Energy Partners, Ltd. reported financial and operational results for the first quarter of 2008.
For the first quarter of 2008, EPL reported net income of $2.3 million, or $0.07 per diluted share, compared to net income for the first quarter of 2007 of $3.7 million, or $0.09 per diluted share. Revenue for the first quarter of 2008 was $97.5 million, compared with first quarter 2007 revenues of $108.5 million. Discretionary cash flow, which is cash flow from operating activities before changes in working capital and exploration expenses, was $55.4 million versus $71.2 million in the first quarter last year. (See reconciliation of discretionary cash flow schedule in the tables.) Cash flow from operating activities in the first quarter of 2008 was $62.4 million compared with $113.8 million in the same quarter a year ago. The first quarter of 2007 benefited from higher production volumes, some from properties that have since been sold, and the settlement of insurance claims related to Hurricanes Katrina and Rita.
The first quarter of 2008 benefited from strong commodity prices, including record oil prices, and a pre-tax gain on the sale of two non-operated Western area properties totaling $7.1 million. These benefits were reduced by the previously announced dryhole cost of $18.2 million for an exploratory well in South Timbalier 46 and a pre-tax loss on derivative instruments of $8.3 million, of which $3.1 million was a pre-tax non-cash unrealized loss. Lease operating expenses and depreciation, depletion, and amortization were lower than the same period a year ago due mainly to the sale of substantially all of EPL's onshore south Louisiana assets in June 2007 and lower production volumes. Additionally, general and administrative expenses substantially decreased in the first quarter of 2008 due to lower personnel costs and the absence of financial and legal advisory costs related to the exploration of strategic alternatives and self tender offer fees present in the first quarter of 2007.
Production for the first quarter of 2008 averaged 15,799 barrels of oil equivalent (Boe) per day, versus 25,982 Boe per day in the first quarter of 2007. First quarter 2008 production volumes were down compared to the first quarter of 2007 primarily due to natural field declines, the sale of substantially all of the Company's onshore south Louisiana properties in June of 2007 and minimal contributions from new production within the quarter. Natural gas production in the first quarter of 2008 averaged 56.2 million cubic feet (Mmcf) per day and oil production averaged 6,432 barrels per day.
Price realizations, all of which are stated before the impact of derivative instruments, averaged $93.24 per barrel for oil and $8.38 per thousand cubic feet (Mcf) of natural gas in the first quarter of 2008, compared to $53.31 per barrel and $7.09 per Mcf in the first quarter of 2007.
During the quarter, capital expenditures for exploration and development activities totaled $65.0 million. As of March 31, 2008, the Company had cash on hand of $13.8 million and total debt of $474.5 million. This compares to the December 31, 2007 cash balance of $8.9 million and total debt of $484.5 million. The Company has completed its semi annual borrowing base redetermination and, as anticipated, the borrowing base has been set at $150 million, of which $25 million is currently drawn.
EPL has drilled five successful wells of six wells drilled to date in 2008 on the Gulf of Mexico (GOM) Shelf (Shelf), all within its core areas of South Timbalier and East Bay. This includes three discovery wells in Bay Marchand, one development well in South Timbalier 26 and one in East Bay. Overall, EPL is 75% successful in its exploration program to date, and 100% successful in its low risk development drillwell program.
The Company currently has one exploratory/development well underway, the South Timbalier 26 F-18st. This well's exploratory objective is above its main development sand target in the bottom hole section of the well. The Company plans to drill one additional development well in South Timbalier 26 following the completion of operations on the F-18st well.
EPL has initiated its horizontal well program in its East Bay field through the spud of the SL 1011 91st2 well. This well, planned as a horizontal well with a lateral length of approximately 500 feet, is nearing its total depth. Following the drilling of this well, the Company is planning to drill two other wells at East Bay, including one development well to begin in the second quarter and another horizontal well to begin in the third quarter.
The Company has three projects from prior years' discoveries scheduled to commence production in 2008, including EPL's first deepwater GOM (deepwater) well, Raton, in Mississippi Canyon 248 and two Shelf wells. The Company anticipates the start of production soon on a prior year discovery at West Cameron 252, which has thus far been delayed waiting on weather. EPL has a 75% working interest in this well. The other Shelf discovery, the 100% EPL owned South Marsh Island 79 #E-1 well, is awaiting completion and is anticipated to be on line in the third quarter of this year. The Raton well, a deepwater gas discovery that at the beginning of this year was projected to be on line in the first quarter of 2008, is currently anticipated to be on line sometime in the mid to late second quarter of this year. EPL has a 33% working interest in this well.
The Company announced today it has thus far been awarded four of the eight leases on which it was high bidder in the Central Gulf of Mexico Lease Sale 206 held in March 2008. The four awards to date are all located on the Shelf in EPL's core focus area and include two South Timbalier and two West Delta blocks. Of EPL's share of the eight high bids totaling $4.3 million, $1.7 million has been expended to date on the four leases awarded.
Richard A. Bachmann, EPL's Chairman and CEO, commented, "We are pleased we have made progress towards meeting our outlined goals this year. We were able to meet our production goal in the first quarter despite not yet having contribution from our deepwater Raton well. Our exploration drillwell performance is back in line with our historical success rate in the mid-seventy percent range, and our development drillwell program is off to a good start in South Timbalier 26 and is yielding better than expected results in East Bay. I am also pleased to see our overall expenses are trending down as forecasted, and we are continuing the process to reduce our cash costs to better match our narrowed focus within our core Eastern and Central offshore areas."
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