Spinnaker Reports Outstanding Second Quarter Results



Spinnaker Exploration Company (NYSE: SKE) announced second quarter financial and operating results. Outlined below are the highlights:

     *  Second quarter earnings were $23.2 million, or $0.66 per diluted
        share.  Earnings were primarily driven by higher production volumes
        and lower DD&A coupled with higher commodity prices.  Second quarter
        2005 adjusted earnings were $23.7 million, or $0.68 per share,
        excluding non-recurring items.

     *  Record quarterly revenues and cash from operations were $92.0 million
        and $79.5 million, respectively.  Revenues and cash from operations
        were driven by higher production volumes and commodity prices.

     *  Production of 13.0 billion cubic feet equivalent (Bcfe) exceeded the
        Company's guidance for the quarter.  Production grew 10% from the
        first quarter's 11.8 Bcfe.  Spinnaker reiterated its existing 2005
        production guidance.

     *  The Company's mid-year reserve report prepared by Ryder Scott
        reflected reserve additions of 91.4 Bcfe, which after production of
        24.8 Bcfe in the first half of 2005 resulted in reserves of 373.3 Bcfe
        at June 30, 2005; up 22% from year-end 2004.  For the first six months
        of the year, the Company replaced 369% of production, resulting in an
        8% decline in per unit DD&A from the first quarter of 2005.

     *  The Company has had three new discoveries since May 3, 2005, "Q"
         (Mississippi Canyon 961), "Batters Box" (Galveston Island 210) and
        "Fast Ball" (West Cameron 295), and had one dry hole.  Year-to-date,
        the Company has drilled six successful wells in seven attempts in its
        2005 Gulf of Mexico drilling program.

     *  On July 21, 2005, the Company closed a $75.0 million sale and
        leaseback of its 25% undivided interest in the Front Runner Spar.  The
        lease has a 12-year term and an effective interest rate of 6.4%.

     *  The Company also announced that it was increasing its capital
        expenditure budget to $310 million from $280 million.

Second quarter 2005 earnings were $23.2 million, or $0.66 per diluted share, compared to second quarter 2004 earnings of $17.6 million, or $0.51 per diluted share. The Company had record second quarter revenues of $92.0 million, up 15% from $79.8 million in the second quarter of 2004 and 17% on a sequential basis. Record second quarter cash from operations, defined as cash from operating activities before changes in operating assets and liabilities, was $79.5 million, up 16% from $68.8 million in the second quarter of 2004 and 16% on a sequential basis. See the discussion below for further explanation and reconciliation of non-GAAP financial measures. The Company recognized an additional pre-tax impairment charge of $0.7 million ($0.5 million after-tax) for well costs incurred in the second quarter related to the previously announced unsuccessful Tari #1 well located in OPL Block 256 offshore Nigeria.

Total second quarter 2005 production of 13.0 Bcfe included approximately 7.0 Bcf of natural gas, 849,000 barrels of oil and 148,000 barrels of natural gas liquids. Spinnaker had record oil production in the second quarter of 2005, an increase of 46% from the second quarter of 2004 and 23% on a sequential basis. The increase in oil production was primarily due to the continued ramp-up in production at the Company's deepwater project at Green Canyon 338/339/382 ("Front Runner"). The Company's total net current producing capacity is approximately 143 million cubic feet of gas equivalent ("MMcfe") per day.

Spinnaker's average natural gas price, before the effects of hedging activities, increased approximately 11% to $7.00 per Mcf, and the average oil price, before the effects of hedging activities, increased approximately 34% to $48.92 per barrel in the second quarter of 2005 compared to the second quarter of 2004. The total average realized equivalent price, after the effects of hedging activities, increased 19% to $7.03 per Mcfe in the second quarter of 2005 compared to the second quarter of 2004.

Oil and Gas Reserves

The Company's outside reserve engineers, Ryder Scott Company, L.P., estimated proved oil and gas reserves to be 373.3 Bcfe at June 30, 2005, up 22% from reserves of 306.7 Bcfe at December 31, 2004. As a result of the increase in reserves, per unit DD&A decreased to $3.24 per Mcfe from $3.51 per Mcfe in the prior quarter. The reserve total is comprised of 182.8 Bcf of natural gas, 28.6 million barrels of oil and 3.2 million barrels of natural gas liquids. Proved reserve additions in the first half of 2005 were 91.4 Bcfe. The present value of future net cash flows (before income taxes) discounted at 10% and using prices in effect on June 30 is estimated to be slightly more than $1.6 billion.

Exploration

    Since May 3, 2005, Spinnaker has participated in three successful
exploratory wells in four attempts.  A summary of exploratory activity
follows:


                                        Working   Net Revenue
                                        Interest   Interest
     Well                                 (WI)      (NRI)      Operator
     Mississippi Canyon 961 ("Q")         50%        44%       Spinnaker
     Galveston 210 #2 ("Batters Box")     33%        28%       Spinnaker
     West Cameron 295 #2 ("Fast Ball")    21%        17%       Spinnaker

The West Cameron 295 #2 well reached total depth in July and thus is not reflected in the June 30 reserve estimates. Spinnaker has participated in 110 successful wells in 184 attempts since inception (60% gross/61% net).

Current Operations

The Company is currently involved in seven rig operations. Four are exploratory, one is development and two are completions. Five of the operations are located on the shelf and two are located in deep water. Six of the seven rig operations are Spinnaker-operated.

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:

Deep Water

Front Runner/Front Runner South/Quatrain Field Development (Green Canyon 338/339/382)

Current gross production from the first four completions at Front Runner is approximately 43,000 barrels of oil equivalent per day. The Front Runner #A-4 well is currently being completed.

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

Spiderman Development (DeSoto Canyon 620/621)

The Spiderman development is progressing. Engineering and construction activities are ongoing in all phases of the development. The field will be developed via subsea tieback to Independence Hub, a floating production facility located in Mississippi Canyon 920. The Company anticipates first production during 2007. The third well commenced drilling in May but was temporarily abandoned due to loop currents. Drilling is expected to continue in September.

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

San Jacinto Development (DeSoto Canyon 618/619)

The San Jacinto development is progressing on the same schedule as Spiderman. The field will be jointly developed with Spiderman via subsea tieback to the Independence Hub production facility. The two temporarily abandoned wells will be completed in the second quarter of 2006. First production will coincide with the Spiderman development in 2007. A third well could be drilled prior to installation of the floating production facility.

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

"Q" Discovery (Mississippi Canyon 961)

As previously announced, Spinnaker made and confirmed a significant gas discovery in its MC 961 #1 and MC 961 #1 sidetrack wells, respectively. The discovery will be developed via subsea tieback to the Independence Hub. Development plans are underway.

Spinnaker owns a 50% WI and 44% NRI (or 50% NRI if eligible for royalty suspension) in the Q Field.

Seventeen Hands Development (Mississippi Canyon 299)

The Seventeen Hands well has been completed and the subsea tree installed. The flowline and umbilical will be installed and production is expected to commence in the fourth quarter of 2005.

Spinnaker owns a 25% WI and 22% NRI in the Seventeen Hands project.

Thunder Hawk (Mississippi Canyon 734)

The MC 734 #2 well was suspended in June due to the persistent occurrence of loop currents at the well site. Prior to suspension, the well had encountered in excess of 500 feet true vertical thickness of oil pay in two high quality Miocene sands. The well was drilled to a total depth of 23,765 feet at the time that operations were suspended. The well will be re-entered in the fourth quarter of this year to test the deep section of the Thunder Hawk field. Spinnaker and its partners are continuing to investigate several development options for the field.

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

Shelf

High Island 47

The HI 47 #A-1 well commenced production in mid-May and is currently producing 12.5 MMcf/D.

Spinnaker owns a 67% WI and 56% NRI in the field.

High Island 163

A caisson deck is currently being installed at the High Island 163 #2 location. A flowline will be laid to a nearby host facility. First production is anticipated in the fourth quarter of 2005.

Spinnaker owns a 70% WI and 58% NRI in the field.

Bases Loaded Field (Galveston 210)

The GA 210 #1 well commenced production in early June. The well is currently producing at a rate of 17 MMcfe/D. The GA 210 #2 prospect was successfully drilled and completed in a fault block adjacent to the productive GA 210 #1 well. The GA 210 #2 well penetrated 97 feet of high quality pay with porosity averaging greater than 30% in a Lower Marg A Sand. Final hook- up has commenced on the well. Downstream restrictions will necessitate an alternate flow route for the #2 well. A second flowline will be laid to a separate downstream market. First production for the #2 well is anticipated in the fourth quarter of this year.

Spinnaker operates the GA 210 #1 well with a 67% WI and 56 % NRI and the GA 210 #2 well with a 33% WI and 28% NRI.

Fast Ball Field (West Cameron 295)

A potentially sizeable shelf discovery has been made in West Cameron 295. The WC 295 #2 well found 150 feet of net pay in a lower Miocene sand. Completion operations have begun. Upon completion, a single-well caisson will be over-driven. The well will be tied back to a nearby host facility. First production is expected to commence in the fourth quarter of this year.

Spinnaker operates the well with 21% WI and 17% NRI (or 20% NRI if eligible for royalty suspension).

Alex Deep (Brazos A-19)

The Brazos A-19 well was shut-in in late June by the operator due to gas quality issues. It is anticipated that the well will remain shut-in until the first half of 2006 while treatment facilities are being designed and constructed. The A-19 well has produced approximately 104 Bcfe to date and was producing at the rate of 60 MMcfgd when the shut-in occurred. Additional plans for drilling are being considered by the operator. The shut-in of this field has been factored into guidance for the remainder of 2005.

Spinnaker owns a 15% WI in the well and block.

Guidance

The following table reflects the Company's current guidance for the third quarter and full-year 2005. The guidance for the third quarter considers in excess of 0.5 Bcfe for storm-related shut-ins and another 0.5 Bcfe for the shut-in at Brazos A-19. For the year, production is expected to be negatively impacted approximately 2 Bcfe because of these issues and storm-related delays in bringing new production on-line.

                                          Actual      Guidance     Guidance
                                          Q2 2005     Q3 2005      Year 2005
    Income Statement Parameters:
    Avg Daily Production (MMcfe/day)        143          139        137-151
    % Gas and Natural Gas Liquids           61%          56%            60%

    Avg Daily Hedged Gas Volumes
     (Bbtus/day) - Swaps                   10.0         10.0           10.8
    Avg Price - Swaps                     $6.40        $6.40          $7.03

    Avg Daily Hedged Gas Volumes
     (Bbtus/day) - Collars                  ---          ---            ---
    Avg Ceiling Price - Collars             ---          ---            ---
    Avg Floor Price- Collars                ---          ---            ---

    Avg Daily Hedged Oil Volumes
     (MBbls/day) - Swaps                    1.0          1.0            1.0
    Avg Price - Swaps                    $40.78       $39.69         $40.34

    Avg Daily Hedged Oil Volumes
     (MBbls/day) - Collars                  3.0          3.0            3.0
    Avg Ceiling Price - Collars          $44.73       $44.73         $44.73
    Avg Floor Price- Collars             $38.67       $38.67         $38.67

    General and Administrative
     (in millions)                         $4.3         $4.3          $17.1
    Interest Expense (in millions)         $1.5         $2.0           $7.0
    Accretion Expense (in millions)        $0.9         $1.0           $3.6
    Avg Cash Income Tax Rate                 0%           0%             1%
    Avg Accrual Income Tax Rate           35.3%        35.3%          35.3%

    Weighted Average Shares Outstanding -
     Diluted (in millions)                 35.0         35.5           35.5

    Avg LOE, Workover & Severance Taxes /
     Mcfe                                 $0.58        $0.60          $0.59
    Avg DD&A / Mcfe                       $3.24        $3.35          $3.37

    Spending Parameters:
    Shelf Wells Drilled:
      Gross Wells                             2            3             14
      Net Wells                             0.7          1.4            6.1

    Deepwater Wells Drilled:
      Gross Wells                             2            1              7
      Net Wells                             0.6          0.8            2.2

    Total Wells Drilled:
      Gross Wells                             4            4             21
      Net Wells                             1.3          2.2           8.35

    Capital Expenditures (in millions):     $84          $68           $310
      Leasehold Acquisition                 $22           $4            $45
      Exploration                           $38          $49           $190
      Development                           $24          $15            $75

Guidance for the differential on gas pricing is $0.40 per Mcfe for the third quarter of 2005, which relates to basis differentials and gas processing. The differential on oil pricing is $4.25 per barrel for the third quarter of 2005, which relates to basis differentials and quality adjustments.

RELATED COMPANIES