Houston Exploration Reports 2005 Results

The Houston Exploration Company (NYSE: THX) reported full-year 2005 net income of $105.2 million, or $3.62 per diluted share. This compares with $162.8 million of net income, or $5.44 per diluted share, reported in 2004. Cash from operations before changes in operating assets and liabilities totaled $469.6 million in 2005 compared with 2004's $500.5 million.

Year-end 2005 proved reserves totaled a record 861 billion cubic feet of natural gas equivalent (Bcfe), up 9 percent from 2004. Total production for 2005 was 114.3 Bcfe, or 313 million cubic feet of natural gas equivalent per day (MMcfe/d), down from the 124.0 Bcfe, or 339 MMcfe/d reported in 2004. This decline was primarily due to production shut-ins and delays associated with last fall's hurricanes in the Gulf of Mexico which impacted the company's annual production volume by 10.6 Bcfe, or approximately 30 MMcfe/d.

The company's average natural gas sales price for 2005 was $7.71 per thousand cubic feet (Mcf), compared to $5.78 per Mcf in 2004, an increase of 33 percent. After accounting for all hedging activities, the company's average realized price for 2005 natural gas sales was $5.21 per Mcf up from $5.17 per Mcf reported during the prior year. Crude oil prices averaged $48.43 per barrel for the year compared with $36.85 per barrel reported during 2004, an increase of 31 percent.

Revenues for the year totaled $621.5 million, compared to $650.4 million in 2004. This decline reflects the decrease in natural gas production, as partially offset by the slight increase in average realized gas price. Included in the company's 2005 revenues are:

     *  $244.6 million of net realized losses associated with the settlement
        of hedge contracts (excluding $20.6 million in losses associated with
        hedge related production shortfalls that will be deferred until the
        first quarter 2006); and
     *  $19.9 million of unrealized losses associated with ineffective hedge
        contracts that have yet to be settled.

Lease operating, transportation and severance tax expenses for 2005 totaled $0.85 per thousand cubic feet of natural gas equivalent (Mcfe) versus the $0.65 per Mcfe reported during 2004. Depreciation, depletion and amortization and asset retirement accretion expenses for the year were $2.63 per Mcfe compared to $2.18 per Mcfe in 2004. Net general and administrative expenses were $0.34 per Mcfe in 2005 compared to $0.27 per Mcfe in 2004.

The company's 2005 capital program totaled a record $743.3 million, including $197.7 million used for acquisitions. Exploration accounted for $112.6 million, development for $366.9 million, leasehold and acquisition costs were $66.1 million, and the company had asset sales of $1.9 million.

     2005 Snapshot:
     *  The company closed the year with record proved reserves, up 9 percent
        over 2004 to 861 Bcfe.  Onshore reserves increased 23 percent to 616
        Bcfe.
     *  The company drilled a record 336 wells at an overall success rate of
        89 percent.
     *  Onshore the company drilled a record 321 wells at a success rate of 89
        percent, and production for the region averaged 188 MMcfe/d compared
        with 186 MMcfe/d in 2004.
     *  Offshore the company drilled 15 wells, of which 80 percent were
        successful.  Of these, the company was three-for-four on deep-shelf
        exploration for a success rate of 75 percent.
     *  The company enhanced its South Texas operations, acquiring assets for
        $159 million, which totaled an estimated 62 Bcfe of proved reserves at
        year-end 2005.  The increase in activity will take the region's rig
        count up from six to seven for most of 2006.  The company's drilling
        inventory exceeds three years in South Texas.
     *  The company also completed several tactical acquisitions in East Texas
        for $39 million, which had estimated total proved reserves of 38 Bcfe
        at year-end 2005.  In March 2005, prior to the initial acquisition,
        the region was producing 2 MMcfe/d.  As a result of the acquisitions
        and the company's subsequent development efforts, production grew to 8
        MMcfe/d by year-end 2005.  Houston Exploration has a drilling
        inventory of more than three years on these assets.
     *  In the Rockies, the company finalized two joint-venture agreements
        with private operators in Utah, and in so doing, increased its rig
        count in the area from one to three and has plans to add a fourth rig
        by yearend.  In Colorado, the company saw its first production from
        wells drilled in the DJ Basin, which are currently producing 3.1
        MMcfe/d, net, with approximately 60 wells placed online. The company's
        Rocky Mountain drilling program currently exceeds three years.
     *  The company's gas production was 83 percent hedged in 2005, which did
        not allow it to take advantage of the higher prices that occurred
        during the last half of the year.  This resulted in a hedge loss of
        $265 million for 2005, $116 million of which occurred during the
        fourth quarter 2005.
     *  The company announced its intent to explore the sale of its Gulf of
        Mexico assets and concentrate on its onshore operations.  At year-end
        2005 the Gulf of Mexico region accounted for 245 Bcfe, or 28 percent
        of the company's total proved reserves.
     *  In conjunction with the possible sale of the company's Gulf of Mexico
        assets, the company's board of directors approved a $200 million stock
        buy-back program, subject to market and other conditions.

    Fourth Quarter 2005 Summary:

During the fourth quarter 2005 the company reported net income of $19.8 million, or $0.68 per diluted share. This compares with $34.8 million, or $1.21 per diluted share in the fourth quarter 2004. Cash from operations before changes in operating assets and liabilities (a non-GAAP measure) totaled $71.9 million for the fourth quarter 2005 versus $121.4 million during the similar 2004 period.

Fourth quarter 2005 production totaled 26.3 Bcfe, or 285 MMcfe/d, down from fourth quarter 2004's rate of 30.3 Bcfe or 329 MMcfe/d. Quarter-over- quarter, 2005's fourth quarter received the brunt of the impact from the hurricane shut-ins and delays, which accounted for the majority of the decline.

Houston Exploration realized an average natural gas sales price for the fourth quarter 2005 of $10.39 per Mcf, compared to $6.37 per Mcf for the fourth quarter 2004. After accounting for all hedging activities, the company's fourth quarter 2005 average realized price for natural gas sales was $5.69 per Mcf compared with $5.24 per Mcf for the fourth quarter 2004. Fourth quarter 2005 crude oil prices averaged $54.02 per barrel versus $42.05 for the comparable quarter in 2004.

Revenues for the fourth quarter totaled $154.6 million, compared to $163.0 million in 2004, as production declines more than offset improvements in average realized prices. The company's fourth quarter 2005 revenues include:

     *  $143.9 million of net realized losses associated with the settlement
        of hedge contracts (excluding $20.6 million in losses associated with
        hedge related production shortfalls that will be deferred until the
        first quarter 2006); and
     *  $27.4 million of unrealized gains associated with ineffective hedge
        contracts that have yet to be settled.

Lease operating, transportation and severance tax expenses for the fourth quarter 2005 totaled $0.96 per Mcfe versus the $0.69 per Mcfe reported during the fourth quarter 2004. Depreciation, depletion and amortization and asset retirement accretion expenses for the fourth quarter 2005 were $3.10 per Mcfe compared to $2.35 per Mcfe in the fourth quarter 2004. Fourth quarter 2005 net general and administrative expenses were $0.41 per Mcfe versus the $0.38 per Mcfe reported for 2004's fourth quarter.

Houston Exploration has prepared the following information to assist with understanding the company's estimated financial results and near-term performance based on current expectations.

Guidance

The company's current guidance figures assume full Gulf of Mexico operations for the first quarter 2006.

     First Quarter 2006 Costs ($/Mcfe)                 Estimate
     -  Lease operating expense                        $0.57 +/-
     -  Severance tax                                  $0.16 +/-
     -  General and administrative, net                $0.26 +/-
     -  Transportation                                 $0.10 +/-
     -  Depreciation, depletion and amortization
        and asset retirement accretion                 $3.09 +/-
     -  Interest, net                                  $0.26 +/-

In light of the ongoing Gulf of Mexico sale process, the company does not intend to update or reaffirm its previously announced full-year 2006 guidance at this time.



                                       Three Months Ended  Twelve Months Ended
                                          December 31,        December 31,
                                         2005     2004       2005     2004
    Reconciliation of Non-GAAP Measures:
                                         (in thousands)      (in thousands)
    Cash from operations before
     changes in operating assets
     and liabilities                   $71,874  $121,443   $469,590  $500,540
    Plus changes in operating assets
     and liabilities                     4,654    14,746     (9,081)   26,601
    Net cash provided by operating
     activities                        $76,528  $136,189   $460,509  $527,141



    2005 Reserve Reconciliation:
    Natural Gas (Bcf)
                                          Offshore     Onshore       Total
    12/31/04 Balance                      250.383      498.731      749.114
    Production                            (37.800)     (68.009)    (105.809)
    Additions                              26.518      108.818      135.336
    Sales                                     ---       (1.066)      (1.066)
    Purchases                                 ---       81.704       81.704
    Revisions                             (42.613)     (23.592)     (66.205)
    12/31/05 Balance                      196.488      596.586      793.074

    Oil & NGLs (MMbbls)
    12/31/04 Balance                        6.849         .486        7.335
    Production                             (1.315)       (.102)      (1.417)
    Additions                               1.274         .121        1.395
    Sales                                     ---        (.119)       (.119)
    Purchases                                 ---        3.000        3.000
    Revisions                               1.210        (.113)       1.097
    12/31/05 Balance                        8.018        3.273       11.291

    Natural Gas Equivalent (Bcfe)
    12/31/04 Balance                      291.477      501.647      793.124
    Production                            (45.690)     (68.621)    (114.311)
    Additions                              34.162      109.544      143.706
    Sales                                     ---       (1.780)      (1.780)
    Purchases                                 ---       99.704       99.704
    Revisions                             (35.353)     (24.270)     (59.623)
    12/31/05 Balance                      244.596      616.224      860.820

    Reserve Statistics
    Reserve Growth                           -16%          23%           9%
    Reserves, Percent Gas                     80%          97%          92%
    Production, Percent Gas                   83%          99%          93%



    2005 Reserve-to-Production Ratio (Non-GAAP Measure):
    Reserve-to-production is defined as year-end 2005 total proved reserves
    divided by year-to-date production volume.

                                          Offshore     Onshore       Total
    Reserves (Bcfe)                       244.596      616.224      860.820
    Production (Bcfe)                      45.690       68.621      114.311
    Life (Years)                              5.4          9.0          7.5



    2005 Reserve Replacement Ratio (Non-GAAP Measure):
    Reserve replacement ratio is defined as year-to-date production divided by
    total additions, net of revisions.

                                          Offshore     Onshore       Total
    Additions (Bcfe)                       34.162      109.544      143.706
    Purchases (Bcfe)                          ---       99.704       99.704
    Revisions (Bcfe)                      (35.353)     (24.270)     (59.623)
    Net Additions (Bcfe)                   (1.191)     184.978      183.787
    Production (Bcfe)                      45.690       68.621      114.311
    Replacement Ratio                         (3%)        270%         161%

     Note: All reserves are fully engineered by third-party consultants.
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Brent Crude Oil : $48.6/BBL 1.12%
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