EPL Reports Losses for Q4, 2006

The Company also noted that its board of directors has scheduled meetings for the week of March 5, 2007, regarding its exploration of strategic alternatives. The Company plans an announcement of the status or recommendations as soon as possible thereafter.

Financial Results

For the fourth quarter of 2006, EPL reported a net loss to common stockholders of $52.5 million, or $1.35 per diluted share, compared to net income for the fourth quarter of 2005 of $28.1 million, or $0.69 per diluted share. While EPL's production and revenue were near record highs, the Company said the majority of the net loss for the fourth quarter of 2006 was attributable to $77.9 million of pre-tax, non-cash costs associated with property impairments. The majority of the impairments were associated with onshore South Louisiana properties acquired in early 2005 and were due in large part to lower commodity price forecasts as compared with the prior year. The remaining impairment costs were mainly due to mechanical difficulties encountered in one offshore well located in East Cameron 378. The fourth quarter loss also included a total of $11.9 million of pre-tax costs related to the termination of the merger agreement between EPL and Stone Energy Corporation ("Stone") and legal and financial advisor costs related to the Stone merger, unsolicited offer to acquire EPL by ATS Inc. ("ATS"), a wholly-owned subsidiary of Woodside Petroleum, Ltd., and costs related to EPL's exploration of strategic alternatives. Excluding the after-tax impact of $57.5 million of impairment costs and the Stone, ATS and strategic alternatives costs, EPL's adjusted fourth quarter net income, a non-GAAP measure, would have been $4.9 million or $0.13 per basic share.

For the year 2006, the net loss to common stockholders was $50.4 million, or $1.32 per diluted share, compared to net income in 2005 of $72.2 million, or $1.79 per diluted share. The benefit of record annual production and revenue was offset by $84.7 million of non-cash, pre-tax property impairment costs for the full year 2006. The net loss for the year also included $51.5 million of pre-tax costs related to the merger agreement between EPL and Stone and its subsequent termination, and $15.0 million in legal and financial advisor costs associated with the Stone merger, the unsolicited ATS offer, and EPL's exploration of strategic alternatives. Excluding the after-tax impact of $96.8 million of impairment costs, and the costs related to Stone, ATS and strategic alternatives, EPL's adjusted 2006 net income, a non-GAAP measure, would have been $46.4 million or $1.21 per basic share.

Revenue for the fourth quarter of 2006 was $111.6 million, up 4% compared to fourth quarter 2005 revenues of $107.3 million. Revenue for the year 2006 was $449.6 million, a 12% increase over 2005 revenues of $402.9 million. Discretionary cash flow, which is cash flow from operations before changes in working capital and exploration expenditures, totaled $65.0 million in the fourth quarter of 2006, versus $98.6 million in the fourth quarter last year. For the full year, discretionary cash flow was $279.1 million compared to $308.8 million in 2005 (see reconciliation of discretionary cash flow in appendix). Cash flow from operations in the most recent quarter was $86.7 million, compared to $16.3 million in the fourth quarter of 2005. Cash flow from operations for 2006 totaled $272.1 million compared to $270.0 million in 2005.

In the fourth quarter of 2006, production averaged 27,080 barrels of oil equivalent (Boe) per day, compared to 18,583 Boe per day in the fourth quarter of 2005. While the daily average for the fourth quarter of 27,080 Boe per day was up significantly from the third quarter average of 25,421 Boe per day, it was below the Company's guidance range of 28,500 to 30,500 Boe per day. This was due primarily to production start-up delays and higher than anticipated downtime, due to inclement weather and mechanical problems, of which the majority have since been resolved. Natural gas production in the fourth quarter of 2006 averaged 105.7 million cubic feet (Mmcf) per day and oil production averaged 9,465 barrels per day.

Production for 2006 averaged 25,912 Boe per day, a record high for the Company and a 14% increase over the 2005 average of 22,722 Boe per day. Natural gas production averaged 106.0 Mmcf per day in 2006, and oil production averaged 8,238 barrels per day.

Price realizations, all of which are stated net of hedging impact, averaged $53.64 per barrel for oil and $6.67 per thousand cubic feet (Mcf) of natural gas in the fourth quarter of 2006, compared to $45.16 per barrel and $11.39 per Mcf in the fourth quarter of 2005. For 2006, oil price realizations averaged $59.78 per barrel and natural gas averaged $6.96 per Mcf compared to $46.45 per barrel and $8.26 per Mcf in 2005.

As of December 31, 2006, the Company had cash on hand of $3.2 million, total debt of $317.0 million, and a debt to total capitalization ratio of 46%. The Company also had $83.0 million of remaining capacity available under its bank facility at year-end 2006.

Richard A. Bachmann, EPL's Chairman and CEO, commented, "Our fourth quarter results were clearly overshadowed by the impairments of properties, in large part related to properties purchased in 2005 in our onshore South Louisiana acquisition. The exploratory success we have enjoyed onshore over the last two years has been offset by the significant negative reserve revisions we took at the end of 2005 on the reserves we acquired and the subsequent impairment of properties this year due in large part to lower price forecasts as compared to the prior year. In addition, our overall 2006 financial results were negatively impacted by the considerable expenses associated with the Stone merger agreement and its subsequent termination, the legal and financial costs associated with the unsolicited offer by ATS, and the additional costs incurred in the exploration of strategic alternatives."

Reserve Replacement and Costs

EPL's proved reserves at year end 2006 stood at 29.9 million barrels of oil and 170.1 billion cubic feet of natural gas, or 58.3 million Boe, down 2% from 59.3 million Boe at year end 2005. EPL's proved reserves at year-end 2006 were 49% natural gas and 51% oil, and 76% were classified as proved developed. In 2006, the Company replaced 92% of its 2006 production at an average cost of $45.97 per Boe, based on total finding and development costs of $398.9 million (see reconciliation in the appendix). EPL added 8.4 million Boe from its exploration and development program. The Company recorded 0.2 million Boe in revisions to its proved reserves in 2006, reflecting overall positive revisions from year-end 2005 reserves for both its Gulf of Mexico ("GOM") Shelf asset base and its onshore South Louisiana asset base. All of the Company's proved reserve figures are based upon third party engineering estimates prepared by Ryder Scott Company, L.P. and Netherland, Sewell & Associates, Inc.

Bachmann continued, "Our 76% exploratory drilling success rate in 2006 was back to our historical track record, but the percentage replacement of 2006 production was below our expectations. While we had a number of good discoveries during the year, we did not have a sizable success in our high potential, high risk exploratory program. The majority of our discoveries were made on the Shelf and onshore, and were moderate in size. The full reserve potential of these wells was not booked as proved reserves in 2006. With the benefit of more production history in the wells drilled in 2006, we would expect to see significant additions to our proved reserve base in the future from our internal estimates of approximately 5 million Boe of probable reserves associated with those wells, or 9% of our end of year proved reserves. In 2007, we expect to conclude the evaluation of the wells drilled in the deepwater GOM in 2006, and also to drill more moderate risk, high potential wells, with a focus on those around our existing fields in the South Timbalier area."

Operational Highlights

EPL drilled 27 exploratory wells in 2006 on the GOM Shelf, in the deepwater GOM and onshore in South Louisiana. At year end, the Company had decisioned 25 of those wells with 16 discoveries in 20 wells offshore and three discoveries in five wells onshore for an overall exploratory success rate of 76%. Overall, EPL experienced an exploratory success rate of 76% in 2006, within the Company's historical success range, and an improvement over the 2005 success rate of 64%. Two additional wells in the deepwater GOM that also encountered hydrocarbons are still being evaluated.

In addition to exploratory drilling, EPL drilled two successful development wells, and completed 35 workovers and recompletions in 2006. Three exploratory wells also successfully found the intended development objectives. Overall, EPL was 100% successful in its low risk drillwell program.

At year end, undeveloped gross acres stood at 387,938, a 68% increase over the year end 2005 undeveloped acreage of 231,547. Total gross undeveloped and developed acreage at year end 2006 was 607,444 acres.

Deepwater

In the first quarter of 2006, EPL entered the deepwater GOM through a 25% working interest in 23 undeveloped leases from Noble Energy, Inc. Currently EPL has ownership in 24 leases. During the year, three deepwater wells were drilled in Mississippi Canyon 204 (Redrock), 248 (Raton), and 292 (Raton South), all of which found hydrocarbons. The first production planned in this area will be from a natural gas interval discovered in the Raton well last year, with production commencing in late 2007 or early 2008. The other two wells in Mississippi Canyon 204 and 292 are under evaluation. The Company currently has ten identified prospects in the deepwater GOM with over 380 million Boe of net unrisked potential reserves on acreage located in the Mississippi Canyon, Garden Banks, Green Canyon, Atwater Valley, and Vioska Knoll areas.

2007 Operational Update

Year to date in 2007, EPL has decisioned one well offshore at South Marsh Island 79 #2. The moderate risk, moderate potential well, which reached its intended depth of 11,296 feet, was a dryhole. EPL had a 100% working interest in the well. The Company will recognize dry hole expense of $5.3 million in the first quarter of 2007 in connection with the well.

The Company currently has four exploratory wells underway, including the moderate risk, high potential South Timbalier 46 #3 well located on the Shelf, two moderate risk, moderate potential wells located in South Timbalier 26 and South Pass 38 on the Shelf, and one high risk, high potential prospect called Barracuda located onshore in Terrebonne Parish.

EPL's total budget for its 2007 exploration and development program is $300 million and expected to be funded entirely through internally generated cash flow. The Company does not budget for acquisitions. The Company is currently scheduled to drill 17 exploratory wells offshore in 2007 along with six exploratory wells onshore. The exploratory program consists of 23 wells with net unrisked potential reserves of 47 million Boe. Approximately 70% of the exploration budget is dedicated to moderate to high potential prospects in legacy assets and areas with recent discoveries, such as the South Timbalier, East Cameron and Vermilion areas on the Shelf. The budget currently includes seven high potential prospects, with five of the seven wells in the moderate risk category.

The Company expects 2007 production to average between 26,000 to 28,000 Boe/day, representing an increase at the upper end of the range of approximately 8% over 2006 annual production of 25,912 Boe/day.

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.