Houston Exploration Reports 1Q05 Results & Increases 2005 Budget

The Houston Exploration Company (NYSE: THX) reported first quarter 2005 net income of $33.4 million, or $1.16 per fully diluted share. This compares to $39.7 million, or $1.25 per fully diluted share during the first quarter 2004. During the first quarter 2005 the company recognized non-recurring expenses which negatively impacted net income by $10.3 million, after tax, or $0.35 per fully diluted share. Each of these is explained in greater detail further in this release.

Revenues for the quarter totaled $165.7 million, an increase of 9 percent from 2004's comparative period of $151.9 million. Cash from operations before changes in operating assets and liabilities totaled $125.1 million, $4.1 million higher than the first quarter 2004's $121.0 million. (Cash from operations is a non-GAAP measure that is defined and reconciled in the table below.)

First quarter 2005 daily production averaged 331 million cubic feet of natural gas equivalent per day (MMcfe/d), nearly flat with 2004's first quarter average rate of 332 MMcfe/d. The High Island 115 field, which had been producing nearly 10 MMcfe/d, net, continues to be off-line since experiencing mechanical problems during the fourth quarter 2004. The current plan is to sidetrack this well late in the second quarter 2005.

Lifting costs, which are comprised of lease operating, transportation and severance tax expenses, were $0.71 per Mcfe for the first quarter 2005 versus $0.61 per Mcfe reported during the first quarter 2004. Depreciation, depletion and amortization and asset retirement accretion expenses for the quarter were $2.41 per Mcfe compared to $2.06 per Mcfe in the first quarter 2004. First quarter 2005 net general and administrative expenses were $0.37 per Mcfe compared to $0.20 per Mcfe in 2004's first quarter.

The company's average natural gas sales price for the first quarter 2005 was $5.99 per thousand cubic feet (Mcf), yielding an average realization of $5.42 per Mcf after hedging. This compares to a natural gas sales price of $5.43 per Mcf, and a net price after hedging of $4.99 per Mcf during the first quarter 2004. Crude oil prices averaged $42.17 per barrel for the quarter, 30 percent higher than the $32.50 per barrel reported during the first three months of 2004.

The company continues to produce primarily natural gas, at 92 percent of the total, and has more than 70 percent of its estimated equivalent production hedged for the remainder of the year. There were not any changes made to the 2005 hedge program during the first quarter. Reference the company's Web site for a detailed table of hedges in place for 2005 through 2008.

     Recent Highlights:
     *  The company drilled 80 wells at an overall success rate of 75 percent.
     *  Offshore, the company continued to integrate the Gulf of Mexico assets
        purchased late in 2004 and completed two projects at the Main Pass 264
        field.  In addition, Houston Exploration was the apparent high bidder
        on three new leases at the Central Gulf of Mexico lease sale.  One
        block has been awarded and the remaining two are pending the necessary
     *  Offshore, the company had its first deep-shelf exploration discovery
        for the year at the West Cameron 75 field.  Drilled to 22,824 feet,
        the well logged more than 40 net feet of pay from the Lower Miocene
        formation.  The company has a 20 percent interest in the well.
     *  Onshore, the company continued to run 11 rigs, six in South Texas,
        three in Arkansas and two in the Rocky Mountains.  Striving to improve
        upon the assessment of its acreage in Colorado, the company completed
        a 3-D seismic shoot covering 155 square miles of its acreage in the DJ
     *  In East Texas, the company enhanced its current operations after
        completing two tactical acquisitions of 8,000 net acres for
        $31.2 million.  The assets have estimated proven reserves of
        16.8 billion cubic feet of natural gas equivalent and the company
        plans to drill 12 wells on the acquired acreage during the remainder
        of 2005.
     *  As a result of the recent acquisitions, the company increased its 2005
        capital program from $446 million to $512 million.  Of this,
        approximately $453 million is allocated for exploration and
        development spending.
     *  The company decreased its bank borrowings by $15 million, closing the
        quarter with a debt-to-capitalization ratio of 33 percent.
     *  The company added two new executives to its management team, Jeff
        Sherrick, senior vice president of corporate development, and Jack
        Bergeron, vice president and general manager of the offshore region.

"After completing an active first quarter, currently we are positioned for our annual growth objectives," commented William G. Hargett, chairman, president and chief executive officer. "We closed on some attractive acreage in East Texas, the drilling program in each of our regions is at full capacity, we continue to garner a fresh perspective for our assets in the Rockies, and we have added depth to our management team. With our increased capital and our drilling inventories, the remainder of the year will be busy for Houston Exploration," he added.

As mentioned earlier in the release, the company accounted for several non-recurring expenses that impacted the quarter's results. These are explained below:

     First Quarter 2005 Non-Recurring Expenses:
     *  Additional general and administrative expenses of $5.0 million, or
        $3.2 million after tax, and related income tax expenses of
        $1.4 million were incurred pursuant to the renegotiation of executive
        employment agreements.  These expenses were previously announced and
        impacted the quarter's results by $0.16 per fully diluted share.
     *  Additional income tax expenses of $2.0 million, or $0.07 per fully
        diluted share, were incurred to adjust for the company's 2004 estimate
        of state and federal tax liabilities.
     *  Additional depreciation, depletion and amortization expenses of
        $2.9 million, or $1.9 million after tax, for capital costs associated
        with an outside-operated exploratory project in Romania impacted net
        income by $0.06 per fully diluted share.  This well tested a highly
        prospective structure on an acreage block in excess of one million
        acres, yet after drilling one well, the company decided to abandon the
        project.  At the present time the organization is not actively engaged
        in any other international investments.
     *  A payout adjustment of $2.8 million, or $1.8 million after tax, was
        required for a farm-out agreement which impacted fully diluted
        earnings by $0.06 per share.

As with past quarters, Houston Exploration has prepared the following table to assist with understanding the company's estimated financial results and near-term performance based on current expectations. Certain factors that could materially impact these forward-looking statements are set forth below in this release.

     Quarterly and Annual Guidance:

     Second Quarter 2005 Costs ($/Mcfe)                Estimate
     -  Lease operating expense                        $0.53 +/-
     -  Severance tax                                  $0.14 +/-
     -  General and administrative, net                $0.24 +/-
     -  Transportation                                 $0.10 +/-
     -  Depreciation, depletion and amortization
        and asset retirement accretion                 $2.40 +/-
     -  Interest, net                                  $0.12 +/-

     2005 Capital (million $)                          Estimate
     -  E&D expenditures                                $453 +/-
     -  Acquisition expenditures                         $31 +/-
     -  G&A and interest                                 $28 +/-
     -  Total                                           $512 +/-

     2005 Operations                                   Estimate
     -  Production growth from 2004                       6% +/-
     -  Percent natural gas                              93% +/-
     -  Percent hedged                                   75% +/-

The company will hold its first quarter 2005 earnings conference call on Thursday, April 28, at 9:30 a.m. Central time to further review the financial and operational results.