Cash Flow from Operations and EBITDA: Net cash provided by operating activities increased 69% to $126.1 million during the second quarter 2005 from $74.8 million during the prior year's second quarter. The increase in cash provided by operating activities was primarily attributable to higher realized prices on sales of oil and natural gas in the second quarter of this year as compared to last year. Second quarter 2005 EBITDA was $123.0 million, compared to $99.5 million during the prior year's second quarter. Net cash provided by operating activities for the six months ended June 30, 2005 increased 16% to $198.6 million from $171.8 million in the first half of 2004. EBITDA was $224.5 million for the six months ended June 30, 2005, compared to $198.2 million for the prior year period. Please refer to the attached schedule later in this release for a reconciliation of net income to EBITDA.
Production and Prices: Total production in the second quarter of 2005 was 13.3 billion cubic feet ("Bcf") of natural gas at an average price of $7.08 per thousand cubic feet ("Mcf") and 1.2 million barrels ("MMBbls") of oil at an average price of $45.22 per Bbl, or 20.7 billion cubic feet of natural gas equivalent ("Bcfe") at an average price of $7.24 per Mcfe. This compares to production of 13.4 Bcf of natural gas at an average price of $6.14 per Mcf and 1.3 MMBbls of oil at an average price of $33.86 per Bbl, or 21.0 Bcfe at an average price of $5.96 per Mcfe in the second quarter of 2004. As detailed in the outlook section of the release, production is expected to increase in the second half of the year as additional existing reserves projects come on-line.
There were no hedges in place during the second quarter of 2005 or 2004.
For the six months ended June 30, 2005, total production was 25.6 Bcf of natural gas at an average price of $6.72 per Mcf and 2.4 MMBbls of oil at an average price of $44.47 per Bbl, or 40.0 Bcfe at an average price of $6.97 per Mcfe. This compares to 27.6 Bcf of natural gas at an average price of $5.93 per Mcf and 2.5 MMBbls of oil at an average price of $33.41 per Bbl, or 42.8 Bcfe at an average price of $5.80 per Mcfe for the same period in 2004.
Lease Operating Expenses ("LOE"): LOE for the second quarter of 2005 decreased to $17.9 million, or $0.86 per Mcfe, from $18.4 million, or $0.88 per Mcfe, in the second quarter of 2004. The decline in LOE was due to lower operating expenses at certain properties and increases in fees collected for processing third party production, partially offset by increased expenses for planned maintenance projects at certain facilities and increases in service costs. LOE for the six months ended June 30, 2005 was $34.0 million or $0.85 per Mcfe, compared to $35.8 million or $0.84 per Mcfe in 2004 with the increase in the first half of 2005 resulting from lower sales volumes.
Depreciation, depletion, amortization and accretion ("DD&A"): DD&A increased to $51.9 million, or $2.51 per Mcfe, in the second quarter of 2005 from $45.5 million, or $2.16 per Mcfe, in the same period of 2004. DD&A for the six months ended 2005 was $93.2 million or $2.33 per Mcfe, compared to DD&A of $85.1 million, or $1.99 per Mcfe, for the same period in 2004 because of our higher depletable costs associated with our increased drilling activities.
Capital Expenditures and Operations Update: During the second quarter of 2005, we participated in the drilling of six exploration wells (gross) in the Gulf of Mexico of which five were successful. We were successful drilling one development well during the period. During the second quarter of 2005, we spent $31.3 million for development, $44.5 million for exploration and $15.3 million for other capital items, including acquisitions. For the six months ended June 30, 2005, $61.6 million was spent on development, $69.7 million for exploration and $15.8 million on other capital items, including acquisitions.
We believe our capital expenditures budget for the reminder of 2005 will remain substantially consistent with our previously reported budget of $307 million. However, the mix of second half 2005 drilling projects has changed to include more shelf wells and fewer deepwater and deep shelf wells as we optimize our use of drilling rigs in a tight market.
Acquisition Update: We completed the acquisition of a 25% working interest in East Cameron 321 from Marathon Oil Company on June 28, 2005, with an effective date of May 1, 2005. We estimate the acquired reserves, at the effective date, to have been approximately 9.0 Bcfe. East Cameron 321 is currently producing approximately 1,300 barrels (gross) of oil and 6,000 Mcf (gross) natural gas per day. As a result of acquiring this remaining 25% working interest, W&T now owns 100% of the working interest and has become operator at East Cameron 321.
Drilling Highlights: In the second quarter of 2005, the Company participated in the drilling of seven wells, all in the Gulf of Mexico. Of the wells drilled in the second quarter of 2005, one was in deepwater and six were on the conventional shelf. One shelf well was unsuccessful.
Successful Wells: Block Name/Well Category Working Interest % Eugene Island 218 #D-5ST Exploration 100.0% Eugene Island 219 #E-8ST Exploration 100.0% Ewing Bank 949 #2ST3/4 Exploration 100.0% High Island A568 #A-19 Exploration 33.3% West Cameron 328 #2 Exploration 25.0% Eugene Island 53 #G-1ST Development 14.0% Unsuccessful Well: Block Name/Well Category Working Interest % Eugene Island 93 #14 Exploration 23.3%
In the second half of the year, the Company anticipates drilling 14 exploration wells on the conventional shelf, two in the deep shelf and three in the deepwater. Additionally, we have nine development wells scheduled for the second half of 2005.
Dividends: On June 28, 2005, the board of directors declared a cash dividend of $0.02 per common share, which was paid on August 1, 2005 to shareholders of record on July 15, 2005. On May 2, 2005, the Company paid a cash dividend of $0.02 per common share to shareholders of record on April 15, 2005.
"We enter the second half of 2005 having achieved exploration success with the drillbit and look forward to continuing our drilling success with our inventory of exploration projects. We believe our recent increase in production in the second quarter over the first quarter will continue with sequential quarterly production increases as a result of our exploration success," said Tracy W. Krohn, Chairman and Chief Executive Officer. "Our strategy of investing in high rate of return projects, while limiting our use of leverage and hedges, allows us to realize the benefits of record high commodity prices and position ourselves for continued success in the future."
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