Goodrich Petroleum Reports 2Q05 Results



Goodrich Petroleum announced financial and operating results for the second quarter ended June 30, 2005 and also provided an operational update.

REVENUES

Total revenues for the three months ended June 30, 2005 increased by 45% to $13,313,000 versus $9,191,000 for the three months ended June 30, 2004. The 2005 revenue amount reflects a 17% increase in oil and gas production volumes over the prior year period, due to recent successful well completions in the Cotton Valley Trend of East Texas and Northwest Louisiana. Average net oil and gas prices received in the second quarter of 2005 by the Company, including realized gains and losses on the effective portion of its commodity hedging program, increased by approximately 24% compared to the second quarter of 2004.

Total revenues for the six months ended June 30, 2005 increased by 30% to $25,874,000 versus $19,955,000 for the six months ended June 30, 2004. The 2005 revenue amount reflects an 11% increase in oil and gas production volumes, due to the recent successful Cotton Valley well completions, as well as the increase of approximately 17% in average net oil and gas prices received by the Company, including realized gains and losses on the effective portion of its commodity hedging program.

CASH FLOW

Discretionary cash flow, defined as net cash provided by operating activities before changes in working capital, increased by 48% to $7,160,000 in the three months ended June 30, 2005, compared to $4,830,000 in the three months ended June 30, 2004. Net cash provided by operating activities was $19,395,000 in the three months ended June 30, 2005, compared to $6,476,000 in the three months ended June 30, 2004 (see accompanying table for a reconciliation of discretionary cash flow, a non-GAAP measure, to net cash provided by operating activities).

Discretionary cash flow increased by 37% to $15,253,000 in the six months ended June 30, 2005, compared to $11,117,000 in the six months ended June 30, 2004. Net cash provided by operating activities was $29,522,000 in the six months ended June 30, 2005, compared to $13,651,000 in the six months ended June 30, 2004 (see accompanying table for a reconciliation of discretionary cash flow, a non-GAAP measure, to net cash provided by operating activities).

NET EARNINGS

The Company reported a net loss for the three months ended June 30, 2005 of $445,000, or $0.02 per basic share, compared to net income of $2,890,000, or $0.15 per basic share in the prior year period. Net loss applicable to common stock was $603,000, or $0.03 per basic share, in the three months ended June 30, 2005, compared to net income of $2,732,000, or $0.15 per basic share, in the three months ended June 30, 2004.

Operating income, defined as revenues minus operating expenses, was $54,000 for the three months ended June 30, 2005, compared to $2,151,000 in the three months ended June 30, 2004, as the increase in revenues in the 2005 period in the amount of $4,122,000 was more than offset by increases in two major operating expense categories: (a) Depreciation, depletion and amortization expense increased $3,311,000 due to higher equivalent units of production, and higher depletion rates; and (b) Exploration expense increased in the amount of $1,338,000 in the second quarter of 2005 due to an exploratory well drilled in East Baton Rouge Parish, Louisiana, which was plugged and abandoned in May 2005.

Operating income was $595,000 in the six months ended June 30, 2005 compared to $5,564,000 in the six months ended June 30, 2004. After giving effect to a loss on derivatives not qualifying for hedge accounting, the Company reported a net loss for the six months ended June 30, 2005 of $6,595,000, or $0.30 per basic share, compared to net income of $5,014,000, or $0.27 per basic share in the prior year period. Net loss applicable to common stock was $6,912,000, or $0.31 per basic share, in the six months ended June 30, 2005, compared to net income of $4,698,000, or $0.25 per basic share, in the six months ended June 30, 2004.

As previously announced, the Company reported a substantial loss on derivatives not qualifying for hedge accounting in the first quarter of 2005 related to a "mark to market" adjustment of its ineffective gas hedges to fair value. Due to a relatively small change in the fair value of its hedges in the second quarter of 2005, the Company reported a loss on derivatives in the three months ended June 30, 2005 of $268,000, increasing its total derivative loss in the six months ended June 30, 2005 to $10,112,000. The fair value adjustments in the first two quarters of 2005 resulted primarily because the gas hedges in place at the end of each quarter were deemed to be "ineffective" under accounting rules and could not be accounted for as cash flow hedges. Accordingly, changes in fair value of hedges deemed "ineffective" must be reflected in earnings rather than in other comprehensive income, a component of stockholders' equity.

PRODUCTION

Net production volumes in the three months ended June 30, 2005 increased by approximately 17% to 1,194,000 Mcf of gas and 128,000 barrels of oil, or 1.96 billion cubic feet equivalent ("Bcfe"), versus 1,021,000 Mcf of gas and 109,000 barrels of oil, or 1.68 Bcfe, in the three months ended June 30, 2004. Approximately 36% of the production volumes for the three months ended June 30, 2005 came from Cotton Valley wells, versus less than 1% of the production volumes for the three months ended June 30, 2004. During the three months ended June 30, 2005, the Cotton Valley production volumes were produced from a weighted average twenty (20) wells.

Net production volumes in the six months ended June 30, 2005 increased by approximately 11% to 2,521,000 Mcf of gas and 226,000 barrels of oil, or 3.88 Bcfe, versus 2,018,000 Mcf of gas and 245,000 barrels of oil, or 3.49 Bcfe, in the six months ended June 30, 2004.

CAPITAL EXPENDITURES

Capital expenditures totaled $37,339,000 in the three months ended June 30, 2005, compared to $10,704,000 in the three months ended June 30, 2004. Approximately 75% of the capital expenditures in the second quarter of 2005 were associated with wells drilled in the Cotton Valley Trend. The Company drilled or was drilling on 18 Cotton Valley wells during the second quarter of 2005, and as of June 30, 2005 had reached total depth on 12 of them, was completing four, and drilling on six. The Company added a net 5.6 wells to production for the full quarter. Through the end of the second quarter the Company had drilled and completed a total of 27 wells, with a 100% success rate.

In April 2005, the Company announced that its Board of Directors had authorized an increase in its 2005 capital expenditure budget to approximately $95 million, subject to quarterly approval. Approximately two-thirds of the 2005 capital expenditure budget is expected to be focused on the Cotton Valley Trend and the remainder on the Company's existing properties and new exploration programs. Including the proceeds from the completion of a public equity offering in May 2005, the Company expects to finance its remaining 2005 capital expenditures through a combination of cash flow from operations and borrowings under its senior credit facility. The next redetermination of the borrowing base under the Company's senior credit facility is expected to be completed in the third quarter of 2005. Pending completion of that redetermination, the Company expects to have sufficient financial resources to increase its 2005 capital expenditures above the $95 million level approved by its Board in April 2005.

OPERATIONAL UPDATE

Cotton Valley - The Company has continued the expansion of the Cotton Valley development program. As previously announced, the Company currently has eight rigs under long-term contract and dedicated to development of its Cotton Valley acreage. As of August 12, 2005, all eight of the rigs were in the field and actively working on Goodrich operated wells in various stages of drilling activities. Since initiating its Cotton Valley drilling efforts, the Company has now drilled 41 Cotton Valley wells with a 100% success rate. Of the 41 wells drilled, 34 are now currently on line and producing. The average initial gross production per well for the 34 wells on line is approximately 1,500 Mcf of natural gas per day. Current gross daily production from all 34 wells is approximately 16,500 Mcf of natural gas per day. Seven additional Cotton Valley wells are in various stages of completion and all are expected to be on line and producing by early September 2005. The Company currently anticipates drilling approximately 65 Cotton Valley wells during 2005.

South Louisiana - During the second quarter the Company drilled the initial wells on both its Leonard and Frazier prospects in the Burrwood/West Delta 83 Fields. The initial well on the Leonard Prospect was successful, finding approximately 65 feet of natural gas and condensate pay in the Upper CP-3 sand, while the Frazier Prospect well was unsuccessful. The initial Leonard well, the Goodrich Petroleum, State Lease 18126 No.1, has recently been completed and production began on August 13 at an initial rate of 2,200 captial Mcf of gas per day and 87 barrels of oil per day. The Company has also recently reworked and/or recompleted three wells in South Louisiana which are now on line and producing. In the Burrwood/West Delta 83 Fields, the Company recompleted its Sullivan well, the State Lease 1009 No.1 well, which is now on line and producing at a gross rate of approximately 4,000 Mcf per day and 2 barrels of condensate per day. The Liston well, also in Burrwood/West Delta 83 Field, was worked over in the MF sand and production has been reestablished at a current gross rate of approximately 3,700 Mcf per day and 50 barrels of condensate per day. The Company owns an approximate 65% working interest in the Sullivan well and Liston well. In the Lafitte Field, the LL&E No. 196 well has also been recompleted and is currently producing at a gross rate of approximately 345 Mcf per day and 150 barrels of oil per day. The Company owns a 49% working interest in the LL&E No. 196 well. As previously reported, the Company's CWM No.2 well on its Barbell II Prospect logged gas pay over a gross interval of approximately 100 feet, with approximately 60 feet of net pay in the objective Hackberry sand. The well has recently been placed on production and is currently producing at a gross rate of approximately 2,700 Mcf per day and 105 barrels of condensate per day. The Company owns an approximate 18% working interest in the well.
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