Vintage Petroleum Reports Strong Third Quarter Results

Vintage Petroleum, Inc. (NYSE:VPI) reported net income of $32.2 million, or $0.49 per diluted share, in the third quarter of 2004 compared to $11.8 million, or $0.18 per diluted share, in the same quarter last year. Included in net income for the third quarter of 2004 is a non-cash charge of $4.5 million ($7.3 million before tax) as a result of hedge accounting rules related to certain of the company's crude oil hedges in place at September 30, 2004.

Cash flow (including Canada now classified as a discontinued operation), a non-GAAP measure, was $95.6 million for the third quarter of 2004, up 39 percent from cash flow of $68.8 million in the third quarter of 2003. See the attached table for a reconciliation of these non-GAAP financial measures to the corresponding GAAP amounts of cash provided by operating activities of $114.0 million for the third quarter of 2004 and $78.0 million for the same period in 2003.

Discontinued Operations During September 2004, Vintage entered into an agreement to divest of all of its interests in Canada with closing scheduled for November 30, 2004. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Vintage was required to reclassify the assets, liabilities and results of its operations in Canada as discontinued operations for all periods presented. These reclassifications had no impact on previously reported net income (loss).

Production

Continued strong organic growth resulted in third quarter production, including Canada, of 7.3 million barrels of oil equivalent (BOE), representing a seven percent increase over the second quarter of 2004 and a six percent increase over the prior year's third quarter total of 6.9 million BOE. Total production from continuing operations (which excludes Canada) for the quarter of 6.4 million BOE was ten percent above the comparable 5.8 million BOE in the third quarter of 2003. This increase was driven by a 36 percent increase in gas production while oil production was relatively flat compared to the prior-year quarter.

Total gas production continues to be significantly ahead of the company's expectations to date as a result of exploitation successes in the U.S. more than offsetting temporary production interruptions in Argentina. Bolivia volumes benefited from Argentina's increased demand for natural gas supplies with the company's net gas production in Bolivia rising to average 26,800 Mcf per day in the current quarter compared to 15,600 Mcf per day in the third quarter of 2003. As a result of the company's successful drilling at its An Nagyah field, the company's Yemen oil production made its initial contribution in the second quarter of 2004 and averaged 1,891 net barrels per day during the third quarter, before the impact of changes in inventories. The company expects to produce 2,100 net barrels of oil per day during the fourth quarter. With the recently announced completion of the An Nagyah #11 well, the total productive capacity in Yemen has risen to approximately 8,000 gross (4,200 net) barrels of oil per day. Argentina net production in the third quarter of 2004 averaged 32,200 BOE per day. A portion of the company's Argentine production was temporarily shut-in mid quarter by protestors at a major oil loading facility, reducing the third quarter average production by 1,990 BOE per day (1,760 barrels of oil and 1,380 Mcf of gas per day). With shut-in production restored, Argentina net production for September 2004 averaged 35,000 BOE per day, with the anticipation that the fourth quarter will be slightly higher.

Commodity Prices and Revenues

Including the impact of hedges, the company's realized price for oil from continuing operations increased 29 percent to average $31.99 per barrel in the third quarter of 2004, compared with last year's third quarter average price of $24.79 per barrel. The company's realized price for gas increased 43 percent to $3.81 per Mcf compared to $2.66 per Mcf in the third quarter of 2003. As a result of the increases in production and oil and gas prices, oil and gas revenues increased 42 percent to $185.5 million for the third quarter of 2004 from $130.6 million in the same period of 2003.

Costs and Expenses

Production costs from continuing operations of $5.35 per BOE in the third quarter of 2004 were down six percent from $5.70 per BOE for the previous year's quarter as a result of the increase in production outpacing cost increases.

Export taxes in Argentina increased from $7.4 million in 2003 to $12.8 million in 2004 primarily as a result of the increase in export tax rates announced in August which became effective for a portion of the crude oil exports during the third quarter of 2004. This increase was partially offset by an increase in Argentina domestic sales as a percent of total sales versus the year-earlier quarter.

Exploration costs from continuing operations of $12.4 million for the third quarter of 2004 consisted of $1.4 million of seismic, geological and geophysical costs, $9.9 million of dry hole costs primarily in the U.S. and Yemen and $1.1 million of leasehold impairments. This compares to exploration expense for the third quarter of 2003 of $6.1 million, consisting of $4.3 million of seismic, geological and geophysical costs, $1.3 million of dry hole costs and $0.5 million of leasehold impairments.

Interest expense declined 29 percent to $12.6 million in the third quarter of 2004 due to a 13 percent reduction in average debt outstanding and a 16 percent lower average interest rate resulting from a change in the mix of fixed-rate versus floating-rate debt.

Nine Month Results

Net income for the nine months ended September 30, 2004, was $88.8 million, or $1.36 per diluted share, compared to $43.7 million, or $0.68 per diluted share, for the same period in 2003. Income from continuing operations before cumulative effect of change in accounting principle of $85.7 million, or $1.31 per diluted share, compares to $50.7 million, or $0.79 per diluted share, for the first nine months of 2003. There were no changes in accounting principles during the first nine months of 2004.

Cash flow (including Canada now classified as a discontinued operation), a non-GAAP measure, was $256.2 million for the nine months ended September 30, 2004, up 17 percent compared to $218.3 million in the year-ago period, reflecting the increase in production and oil and gas prices from the year-ago levels. See the attached table for a reconciliation of these non-GAAP financial measures to the corresponding GAAP amounts of cash provided by operating activities of $256.2 million for the nine months ended September 30, 2004, and $172.2 million in the year-earlier period.

2004 Targets for Production, Cash Flow and EBITDAX Increased

Based on the continued impact of the successes to date in its U.S. exploitation, and increased gas sales in Bolivia, the company has increased its production target for 2004 to 27.6 million BOE from the prior target of 27.5 million despite the 0.2 million BOE impact of temporary shut-ins in Argentina during the third quarter and reducing the production target for Canada by 0.3 million BOE as result of the pending sale scheduled to close on November 30, 2004. The company's U.S. production continues to run ahead of previous expectations due principally to gas recompletion activities underway in south central Texas. Net aggregated gas production from these lower-risk projects has increased from 7,000 Mcf per day to 30,000 Mcf per day since September of 2003.

Due to strong oil and gas prices prevailing during the first nine months of 2004 and the strength of the forward price curve, the company has also increased its average NYMEX price assumptions for 2004 to $42.00 per barrel for oil from $36.00 per barrel and to $6.10 per MMBtu for gas versus the previous assumption of $5.90 per MMBtu. For the fourth quarter of 2004, the company has hedged approximately 1.3 million barrels of oil through price swaps at an average NYMEX reference price of $30.20 per barrel and 0.6 Bcf of gas at an average price of $5.97 per MMBtu (see accompanying table - "Hedging Status").

Given its increased production targets, plus assumed prices and costs enumerated in the accompanying table, "Vintage Petroleum, Inc., Revised 2004 Targets", and other expectations, Vintage has increased its target for 2004 cash flow (as defined in the attached table) by 12 percent to $365 million, which is $40 million higher than the previous target of $325 million. In addition, the revised target for EBITDAX in 2004 has been raised by 12 percent, or $53 million, to $480 million from the previous target of $427 million.

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