-- Proved reserves increased 5% to 491.5 Bcfe at year-end 2005 from proved reserves of 467.5 Bcfe at year-end 2004;
-- 2005 reserve replacement ratio of 134%;
-- Fourth quarter 2005 net income increased 31.5% and EBITDA increased 18.0% over the fourth quarter of 2004.
"The year 2005 was a momentous one for W&T Offshore. We began the year with the completion of our initial public offering, which positioned us to pursue larger transactions, and finished it recovering from the aftermath of two category 5 hurricanes. In spite of the distractions, we achieved a drilling success rate of 79% by successfully drilling 23 of 29 wells, generated 5% reserve growth and had the best financial year in the Company's history. Boosted by favorable commodity prices, our fourth quarter financial results were particularly solid, even with the significant production deferral following the hurricanes. In the midst of all these interruptions, we began the process that led to the signing of the merger agreement involving Kerr- McGee's Gulf of Mexico properties, the largest transaction in the history of the Company. These achievements are due to the hard work and determination of all the employees at W&T. They all deserve the recognition of a job well done," said Tracy W. Krohn, Chairman and Chief Executive Officer.
Net Income: Net income for the three months ended December 31, 2005 was $50.9 million, or $0.77 per diluted share, on revenues of $152.9 million, compared to net income of $38.7 million, or $0.59 per diluted share, on revenues of $138.9 million for the fourth quarter of 2004. Net income for the full year 2005 was $189.0 million, or $2.87 per diluted share, on revenues of $585.1 million, compared to net income of $149.5 million, or $2.27 per diluted share, on revenues of $508.7 million for 2004.
Cash Flow from Operations and EBITDA: Net cash provided by operating activities decreased 13% to $102.0 million during the fourth quarter from $117.5 million during the prior year's fourth quarter. Fourth quarter EBITDA increased 18.0% to $121.6 million, compared to $103.0 million during the prior year's fourth quarter. Net cash provided by operating activities for 2005 increased 17.7% to $444.0 million from $377.3 million in 2004. Full year 2005 EBITDA increased 19.2% to $472.3 million, compared to $396.1 million for the prior year. For additional information regarding EBITDA, 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 fourth quarter of 2005 was 9.4 billion cubic feet ("Bcf") of natural gas at an average price of $12.06 per thousand cubic feet ("Mcf") and 0.7 million barrels ("MMBbls") of oil and liquids at an average price of $55.87 per Bbl, or 13.6 billion cubic feet of gas equivalent ("Bcfe") at an average price of $11.20 per Mcfe. This compares to production of 13.1 Bcf of gas at an average price of $7.00 per Mcf and 1.1 MMBbls of oil at an average price of $42.72 per Bbl, or 19.8 Bcfe at an average price of $7.04 per Mcfe in the fourth quarter of 2004. Sales volumes for all products were negatively impacted by the curtailment of production due primarily to Hurricanes Katrina and Rita, which reduced anticipated production in the fourth quarter of 2005 by approximately 11.7 Bcfe or 46% of anticipated production for the period.
For the full year 2005, total production was 46.5 Bcf of gas at an average price of $8.27 per Mcf and 4.1 MMBbls of oil and liquids at an average price of $48.85 per Bbl, or 71.1 Bcfe at an average price of $8.23 per Mcfe. This compares to 53.3 Bcf of gas at an average price of $6.18 per Mcf and 4.8 MMBbls of oil at an average price of $36.77 per Bbl, or 82.4 Bcfe at an average price of $6.16 per Mcfe for the full year 2004. The Company did not have any hedges in place in 2005 or 2004; however, in January 2006, the Company entered into commodity hedging arrangements in connection with the financing planned for the Kerr-McGee transaction. In 2005, the Company was forced to defer company-wide production of approximately 5.7 Bcfe during the third quarter and approximately 11.7 Bcfe during the fourth quarter as a result of Tropical Storm Cindy and Hurricanes Dennis, Katrina and Rita, or 20% of anticipated production for the entire year 2005.
Lease Operating Expenses ("LOE"): LOE for the fourth quarter of 2005 decreased to $19.5 million or $1.43 per Mcfe from $20.5 million or $1.04 per Mcfe in the fourth quarter of 2004. On a per unit basis, LOE increased during the fourth quarter of 2005 primarily due to lower volumes associated with the production deferrals caused by the hurricanes. LOE for the full year 2005 declined to $71.8 million or $1.01 per Mcfe compared to $73.5 million or $0.89 per Mcfe in 2004. Included in the 2005 period is approximately $1.9 million to repair damage to our facilities caused by Hurricanes Katrina and Rita. Of this amount, $1.7 million was included in the fourth quarter 2005.
Depreciation, depletion, amortization and accretion ("DD&A"): Depreciation, depletion, amortization and accretion increased to $45.0 million in the fourth quarter of 2005 from $43.7 million in the same period of 2004. DD&A for the full year 2005 was $183.8 million or $2.59 per Mcfe, compared to DD&A of $164.8 million or $2.00 per Mcfe for the full year 2004. The increase in DD&A on a per unit basis during the fourth quarter and full year of 2005 is in part a result of increased capital spending, higher drilling and service costs, and higher estimated future development cost.
Capital Expenditures, Acquisitions, and Drilling Highlights: During the fourth quarter of 2005, W&T spent $52.1 million for development activity, $37.3 million for exploration and $4.7 million for other capital expenditure items including acquisitions. For the full year 2005, $174.6 million was spent on development activity, $122.1 million on exploration and $27.0 million on other capitalized items including acquisitions.
During 2005, W&T completed an acquisition of an additional interest in the East Cameron 321 field from Marathon, and an acquisition of an additional interest in the Green Canyon 18 Field, which includes Ewing Bank blocks 988 and 944, and an interest in the Green Canyon 60 Field from BHP Billiton Petroleum (Americas) Inc.
For full year 2005, the Company achieved an exploration success rate of 77% by successfully drilling 17 of 22 exploration wells, which included two of four in the deepwater. W&T also drilled six of seven development wells in 2005, all of which were conventional shelf wells.
Reserves: In 2005, W&T replaced 134% of production. As of December 31, 2005, proved reserves were 491.5 Bcfe compared to proved reserves of 467.5 Bcfe as of December 31, 2004. Year-end 2005 proved reserves consist of 215.9 Bcf of natural gas (44% of proved reserves) and 45.9 million barrels, or 275.6 Bcfe of oil and liquids (56% of proved reserves). The present value of the proved reserves discounted at 10% and without deducting any future income taxes, is $2.4 billion based on year-end prices of $9.73 per MMBtu of natural gas and $57.75 per Bbl of oil. Our estimates of proved reserves are based on a reserve report prepared by Netherland, Sewell & Associates, Inc., our independent petroleum consultants.
Mr. Krohn continued, "As we look to 2006, we are excited about our numerous opportunities to significantly increase our production and reserves. Our inventory of high quality exploration and development projects is substantially larger than any we have had in the past. In addition, once we complete the pending acquisition of Kerr-McGee's Gulf of Mexico properties, we can leverage our demonstrated capability for successfully exploiting acquired assets."
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