconciliation of discretionary cash flow in table). Earnings and cash flow in the 2004 year-to-date period benefited from increasing production volumes and higher commodity prices compared with the same period in 2003.
Production for the first nine months of 2004 increased 9% over the 2003 comparable period, to 22,337 Boe per day from 20,561 Boe per day. Oil production averaged 8,433 Bbls per day up 8% from 7,778 Bbls per day in the same nine month period in 2003. Natural gas production averaged 83.4 Mmcf per day, up 9% from 76.7 Mmcf per day in the comparable period in 2003.
Average realized oil prices net of hedging for the first nine months of 2004 were $33.21 per Bbl, up 19% from $27.99 per Bbl in 2003. Natural gas averaged $5.93 per Mcf net of hedging, up 12% from $5.28 per Mcf in the same period in 2003.
Exploration and development expenditures in the third quarter of 2004 totaled $47.3 million, up 167% from $17.7 million in the third quarter of 2003. For the 2004 year-to-date period, exploration and development expenditures totaled $143.1 million. At the end of the third quarter, cash and cash equivalents totaled $104.2 million, while debt was $150.2 million. The Company's debt to total capitalization ratio stood at 34% excluding the impact of cash on the balance sheet at September 30, 2004.
The Company added to its 2005 hedge position during the quarter. EPL maintains a complete and up to date schedule of all hedging positions on its website, in the Investor Relations section.
In the third quarter EPL reported two exploratory discoveries and three dry holes. The discoveries were the High Island A-6 #5 well (17% working interest) and the South Pass 27 #92 well (100% working interest). The three dry holes were at East Buck Point in Vermilion Parish, Louisiana (25% working interest), East Cameron 43 #1 (44% working interest), and West Cameron 204 #1 (50% working interest). Also in the third quarter, the Company initiated production from six discoveries and completed seven workovers.
After the end of the quarter, the Company announced three additional exploratory successes at South Timbalier 46 #2 (100% working interest), South Timbalier 41 #A-2 (60% working interest), and Matagorda Island 640 #1 (50% working interest). For the year to date, EPL has drilled 13 exploratory discoveries in 17 attempts, for a 76% success rate.
EPL currently has exploratory tests underway in four locations: Vermilion 73 #1 (50% working interest) Eugene Island 277 #B-1 (50% working interest), Matagorda Island 639 #1 (50% working interest), and South Marsh Island 192 #A-2 (17% working interest). Beyond the wells currently drilling, EPL plans to spud ten additional exploratory wells in the fourth quarter. The scheduled wells include South Timbalier 41 #4, Eugene Island 277 #B-2, Vermilion 237 #1, South Pass 40 #1, South Pass 40 #2, West Cameron 242 #1, South Marsh Island 109 #A-4 and #A-5, Galveston 227 #1, and North Padre Island 913 #1.
Bachmann continued, "Our most recent discoveries are attractive additions to what is shaping up to be another great year of drilling success. The South Timbalier 41 #A-2 well has further validated the upside we believe exists on the block, and our next well there, the #4, will attempt to test deeper objectives in the field. In addition, our exploratory program elsewhere on the Shelf continues apace, and we will be very busy in the remainder of the year capping off what will be the most extensive exploratory program in the Company's history."
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