Merdian Reports Lower Q4 Profit, Loss for Full Year

The Meridian Resource Corp. on Tuesday announced its fourth-quarter and full-year 2006 financial results. The Company posted a net income for fourth quarter 2006 of $2.8 million, or $0.03 per share, and generated $26.6 million in discretionary cash flow.

During 2006 the Company:

--Generated $132 million in discretionary cash flow;
--Produced 23.3 billion cubic feet of gas equivalent, and;
--Ended the year with $75 million in long-term debt.

Net Income

Net income to common shareholders for the fourth quarter of 2006 was $2.8 million or $0.03 per diluted common share, compared to $14.3 million, or $0.16 per share for the fourth quarter of 2005. The difference between the two periods is due in large part to a 29% reduction in commodity prices, offset in part by a reduction in DD&A resulting from the ceiling test write down in the third quarter of 2006. Including hedging effect, the average realized equivalent prices the Company received in the fourth quarter of 2005 was $10.60 per thousand cubic feet of natural gas equivalent (``Mcfe'') verses $7.57 per Mcfe in the same quarter of 2006. For full year 2006, the Company reported a net loss of $73.9 million, or $0.84 per diluted common share, compared to a net income of $27.8 million, or $0.31 per diluted common share, for full year 2005. Excluding the impact of the one time non-cash after tax ceiling test charge in the third quarter of 2006 of $87.7 million, the Company would have reported net income for the year of $13.8 million or $0.15 per share (a non-GAAP measure).

Discretionary Cash Flow

Discretionary cash flow for the fourth quarter of 2006 was $26.6 million, compared to $50.8 million, for the fourth quarter of 2005. The difference between the two periods is due primarily to lower commodity prices and decreased production. For full year 2006, discretionary cash flow was $132.4 million, compared to $148.3 million for the full year 2005.

Production Volumes

Production volumes for the fourth quarter of 2006 totaled 5.3 billion cubic feet of gas equivalent (``Bcfe''), or 57.9 Mmcfe per day compared to 6.1 Bcfe, or 66.0 Mmcfe per day for the fourth quarter of 2005. The difference between the two periods is due in part to the scheduled pipeline maintenance work done in the Biloxi Marshland field during the fourth quarter which caused the production to be shut-in for a period of approximately two weeks. Annual production volumes were 23.3 Bcfe, or 63.9 Mmcfe per day, for full year 2006 compared to 25.8 Bcfe, or 70.6 Mmcfe per day, for full year 2005.

Oil and Gas Revenues

Oil and gas revenues for the fourth quarter of 2006 totaled $40.3 million, or $7.57 per Mcfe, compared to total oil & gas revenues of $64.4 million, or $10.60 per Mcfe, for the fourth quarter of 2005. The difference between the two periods is due primarily to previously discussed price declines and reduced production. Total annual oil & gas revenues were $189.0 million, or $8.11 per Mcfe, for full year 2006, compared to $195.3 million, or $7.57 per Mcfe, for full year 2005.

Lease Operating Expenses

Lease operating expenses for the fourth quarter of 2006 were $6.6 million, compared to $3.6 million for the fourth quarter of 2005. Lease operating expenses for full year 2006 were $22.6 million, compared to $15.9 million in full year 2005. Lease operating expenses increased primarily due to significantly higher insurance cost related to the hurricanes of late 2005, and overall industry-wide increases in service costs.

Depletion and Depreciation

Depletion and depreciation for the fourth quarter of 2006 was $20.7 million, a decrease of $6.2 million or 23% compared to $26.9 million for the fourth quarter of 2005. The difference between the two periods is due primarily to the ceiling test write down taken by the Company in the third quarter of 2006. For full year 2006, depletion and depreciation totaled $106.1 million or $4.55 per Mcfe, compared to $97.4 million or $3.78 per Mcfe for full year 2005. Depreciation and depletion expense on a per Mcfe basis increased primarily due to the impact of negative reserve revisions (see ``Reserves'' below) during the year and the rising costs in the industry for 2006 expenditures.

General and Administrative Expenses

General and administrative expenses for the fourth quarter of 2006 were $2.8 million or $0.53 per Mcfe compared to $4.7 million or $0.77 per Mcfe for the fourth quarter of 2005. For full year 2006, general and administrative expenses were $16.7 million or $0.71 per Mcfe, down by $1.3 million from $18.0 million or $0.70 per Mcfe for full year 2005. The decrease in general and administrative expenses between the periods was partially due to lower compensation expense related to the company's bonus plans as a result of lower production volumes and lower commodity price realizations. Additional reductions in general and administrations were associated with lower accounting, legal and other professional fees.

Interest Expense

Interest expense for the fourth quarter of 2006 was $1.6 million compared to $1.4 million for the fourth quarter of 2005. For the full year of 2006, interest expense totaled $6.0 million compared to $4.7 million for the full year of 2005. The difference between the two periods is due primarily to a slight increase in interest rates.

Reserves

As of December 31, 2006, the Company's year-end oil and gas reserves totaled 95.2 Bcfe of which approximately 70% is natural gas. Proved developed reserves accounted for 72% of the Company's total proved reserves with the remaining 28% representing proved undeveloped reserves. Utilizing Securities and Exchange Commission price guidelines, the net present value (before income taxes and discounted at 10%), of the Company's total proved reserves at December 31, 2006 was approximately $337 million. During 2006, the Company added approximately 10.3 Bcfe of reserves as a result of acquisitions and its exploration and development efforts. In addition, the Company reported net negative revisions of approximately 2.7 Bcfe.

The Meridian Resource Corporation is an independent oil and natural gas company engaged in the exploration for and development of oil and natural gas in Louisiana, Texas, Oklahoma, Kentucky and the Gulf of Mexico.

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