Operating income from continuing operations for 2004 was $1.4 million, which included a nonrecurring charge for seismic costs of $1.8 million in the Black Sea's South Akcakoca sub-basin. Although the seismic survey was part of the area's development program after the company's natural-gas discovery there in 2004, a strict interpretation of successful efforts accounting pronouncements necessitated the immediate expensing of these seismic costs rather them capitalizing them. For 2003, operating income from continuing operations was $873,000.
The year-over-year improvement in earnings per diluted share was primarily due to:
-- An $18.2 million net gain on the sale of Toreador's U.S. mineral and royalty portfolio recorded in the first quarter of 2004,
-- A $5.0 million gain for foreign currency exchange transactions realized in the first quarter of 2004, and
-- Higher commodity prices.
Revenues for full-year 2004 were $21.0 million, a 25% increase over full-year 2003 revenues of $16.8 million.
"We are pleased with 2004 results and believe they reflect the progress we have made in recent months to pursue our development program and keep expenses in line," said G. Thomas Graves III, Toreador President and Chief Executive Officer. "However, we are disappointed that the company's fourth-quarter earnings were adversely impacted by accounting adjustments that we believe do little to describe the actual operating conditions of our business. Toreador's cash flow and operating margins remain strong. The fundamentals underpinning our business have not changed.
"On the operations side, current companywide production is approximately 1,900 barrels of oil equivalent per day," Graves continued. "To date we have replaced about 60% of the production attributed to the sale in January 2004 of our U.S. mineral and royalty portfolio, which was about 675 BOE per day. We currently anticipate that development drilling success in France will enable us to reach and ultimately surpass our objective of replacing all of the production sold."
In 2004, Toreador's oil and gas production was 634,000 barrels of oil equivalent (BOE) versus production of 665,000 BOE for 2003. The company's average realized oil price per barrel for 2004 was $35.24, a 35% increase over the average realized oil price per barrel of $26.02 in 2003. The average realized gas price in 2004 was $5.65 per thousand cubic feet (Mcf), 19% higher than the average realized gas price of $4.74 per Mcf in 2003.
For reference, Toreador's proved reserves totaled 13.8 million barrels of oil equivalent (MMBOE) at December 31, 2004, compared with proved reserves of 13.6 MMBOE at December 31, 2003, net of the company's sale of its U.S. mineral and royalty assets in January 2004. After deducting production of 600,000 BOE, proved reserves at December 31, 2004, increased 800,000 BOE, or 6%, from the December 31, 2003, level. The company used an average realized oil price of $37.30 per barrel of Brent crude, an average realized oil price of $41.69 per barrel of West Texas Intermediate crude and an average realized gas price of $5.66 per Mcf to calculate its 2004 year-end reserves.
FOURTH-QUARTER 2004 RESULTS
For the fourth quarter of 2004, Toreador reported a loss applicable to common shares of $102,000, or $0.01 per diluted share, compared with a loss applicable to common shares of $214,000, or $0.02 per diluted share, for the fourth quarter of 2003.
The company recorded an operating loss from continuing operations for the fourth quarter of 2004 of $808,000, compared with an operating loss from continuing operations for the year-ago period of $1.0 million. Fourth-quarter 2004 revenues were $6.4 million versus fourth-quarter 2003 revenues of $3.2 million.
During the fourth quarter of 2004, Toreador's oil and gas production was 165,000 BOE versus fourth-quarter 2003 oil and gas production of 141,000 BOE. The increase was due to additional production from France.
The company's average realized price oil price per barrel for the fourth quarter of 2004 was $40.33, a 54% increase over the average realized oil price per barrel of $26.12 in the year-ago period. The average realized gas price for the fourth quarter of 2004 was $5.85 per Mcf, 38% higher than the average realized gas price of $4.24 per Mcf in the fourth quarter of 2003.
Toreador anticipates completing its analysis of the 3D seismic survey of the South Akcakoca sub-basin in the Black Sea during the first-quarter 2005 after which the company's offshore drilling program would begin in late April. The company plans a consecutive three-well appraisal program. If successful, the wells will be completed and suspended as future producers. The company will have the option to drill up to five additional wells using the same rig that drilled the first three wells. Phased development of this natural-gas play is anticipated with production targeting the nearby onshore industrial market beginning in the second half of 2006. Toreador discovered natural gas in the area in September 2004. Toreador is operator and holds a 36.75% working interest in this acreage.
Onshore Turkey, Toreador is reprocessing seismic data on the Calgan-2 exploratory well, which encountered oil shows when it was drilled during the fourth quarter of 2004. Based on information processed to date from the seismic data, the company expects to sidetrack the well but has not yet determined the direction and length of the lateral extension. Toreador expects to initiate the sidetrack by mid-2005. Toreador is operator and owns a 75% working interest in the Calgan-2 well.
In the Charmottes Field, the Charmottes-108 well, a horizontal development well, has today reached a total depth of 9,570 feet of which 1,969 feet were drilled horizontally. The well encountered oil shows over 1,122 feet. The company expects to begin preliminary testing of the Charmottes-108 this week. Toreador will then shut in the well in order to drill the Charmottes-110, a second horizontal development well, from the same drill site. The company expects to spud the Charmottes-110 next week.
Toreador plans to complete construction of expanded production facilities in the Charmottes Field by mid-year 2005. The expanded facilities will accommodate the Charmottes-108 and -110 wells, as well as the Charmottes-109 well, currently producing on a limited basis, and any future successful development wells. Until these facilities are completed, temporary storage will accommodate production from the Charmottes-108 and -110 wells, which could be put on line as early as April.
If the Charmottes-108 and -110 wells are successful, the company could drill another two to four horizontal wells in the Charmottes Field in late 2005 and in 2006. In addition, Toreador expects to drill at least one additional well in 2005 to exploit the reserves in the Charmottes Field's Donnemarie formation, which produces at a depth of about 8,600 feet. Two of the company's Charmottes wells currently are producing from this formation.
Toreador also plans to initiate a seven-well development program in the four-field Neocomian complex during the second quarter of 2005.
During the second half of 2005, Toreador plans to drill up to six exploratory wells on its 183,000-acre Courtenay permit. The analysis of a geochemical study that will supplement existing geophysical and subsurface data should be completed during the first half of the year. The work will help to further identify potential well locations.
Toreador is operator and holds a 100% working interest in the Charmottes and Neocomian fields and Courtenay permit.
In January, Toreador re-entered the first of six wells on its 1,325-acre Fauresti Block. The well has been perforated and hydraulically fractured, and the company is preparing to test the well. Toreador anticipates re-entering five additional wells and drilling two new development wells on the Fauresti Block this year.
Toreador also expects to re-enter a well on the Viperesti Block and will continue to gather geological and geophysical information, as well as reprocess seismic data, on both the Viperesti and Moinesti blocks. Toreador is operator and has a 100% working interest in its Romanian concessions.
EARNINGS GUIDANCE First-Quarter 2005 Estimates RANGE ----------------------------------- Revenues $6.0 million - $6.5 million Costs and expenses $5.0 million - $4.6 million ---------------- ---------------- Operating income $1.0 million - $1.9 million Income applicable to common shares $0.8 million - $1.7 million Earnings per diluted share $0.06 - $0.13
These forecasted results are based on an estimated average daily production range of 1,750 to 1,850 BOE and an average estimated realized commodity price of $36.00 to $40.00 per BOE for the first quarter of 2005.
These projections are based on assumptions and anticipated results that are subject to numerous uncertainties and no major currency fluctuations and dry-hole costs. Earnings-per-share forecasts are based on estimates of average weighted diluted shares outstanding.
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