The Company said the net loss for the quarter was primarily attributed to a total of $54.7 million of pre-tax costs associated with the termination of the proposed merger with Stone Energy Corporation ("Stone") and the unsolicited offer by ATS Inc. ("ATS"), a wholly-owned subsidiary of Woodside Petroleum, Ltd. to acquire EPL. The costs related to the terminated merger agreement with Stone totaled $46.5 million, of which $43.5 million related to the fee advanced by the Company to Plains Exploration and Production Company on behalf of Stone to terminate their merger agreement, while increased legal and financial advisory costs amounting to $8.2 million were associated with the unsolicited ATS offer. The combination of these items reduced net income per share by $0.91 on an after-tax basis.
Revenue for the third quarter of 2006 was $107.5 million, a 17% increase over third quarter 2005 revenues of $92.0 million. Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expense was $22.7 million, compared to $62.8 million in the third quarter last year. (See reconciliation of discretionary cash flow schedule in the tables.) Cash flow from operating activities in the third quarter of 2006 was $10.5 million versus $109.1 million in the same quarter a year ago.
Compared to the same period a year ago, EPL benefited from higher production volumes, record high oil prices and strong natural gas prices during the third quarter of 2006, as well as $8.3 million in claims accrued under the Company's business interruption insurance coverage. The quarter also benefited from a significant decrease in exploration expense, which totaled $12.1 million, compared to $19.6 million and $22.8 million in the first two quarters of 2006, respectively. The Company said lower exploration expense in the quarter was the result of reduced dry hole costs from a continuing high success rate in EPL's 2006 exploratory drilling program. These benefits were offset by the increase in general and administrative expenses to $68.5 million in the third quarter of 2006 which included the merger termination and unsolicited offer expenses from $10.2 million in the third quarter of 2005.
Production for the third quarter of 2006 averaged 25,421 barrels of oil equivalent (Boe) per day, up 32% from 19,292 Boe per day in the third quarter of 2005. Third quarter 2006 production volumes were up significantly compared to the third quarter of 2005 due to new wells coming on line and hurricane related shut-in production that reduced third quarter 2005 volumes. Natural gas production in the third quarter of 2006 averaged 104.0 million cubic feet (Mmcf) per day, up 37% from 75.9 Mmcf per day in the third quarter of 2005. Oil production in the most recent quarter averaged 8,092 barrels per day, a 22% rise from the average of 6,642 barrels per day in the third quarter of 2005. The Company said that current production capability is approximately 30,000 Boe per day.
Oil price realizations for the third quarter of 2006 reached a record high, averaging $65.57 per barrel, which was a 32% increase from $49.55 per barrel in the same period a year ago. Natural gas price realizations in the quarter averaged $6.12 per thousand cubic feet (Mcf), down $2.72 per Mcf from the third quarter of 2005. All commodity prices are stated net of hedging impact. The Company maintains a complete and regularly updated schedule of hedging positions under "Hedging" in the Investor Relations section of the Company's web site, www.eplweb.com.
For the nine months ended September 30, 2006, net income available to common stockholders was $2.1 million, or $0.05 per diluted share. In the same period of 2005, net income available to common stockholders was $44.0 million, or $1.11 per diluted share. Discretionary cash flow for the first three quarters of 2006 totaled $214.1 million, essentially flat with $210.3 million in the same period a year ago. (See reconciliation of discretionary cash flow in table.) Cash flow from operating activities in the first nine months of 2006 was $185.4 million, versus the total of $253.7 million in the same period of 2005.
For the first nine months of 2006, the Company said capital expenditures for exploration and development activities totaled $311.4 million. The Board of Directors recently approved an increase in EPL's 2006 capital budget for exploration and development activities to $400.0 million, up from $360.0 million. The capital budget increase was due to additional capital requirements for the development portion of the budget resulting from this year's exploratory successes and the capital required to bring many of those wells on line. Supplemental capital was also required to fund two workovers and costs associated with one development well.
As of September 30, 2006, the Company had cash on hand of $8.0 million, total debt of $320.0 million, and a debt to total capitalization ratio of 43%. The Company also had $55.0 million of remaining capacity available under its bank facility as of September 30, 2006, which has a borrowing base of $225.0 million.
Richard A. Bachmann, EPL's Chairman and CEO, commented, "Our third quarter financial results were clearly overshadowed by the expenses we incurred in conjunction with the terminated Stone transaction and the unsolicited offer from Woodside. Looking past those items, our production volumes met our expectations and our costs and expenses were at or below the low side of our guidance. Looking ahead to the fourth quarter, production volumes are rising and cash flow for the balance of this year looks strong. On a further positive note, we recently increased our 2006 budget in large part to fund development costs associated with drilling successes we have had year-to-date."
Year to Date Exploratory Results
Since the Company's last earnings conference call in early August, the Company has announced four discoveries in four tests including three wells on the Shelf and one well onshore South Louisiana. The Company announced today that a moderate risk, moderate potential onshore South Louisiana exploratory well, Four Rivers, in which the Company held a 33% working interest, was determined to be a dry hole. The Company recognized dry hole expense of $1.6 million in the third quarter of 2006 in connection with the well. For the year to date, the Company has drilled a total of 16 discoveries out of 22 exploratory tests in the Gulf of Mexico and onshore in the Gulf Coast region, including two discoveries in the deepwater Gulf of Mexico, for a success rate of 73% to date.
The Company is currently drilling one exploratory well, Raton South, a moderate risk, high potential deepwater exploration well in Mississippi Canyon 292. The Raton South well is the third deepwater well for the Company since the February announcement of its entry into the deepwater Gulf of Mexico through an agreement to acquire a 25% working interest in 23 undeveloped leases with 13 identified prospects from Noble Energy, Inc. The Company plans to commence eight additional exploratory tests before the end of the year, one of which is the onshore high risk, high potential Barracuda prospect in Terrebonne Parish.
The Company also said that production through the permanent platform in the South Timbalier (ST) 41/42 area commenced on September 22, 2006. All ST 41/42 area production is currently flowing through the facility, with the flexibility to take production through the facilities in EPL's adjacent ST 26 field.
Richard A. Bachmann concluded, "With 16 discoveries in 22 exploratory tests year-to-date, one operation underway, and eight wells left to commence drilling, we are very pleased with our exploratory pace and success to date. While we are engaged in the strategic alternatives process, we have not lost our operational focus. We are very excited that the installation of the permanent platform in the ST 41/42 area is completed, and went so smoothly. Current production capability is approximately 30,000 Boe/day, as we successfully brought on a number of recent drill wells and workovers during the first part of the fourth quarter."
Founded in 1998, EPL is an independent oil and natural gas exploration and production company based in New Orleans, Louisiana. The Company's operations are focused along the U. S. Gulf Coast, both onshore in south Louisiana and offshore in the Gulf of Mexico.
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