- 2004 Revenue, Net Income, and EBITDA each exceeded 20% increase over 2003;
- Proved reserves grew 5% to 467.5 Bcfe for 2004 from proved reserves of 444.7 Bcfe in 2003;
- 2004 Reserve Replacement Ratio of 128%.
"2004 was a milestone year for W&T Offshore as we transitioned into a publicly-held company, which on January 28, 2005 began trading on the NYSE under the symbol 'WTI'," said Tracy W. Krohn, Chairman and Chief Executive Officer. "We are excited about this new capital structure and the opportunity to continue creating value for our shareholders. For over 20 years, we have been building a solid track record of profitably increasing production and reserves and we hope to continue to do so by acquiring and exploiting reserves at an attractive cost, by producing our reserves at the highest and most economic rates and by exploring for reserves on our extensive acreage holdings."
Net Income: Net income for the three months ended December 31, 2004 was $38.7 million, or $0.59 per diluted share on revenue of $138.9 million, compared to net income of $25.3 million or $0.37 per diluted share on revenue of $99.3 million for the fourth quarter of 2003. Net income for the full year 2004 was $149.5 million, or $2.27 per diluted share on revenue of $508.7 million, compared to net income of $116.6 million or $1.79 per diluted share on revenue of $422.6 million for 2003.
Cash Flow from Operations and EBITDA: Net cash provided by operating activities increased 56% to $117.5 million during the fourth quarter from $75.5 million during the prior year's fourth quarter. Fourth quarter EBITDA was $103.0 million, compared to $77.1 million during the prior year's fourth quarter. Net cash provided by operating activities for 2004 increased 43% to $377.3 million from $263.2 million in 2003. Full year 2004 EBITDA was $396.1 million, compared to $323.7 million for the prior year. For additional information regarding EBITDA, please refer to the attached schedule for a reconciliation of net income to EBITDA later in this release.
Production and Prices: Total production in the fourth quarter of 2004 was 13.1 billion cubic feet ("Bcf") of natural gas at an average price of $7.00 per thousand cubic feet ("Mcf") and 1.1 million barrels ("MMBbls") of oil at an average price of $42.72 per Bbl, or 19.8 billion cubic feet of gas equivalent ("Bcfe") at an average price of $7.04 per Mcfe. This compares to production of 13.1 Bcf of gas at an average price of $4.91 per Mcf and 1.2 MMBbls of oil at an average price of $28.25 per Bbl, or 20.5 Bcfe at an average price of $4.83 per Mcfe in the fourth quarter of 2003. Sales volumes for all products were negatively impacted by the curtailment of production due to Hurricane Ivan, which reduced average daily equivalent sales, in the fourth quarter of 2004, by approximately 2%.
For the full year 2004, total production was 53.3 Bcf of gas at an average price of $6.18 per Mcf and 4.8 MMBbls of oil at an average price of $36.77 per Bbl, or 82.4 Bcfe at an average price of $6.16 per Mcfe. This compares to 52.8 Bcf of gas at an average price of $5.60 per Mcf and 4.4 MMBbls of oil at an average price of $28.74 per Bbl, or 79.0 Bcfe at an average price of $5.33 per Mcfe for the full year 2003. The Company did not have any hedges in place in 2004 or 2003.
Lease Operating Expenses ("LOE"): LOE for the fourth quarter of 2004 increased to $20.5 million or $1.04 per Mcfe from $16.2 million or $0.79 per Mcfe in the fourth quarter of 2003 primarily due to an increase in well workover activity and significantly higher costs for goods and services in the period. LOE for the full year 2004 was $73.5 million or $0.89 per Mcfe compared to $65.9 million or $0.83 per Mcfe in 2003, which reflects an overall increase in costs for goods and services, higher cost per unit associated with properties we acquired from ConocoPhillips in December 2003, and additional costs associated with repairing wells.
Depreciation, depletion, amortization and accretion ("DD&A"): Depreciation, depletion, amortization and accretion increased to $43.7 million or $2.21 per Mcfe in the fourth quarter of 2004 from $39.0 million or $1.90 per Mcfe in the same period of 2003. The increase in DD&A on a per unit basis during the fourth quarter of 2004 is a result of our drilling results and a reduction in reserve additions as compared to the same period in 2003. Significant reserves were added in the fourth quarter of 2003 with the acquisition of properties from ConocoPhillips. DD&A for the full year 2004 was $164.8 million or $2.00 per Mcfe, compared to DD&A of $143.7 million or $1.82 per Mcfe for the full year 2003. The increase in DD&A in 2004 was a result of higher production volumes, combined with a higher depletion rate, an increase in our depletable costs and the lack of additions to our oil and natural gas reserves in quantities sufficient to offset reserves added in the prior year through acquisitions.
Capital Expenditures and Operations Update: During the fourth quarter of 2004, W&T spent $42.5 million for development activity, $51.2 million for exploration and $17.6 million for other capital expenditure items including acquisitions. For the full year 2004, $90.8 million was spent on development activity, $150.4 million for exploration and $43.6 million other capitalized items including acquisitions.
The Company's board of directors has recently approved our 2005 capital budget of $266 million. We anticipate that we will drill 5 development wells and 30 exploratory wells in the Gulf of Mexico and Gulf coast region in 2005. We expect to spend $56 million on six wells in the deepwater, $18 million on four wells on the deep shelf and $94 million on 25 wells on the conventional shelf and land during the year. We have budgeted an additional $98 million for completion, facilities and other identified capital items. The capital budget does not provide an allocation for potential acquisitions, which are evaluated separately.
Acquisition Highlights: For the full year 2004, W&T closed on five preferential rights for $32.5 million and $11.2 million in the fourth quarter on two preferential rights. In spite of the current acquisition landscape becoming extremely competitive, our acquisition team is working diligently to find targets that fit our historical profile and will add strategic and financial value to the Company.
Drilling Highlights: In 2004, the Company participated in the drilling of 7 development wells and 32 exploratory wells, all in the Gulf of Mexico region. All seven of the development wells were successful while 21 of 32 of the exploration wells were successful. Of the wells drilled in 2004, two were on land, four were deep shelf, nine were in deepwater, and 24 were on the conventional shelf.
Reserves: In 2004, W&T replaced 128% of production. As of December 31, 2004, proved reserves were 467.5 Bcfe compared to proved reserves of 444.7 Bcfe as of December 31, 2003. Year-end 2004 proved reserves consist of 227.6 Bcfe of natural gas (49% of proved reserves) and 40.0 million barrels, or 239.9 Bcfe of oil (51% of proved reserves). The present value of the proved reserves, discounted at 10% and without deducting any future income taxes or estimated plug and abandonment costs, is $1.6 billion based on year-end prices of $6.18 per MMBtu of natural gas and $40.25 per Bbl of oil. Our estimates of proved reserves are based on a reserve report prepared by Netherland, Sewell & Associates, Inc., our independent petroleum consultants.
Our proved reserves as of December 31, 2004 are summarized in the table below.
As of December 31, 2004 Classification of Reserves % of PV-10 Oil Gas Total Total (in MMBbls Bcf Bcfe Proved millions) Proved developed producing 8.3 96.2 145.8 31% $608.9 Proved developed non-producing 12.1 72.1 144.4 31% 475.9 Total proved developed 20.3 168.3 290.2 62% 1,084.8 Proved undeveloped 19.7 59.3 177.3 38% 481.9 Total proved 40.0 227.6 467.5 100% $1,566.7 Totals may not add due to rounding 2004 Reserve Reconciliation: Oil Natural Gas (MBbls) (MMcf) Proved reserves as of December 31, 2003 35,602 231,061 Revisions of previous estimates 2,351 6,770 Extensions, discoveries and other additions 4,582 37,732 Purchase of producing properties 2,294 5,464 Sale of reserves (1) (106) Production (4,847) (53,348) Proved reserves as of December 31, 2004 39,981 227,573 Proved developed reserves as of December 31, 2004 20,311 168,260Krohn continued, "We are pleased with our results in 2004 and are very encouraged by the impact that today's high commodity prices have on our strategy of focusing on high rate of return projects. Our strong cash flow allows us to fully fund our drilling program without accumulating debt, so we are well positioned to continue to grow through acquisitions. One of our primary challenges in 2005 will be to complete a strategic acquisition at a favorable price. Although we were not able to complete one in 2004, we have demonstrated the ability make attractive acquisitions at all commodity price levels, and believe we can do so again." Mr. Krohn added "Our first quarter 2005 volumes are expected to be down slightly from our fourth quarter volumes due to weather-related delays and facility limitations. However, we anticipate the installation of new infrastructure to develop our recent drilling successes will have a significant positive impact on production in the second half of 2005 and provide growth over 2004's production."
Outlook: Certain factors affecting these forward-looking statements are listed in this news release. Guidance on performance for the first quarter and full year of 2005 is shown in the table below.
Estimated Daily Production First Quarter 2005 Full-Year 2005 Crude Oil (MMBbls) 1.1 - 1.2 4.9 - 5.2 Natural Gas (Bcf) 12.4 - 12.6 53.5 - 56.2 Total (Bcfe) 19.2 - 19.6 83.1 - 87.4 Operating expenses ($ in millions, except as noted) First Quarter 2005 Full-Year 2005 Lease operating expense $ 20.5 - $ 21.5 $82.0 - $85.0 Gathering, transportation and production taxes $ 3.5 - $ 4.0 $14.0 - $15.0 General and administrative $ 6.5 - $ 7.5 $26.0 - $30.0 Income tax rate, % allocated to deferred 35.0%, 20% 35.0%, 20%
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