* Net income increased 40% over third quarter 2004, and 16% over second quarter 2005
* 100% successful in drilling three exploration wells and two development wells during the third quarter of 2005
* 83% drilling success year to date -- 15 of 18 in exploration drilling and 5 of 6 in development drilling
"We are pleased to have achieved this solid growth, both on a year over year basis as well as sequentially, despite the dramatic disruption of this year's hurricanes," said Tracy W. Krohn, Chairman and Chief Executive Officer. "Our accomplishments this quarter are testimony to our ability to generate increasing cash flow and an attractive return on investment from operations in the Gulf of Mexico."
Net Income: Net income for the three months ended September 30, 2005 was $53.1 million, or $0.80 per diluted share, on revenue of $153.4 million, compared to net income of $38.1 million, or $0.58 per diluted share, on revenue of $120.5 million for the third quarter of 2004. Net income for the nine months ended September 30, 2005 was $138.2 million, or $2.09 per diluted share, on revenue of $432.3 million, compared to net income of $110.8 million or $1.68 per diluted share, on revenue of $369.9 million for the same period during 2004.
Cash Provided from Operations and EBITDA: Net cash provided by operating activities increased 65% to $145.3 million during the third quarter 2005 from $88.0 million during the prior year's third quarter. The increase in cash provided by operating activities was primarily attributable to the effect of higher commodity prices realized on our production as compared to last year. Third quarter 2005 EBITDA was $126.1 million, compared to $94.9 million during the prior year's third quarter. Net cash provided by operating activities for the nine months ended September 30, 2005 increased 32% to $343.9 million from $259.8 million in 2004. EBITDA was $350.7 million for the nine months ended September 30, 2005, compared to $293.1 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 third quarter of 2005 was 11.5 billion cubic feet ("Bcf") of natural gas at an average price of $8.64 per thousand cubic feet ("Mcf") and 1.0 million barrels ("MMBbls") of oil and liquids at an average price of $54.39 per Bbl, or 17.5 billion cubic feet of natural gas equivalent ("Bcfe") at an average price of $8.79 per Mcfe. This compares to production of 12.6 Bcf of natural gas at an average price of $5.90 per Mcf and 1.2 MMBbls of oil and liquids at an average price of $38.34 per Bbl, or 19.8 Bcfe at an average price of $6.08 per Mcfe in the third quarter of 2004. The Company estimates that approximately 5.3 Bcfe of production was deferred in the third quarter of 2005 due to hurricanes Katrina and Rita, and that approximately 11.7 Bcfe will be deferred in the fourth quarter due to the storms. Without this deferral, we believe we would have met our previously announced guidance for the third quarter 2005 and the full year 2005. There were no hedges in place during the third quarter of 2005 or 2004.
For the nine months ended September 30, 2005, total production was 37.1 Bcf of natural gas at an average price of $7.31 per Mcf and 3.4 MMBbls of oil and liquids at an average price of $47.38 per Bbl, or 57.4 Bcfe at an average price of $7.52 per Mcfe. This compares to 40.3 Bcf of natural gas at an average price of $5.92 per Mcf and 3.7 MMBbls of oil and liquids at an average price of $34.99 per Bbl, or 62.7 Bcfe at an average price of $5.89 per Mcfe for the same period in 2004.
Lease Operating Expenses ("LOE"): LOE for the third quarter of 2005 increased to $18.2 million, or $1.04 per Mcfe, from $17.1 million, or $0.87 per Mcfe, in the third quarter of 2004. The increase in LOE was due to higher expenses associated with increased interest in one of our properties and some pipeline repair work. The per unit increase reflects the impact of lower production volumes primarily caused by the hurricanes. If third quarter deferred production of 5.3 Bcfe were included in the calculation, the Company's LOE would have been $0.80/mcfe for the third quarter. Lease operating expenses for the nine months ended September 30, 2005 was $52.3 million, or $0.91 per Mcfe, compared to $53.0 million, or $0.85 per Mcfe in 2004 with the dollar decrease in the 2005 being attributable to lower operating cost at properties acquired in 2003, but offset by higher workover expenses and maintenance projects.
Depreciation, depletion, amortization and accretion ("DD&A"): DD&A increased to $45.6 million, or $2.61 per Mcfe, in the third quarter of 2005 from $36.0 million, or $1.82 per Mcfe, in the same period of 2004. DD&A for the nine months ended September 30, 2005 was $138.8 million or $2.42 per Mcfe, compared to DD&A of $121.1 million, or $1.93 per Mcfe, for the same period in 2004 because of the Company's higher depletable costs associated with our increased drilling activities.
Capital Expenditures and Operations Update: During the third quarter of 2005, W&T achieved 100% drilling success in the drilling of three exploration wells and two development wells in the Gulf of Mexico. During the third quarter of 2005, W&T spent $60.9 million for development, $15.1 million for exploration and $6.5 million for other capital items, including acquisitions. For the nine months ended September 30, 2005, capital expenditures of $229.6 million included $122.5 million for development activities, $84.8 million for exploration, $22.0 million for acquisition and other leasehold activity and $0.3 million for other capital items. These expenditures do not include any amount of capitalized salaries or capitalized interest but do include dry hole costs of $11.3 million.
Of the drilling, completion and facilities expenditures budgeted for 2005, this year the Company has spent $82.8 million in the deepwater, $22.6 million on the deep shelf and $101.9 million on the conventional shelf and onshore projects. Additionally, W&T has spent $10.6 million on expensed workovers and major maintenance projects and $13.6 million for plug and abandonment expenses.
Drilling Highlights: W&T continues to have success with its exploration and development program. The Company achieved 100% success in drilling three exploration wells and two development wells during the third quarter. Nine successful wells and one unsuccessful well have been drilled since the end of the second quarter.
Field Name/Well Category Working Interest % Drilled in 3rd Quarter Eugene Island 349 B-13ST Development 29.0% Ewing Bank 989 Exploration 100.0% High Island A443 A-5ST Exploration 92.0% Main Pass 185 Exploration 33.3% Ship Shoal 359 A-12 Development 59.0% Drilled after 3rd Quarter Eugene Island 107 A-3 Development 25.0% High Island A443 A-2ST Exploration 84.0% Western Gulf Area Well Exploration 50.0% Ship Shoal 177 A-4ST Development 75.0% One development well was unsuccessful, as follows: Field Name/Well Category Working Interest % Drilled after 3rd Quarter High Island A572 C-23ST Development 4.8%
The Company plans to have drilled or be actively drilling more than 27 exploration and seven development wells in 2005. W&T believes it will achieve most of its original drilling program for 2005, despite the interruptions caused by hurricanes Katrina and Rita.
Lease Sale: At the MMS - OCS Oil and Gas Lease Sale 196, Western Gulf of Mexico, held on August 17, 2005, W&T was the high bidder on Garden Banks Area, Block 152, located in approximately 541 feet of water. Subsequently, the MMS has awarded W&T the lease. The Company's cost for this lease was $430,000, with W&T owning a 100% working interest.
Dividends: On September 30, 2005, the Company's board of directors declared a cash dividend of $0.02 per common share, payable on November 1, 2005 to shareholders of record on October 14, 2005. On August 1, 2005, W&T paid a cash dividend of $0.02 per common share to shareholders of record on July 15, 2005.
Hurricane Update: W&T is currently producing approximately 160 million cubic feet of gas equivalent (MMcfe) net per day, which represents 84% of the Company's pre-Hurricane Rita and 65% pre-Hurricane Katrina production. Currently, the Company still estimates that 20 MMcfe per day additional net production is shut-in at Mississippi Canyon 718 ("Pluto") because of Hurricane Katrina. The Company expects to defer between 16.5 bcfe and 17.5 bcfe of production in 2005 due to the hurricanes.
While several platforms had some damage, only 5 of 104 gross operated platforms had significant physical damage, including East Cameron 338 A and Eugene Island 397 A. Net daily production associated with these platforms prior to the hurricane was 11.6 million cubic feet of natural gas equivalent (MMcfe). The Company anticipates Eugene Island 397A platform will be back online in 60 days, resulting in incremental net daily production of 5.8 MMcfe.
W&T expects additional production to return online before the end of the year, as further field repairs are completed and third party processing plants and pipelines are brought back online. Based on the Company's estimates and those from third party operators, W&T expects its exit rate to be approximately 185 to 195 MMcfe/day at year-end, which represents approximately 78% of pre-Katrina and 100% of pre-Rita production. The Company expects to return to pre-Katrina production levels in second quarter 2006.
W&T does carry insurance for physical damage to producing and drilling wells, platforms and pipelines. The Company has notified its insurance provider and is working with adjusters to process claims from both storms. The insurance program utilizes a self-insured retention of $5 million and insured losses are expected to exceed this figure.
Tracy Krohn added, "We have been operating successfully in the Gulf of Mexico for over 20 years and know that managing the impact of hurricanes is part of the process. Although the third quarter of 2005 offered unprecedented challenges, our staff performed exceptionally well and achieved remarkable results. Prior to Katrina we were drilling four wells on properties operated by W&T. Despite having to evacuate twice, immediately following Rita we brought back all of those rigs except for one. Although we lost about two weeks of drilling time, we drilled three exploration and two development wells during the third quarter, all of which were successful. Our drilling program remains on track for the balance of the year.
"We have continued to find that the Gulf of Mexico offers an attractive return on our investment and see significant opportunity ahead. Our debt free balance sheet, significant cash position and an un-hedged production profile at a time of record high commodity prices, positions W&T to aggressively pursue our growth strategy as desirable properties become available."
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