Pacific Energy Resources Posts 2008 Financial Results

Pacific Energy Resources has announced its fourth quarter and full year operating and financial results for the period ended December 31, 2008.

Fourth Quarter Highlights:

Net loss from continuing operations for the fourth quarter of 2008 was $185.1 million ($0.91 per diluted share), compared to net loss of $24.8 million ($0.12 per diluted share) in the third quarter of 2008, and a net loss of $60.2 million ($0.43 per diluted share) for the fourth quarter of 2007. Included in the fourth quarter results are impairment charges of $131.4 million, of which includes $126.1 million relates to certain Alaska petroleum and natural gas properties' net book value exceeding fair values. Also included in the impairment charges is a write down of oil inventories of $5.3 million as the market value of oil inventory was lower than its carrying value at December 31, 2008 and $0.3 million related to the expiration of certain exploration leases.

Production from continuing operations for the fourth quarter of 2008 was 7,083 barrels of oil equivalent per day ("boe/d"), down 4.4% from 7,412 boe/d in the third quarter of 2008, and up 15.3% from 6,144 boe/d from the year ago period. Fourth quarter 2008 benefited from additional wells being returned to production at the Beta Field's Platform Eureka, but this was more than offset by less production in Alaska. The increase from prior year is due to the return of the Platform Eureka to production in April 2008, partly offset by a decline in Alaska production in the fourth quarter of 2008 due to mechanical pump failures some of which are expected to be repaired in the late spring timeframe on the properties operated by Chevron. No decision has yet been made on two operated wells due to lacking of funding.

Oil and gas revenue for the fourth quarter of 2008, before the effects of hedging, was $36.5 million, down by 45.8% from $67.3 million for the third quarter of 2008, and down by 19.4% from $45.3 million from the fourth quarter of 2007. Revenue is impacted by production, discussed above, together with market prices and hedging impacts. The decline in revenue from the third quarter of 2008 is due to the dramatic decline in market prices in the fourth quarter of 2008. The realized average price per barrel of oil, before hedging effects, was $51 in the fourth quarter of 2008 compared to $111 for the third quarter of 2008, and $84 for the fourth quarter of 2007. The impact of hedging added $2.2 million in gains to the fourth quarter of 2008 compared to a loss from hedging of $16.1 million for the third quarter of 2008, and a hedging loss of $9.8 million for the fourth quarter of 2007. The realized average price per barrel of oil, after hedging effects, was $55 in the fourth quarter of 2008 compared to $84 for the third quarter of 2008, and $65 for the fourth quarter of 2007.

Lease operating expenses ("LOE") were $40/boe for the fourth quarter of 2008, $36/boe for the third quarter of 2008, and $38/boe in the fourth quarter of 2007. A significant decrease at the Beta Field was more than offset by increased LOE/boe in Alaska as further discussed below.

Royalty expense for the fourth quarter of 2008 was $7.1 million, compared to $16.8 million in the third quarter of 2008, and $9.5 million for the fourth quarter of 2007. Royalties vary with production and oil prices.

Fourth quarter 2008 general and administrative ("G&A") expenses of $5.8 million increased $2.2 million compared to the third quarter of 2008. The increase is primarily due to spending of $2.5 million as a result of the Company's forbearance agreement and restructuring efforts. G&A expenses decreased 3.8% from the same period a year ago when significant costs were incurred to integrate the Alaskan assets following their acquisition.

Cash interest expense for the fourth quarter of 2008 was $8.9 million, compared to $17.7 million in the third quarter of 2008, and $26.7 million for the fourth quarter of 2007. The decrease of 66.7% from 2007 is due to cash interest being capitalized to the principal balance (including some from the prior quarter), more than offset by a $10.7 million required penalty fee accrued in the fourth quarter of 2008 given the expectation that the Alaskan loans would continue to be outstanding.

Adjusted EBITDA for the fourth quarter of 2008 was a negative $1.9 million, compared to positive $9.4 million in the third quarter of 2008, and a negative $6.7 million for the fourth quarter of 2007. Please see the end of this release for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss.

At current oil prices, the Company is dependent on its debtor-in-possession financing, discussed below. The Company's Beta hedge position was terminated in December 2008, and Alaska hedge position in March 2009. Accordingly, all production is now subject to changes in oil prices.

Full Year Operations:

The Company's net loss from continuing operations was $323.6 million ($1.59 per diluted share) for 2008 and $94.0 million ($0.67 per diluted share) for 2007. Included in the 2008 results are impairment charges of $131.4 million, an acceleration of expensing of accretion and amortization of deferred financing costs of $48.4 million, partly offset by a gain on sale of its onshore properties of $74.3 million.

Production, from continuing operations, for 2008 was 6,816 boe/d, which is an increase of 129.1% from 2,975 boe/d for 2007. The Beta Field operations were included in the Company's production beginning March 1, 2007, and the Alaskan assets were included in the Company's production beginning September 1, 2007. Increases are due to the return to production of Platform Eureka in the Beta Field and the inclusion of full year of production in 2008 for both Beta and Alaska assets.

Oil and gas revenue, before the effects of hedging, was $226.2 million for the full year 2008 which was an increase of 168.5% from the year ago period of $84.3 million. Revenue is impacted by production, discussed above, together with market prices and hedging impacts. The realized average price per barrel of oil, before hedging effects, increased 24.5% to $92 in 2008 from $74 for 2007. Hedging losses were $42.4 million for 2008 and $10.7 million for 2007. The realized average price per barrel of oil, after hedging effects, was $74 for 2008 compared to $64 for 2007.

Lease operating expenses decreased by 15.9% to $39/boe for the full year 2008 from $46/boe for the year ago period. The LOE for the Beta Field was $30/boe for 2008 and $42/boe for 2007. The LOE for Alaska was $44/boe for 2008 and $50/boe for 2007.

Royalty expense for 2008 was $49.5 million, compared to $15.3 million for 2007. The increase was due to a full year of operations in 2008, versus a partial year in 2007. Royalties also vary with production and oil prices.

General and administrative expense ("G&A") was up 49.5% at $15.2 million for the full year 2008 compared to $10.2 million for the year ago period. The increase is partially due to the fourth quarter 2008 spending of $2.5 million incurred as a result of the Company's restructuring efforts. The remaining increase is due to Alaska and Beta operations for a full year in 2008, as opposed to a partial year in 2007.

Cash interest expense was $65.1 million for the full year 2008, up 88.5% from the year ago period of $34.5 million due to the inclusion of full year Alaska indebtedness, and due to a total of $26.4 million in covenant default, syndication and penalty fees.

Adjusted EBITDA was income of $17.9 million for the year ended 2008, up from a loss of $7.1 million for the year ended 2007. Please see the end of this release for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss.

Operational Update:

Cook Inlet, Alaska:

Production in Alaska was 3,680 boe/d and 4,164 boe/d for the fourth quarter and full year 2008, respectively. The Alaskan properties were acquired on August 27, 2007. The fourth quarter production level is down 18.4% from the third quarter of 2008 and 17.6% from the fourth quarter of 2007. The decline is due to some mechanical pump failures. The failures are considered normal wear and tear and certain of the failures are expected to be repaired following the spring thaw; others for operated properties are dependent on additional funding. LOE for the Alaska properties was $55/boe and $44/boe for the fourth quarter and full year 2008, respectively. Fourth quarter 2008 LOE increased 36.1% from the third quarter of 2008 and 46.4% from the fourth quarter of 2007. The increase is due to the decline in production and increased maintenance projects at the properties operated by Chevron. Capital spending for the full year 2008 was $19.3 million.

Beta Field, California:

Including both Platforms Eureka and Ellen, total Beta Field production was 3,404 boe/d and 2,652 boe/d for the fourth quarter and full year 2008, respectively. The Beta Field was acquired on March 1, 2007. The fourth quarter production level is up 17.2% from the third quarter of 2008 and 102.6% from the fourth quarter of 2007. The production increase is attributable to returning Platform Eureka to production in April 2008 and returning additional wells on Platform Eureka to production since then. LOE for the Beta Field was $24/boe and $30/boe for the fourth quarter and full year 2008, respectively. Fourth quarter 2008 LOE decreased 15.1% from the third quarter of 2008 and 37.7% from the fourth quarter of 2007, as a result of the production increases. Capital spending for the full year 2008 was $18.0 million.

Corsair Project:

Pursuant to its lease obligations, the Company was required to submit to the state a contract for a heavy lift transport vessel to the Cook Inlet. The Company's contract terms were denied by the state of Alaska. As an alternate path forward, on effective February 1, 2009, the Company executed a farm out agreement with a third party to pool each company's lease interests into a single unit. The proposed unit is called Kitchen Lights. The proposed Kitchen Lights Unit, located in the Cook Inlet Basin, is approximately 83,000 acres and is the result of the consolidation of three offshore prospects with similar geology (the Company's Corsair prospect, and the third party's Northern Lights and Kitchen prospects). The unitization has been submitted to the state of Alaska, and if approved by approximately August 1, 2009, will entitle the Company to a 20% carried working interest, back-in working interest, net profits interest or other similar interest retained by the third party or from a sale or transfer of the new unit.

Insolvency Proceedings:

As previously announced, on March 9, 2009, the Company and its wholly-owned subsidiaries filed with the Delaware Bankruptcy Court voluntary petitions for reorganization under chapter 11. On March 10, 2009, the Bankruptcy Court entered Interim Order for In re: Pacific Energy Resources Ltd., et al., at (1) approving senior secured super priority post petition financing, (2) authorizing use of cash collateral, (3) granting liens and providing super priority administrative expense status, (4) granting adequate protection, (5) modifying automatic stay, and (6) scheduling a final hearing. A final hearing on the Debtor-In-Possession credit facility ("DIP Financing") is scheduled for April 15, 2009, and a final hearing on certain other matters is scheduled for April 8, 2009. The DIP Financing provides $44.0 million in new funding, $9.6 million of which was approved under the Interim Order above with the balance subject to this final hearing.

In addition to obtaining bankruptcy protection in the U.S., the Company obtained protection in Canada under the Companies' Creditors Arrangement Act ("CCAA") on March 12, 2009. The initial protection period under the CCAA is scheduled to expire April 9, 2009.
 

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