EPL Reports Record 2005 Results and Entry into Deepwater

Energy Partners, Ltd. reported financial and operational results for the fourth quarter of 2005 and the full year, including year end 2005 proved reserves and reserve replacement. For the fourth quarter of 2005, net income available to common stockholders was $28.1 million, or $0.69 per diluted share, up 102% from $13.9 million, or $0.37 per diluted share, in the fourth quarter of 2004. For the year 2005, net income available to common stockholders was $72.2 million, or $1.79 per diluted share, a 68% increase from net income in 2004 of $43.0 million, or $1.20 per diluted share. Net income for both the quarter and the year were record highs for the Company.

Discretionary cash flow, which is cash flow from operations before changes in working capital and exploration expenditures, totaled $98.6 million in the fourth quarter of 2005, a 68% increase over $58.8 million in the fourth quarter last year. For the full year, discretionary cash flow rose 51% to $308.8 million from $205.1 million in 2004 (see reconciliation of discretionary cash flow in appendix). Cash flow from operations in the most recent quarter was $16.3 million, compared to $40.2 million in the fourth quarter of 2004. Cash flow from operations for 2005 totaled $270.0 million, rising 64% from $165.1 million in 2004.

In the fourth quarter of 2005, which was significantly affected by shut ins due to tropical weather, production averaged 18,583 barrels of oil-equivalent (Boe) per day, compared to 22,374 Boe per day in the fourth quarter of 2004. Natural gas production in the fourth quarter of 2005 averaged 82.0 million cubic feet per day and oil production averaged 4,916 barrels per day.

Production for 2005 averaged 22,722 Boe per day, a slight increase over the 2004 average of 22,346 Boe per day. Natural gas production averaged 88.4 million cubic feet per day in 2005, and oil production averaged 7,984 barrels per day.

Price realizations, all of which are stated net of hedging impact, averaged $45.16 per barrel for oil in the fourth quarter and $11.39 per thousand cubic feet (Mcf) of natural gas, compared to $39.85 per barrel and $6.66 per Mcf in the fourth quarter last year. For 2005, oil price realizations averaged $46.45 per barrel and natural gas averaged $8.26 per Mcf compared to $35.01 per barrel and $6.11 per Mcf in 2004.

Fourth quarter 2005 results benefited from strong commodity prices and $20.6 million in claims accrued under the Company's business interruption insurance coverage. Offsetting the effects of the insurance claims and record revenue in the quarter were higher than expected exploration expense, including $20.8 million in dry hole costs, and $8.0 million in impairments of certain properties. Additionally, general and administrative expenses were $12.4 million in the quarter, which was higher than expected due to additional insurance costs, relocation of offices back to New Orleans, and a legal reserve associated with a contract dispute.

The annual amounts for production, net income, cash flow, and revenues all represent record highs for the Company. The record annual financial results were primarily due to record production in the first half of the year along with a relatively quick recovery from the impact of tropical weather in the second half of the year, all during a period of high commodity prices.

At year end 2005, cash stood at $6.8 million and total debt stood at $235.1 million. Debt to capitalization was 37%.

Richard A. Bachmann, EPL's Chairman and CEO, commented, "It is a great tribute to our staff that in a year when Gulf producers had to contend with Katrina, Rita, and a raft of other tropical storms, we were still able to increase production over 2004 levels. In addition, despite all the difficulties that we experienced as a Company and as individuals, we were still able to deliver annual results with record highs on a number of financial metrics. We now have 100% of our New Orleans-based staff back in our offices in New Orleans. We are excited about our 2006 drilling program, which is off to a great start."

Reserve Replacement and Costs

EPL's proved reserves at year end 2005 stood at 31.5 million barrels of oil and 166.9 billion cubic feet of gas, or 59.3 million Boe, up 10% from 53.7 million Boe at year end 2004. In 2005, the Company replaced 167% of its reserves at an average cost of $34.55 per barrel, based on total finding, development, and acquisition costs (see reconciliation in appendix). EPL acquired 12.7 million Boe in 2005 at an aggregate cost of $171.4 million and added 5.2 million Boe from its exploration and development program in 2005 at an aggregate cost of $307.4 million. The Company recorded 4.0 million Boe in negative revisions to its proved reserves in 2005, reflecting positive revisions from year end 2004 reserves and 5.4 million Boe in negative revisions associated with its onshore south Louisiana acquisition in January 2005. Despite good exploratory results in south Louisiana, the negative revisions primarily resulted from poor development drilling results and the impact of those results on underlying reserves. All of the Company's reserve figures are based upon third party engineering estimates by Ryder Scott Company, L.P. and Netherland, Sewell & Associates, Inc.

Bachmann continued, "Our success with the drill bit in 2005 was clearly below our historical track record and also below our expectations. We have made some changes in our program which we expect will get us back closer to the levels we saw in 2003 and 2004. Those changes, coupled with the exceptional quality of our 2006 drilling program, are designed to return us to the growth and value creation through the drill bit that has been the hallmark of this Company."

Operational Highlights

EPL drilled 44 exploratory wells in 2005 and posted 28 discoveries, for an overall exploratory success rate of 64%. The Company had 16 discoveries in 28 wells offshore and 12 discoveries in 16 wells onshore. A table of EPL's 2005 offshore exploratory wells is available in appendix.

In addition to exploratory drilling, EPL drilled 11 development wells and completed 33 workovers and recompletions in 2005.

The Company was also active in a number of state and federal lease sales in 2005, adding more than 110,000 gross acres in the year. Year end undeveloped gross acres stood at 231,547, an 102% increase over the year end 2004 undeveloped acreage of 114,431. Total gross acreage at year end 2005 was 440,326 acres.


EPL recently finalized an agreement to acquire a 25% working interest in 23 undeveloped leases in the deepwater Gulf of Mexico from Noble Energy, Inc. The agreement calls for a minimum of two exploratory wells in 2006, one of which is currently drilling, Mississippi Canyon 204 #1, located in 3,400 feet of water targeting the Redrock prospect. EPL holds a 25% working interest in the well, which is presently at an intermediate casing point, and has the option to participate with a 25% working interest in all of the 13 currently identified prospects on the 23 leases.

Current Operations

EPL recently drilled its second exploratory discovery of 2006, the East Cameron 268 #1. EPL holds a 50% working interest in the well, which is operated by Callon Petroleum Co. Year to date in 2006, EPL has two discoveries in two exploratory tests.

The Company currently has four exploratory wells underway: South Pass 26 #1 at East Bay testing the high potential Denali prospect, which is expected to reach total depth in four to eight weeks, at 40% working interest, Mississippi Canyon 204 #1 testing the Redrock prospect at 25% working interest, West Cameron 3 #1 at 25% working interest and West Cameron 202 #1 at 25% working interest. The Company expects to drill at least 24 exploratory wells offshore in 2006 along with at least eight exploratory wells onshore. EPL's capital budget for 2006 is currently set at $360 million, which includes approximately $40 million for deepwater lease acquisition, seismic, and exploration. The 2006 exploration and development program is expected to be funded entirely through internally generated cash flow. The Company does not budget for acquisitions. During the month of February, production has been as high as 25,000 Boe per day, and the Company expects essentially all its productive capacity to be online by the end of the second quarter.

Bachmann concluded, "While the storm season of 2005 prevented us from delivering the growth last year that we projected, we will soon have essentially all production restored, and that puts us in an excellent position for 25% to 35% projected production growth in 2006. We feel we have one of our most exciting exploratory portfolios ever in front of us in 2006, even before considering the potential impact of our Denali prospect. As difficult as 2005 was for us, the employees of EPL are demonstrating an enduring enthusiasm going into 2006 that I believe will deliver great returns for the Company and its shareholders in the year ahead."

Appendix - 2005 Offshore Exploratory Wells

        Lease            Well Number   Result    EPL Working Interest
        -----            -----------   ------    --------------------
South Pass 40            #2          Oil and gas         100%
Vermilion 237            #1          Gas                 100%
East Cameron 346         #A-12       Dry                  25%
West Cameron 242         #1          Dry                  75%
South Marsh Island 109   #A-5        Gas                  27%
West Delta 53            #1          Gas                  67%
Eugene Island 277        #5          Gas                  67%
South Timbalier 41       #3          Oil and Gas          60%
Eugene Island 277        #A-2 ST     Oil and Gas          50%
Eugene Island 27         #2          Gas                 100%
Galveston 341-S          #1          Gas                  50%
West Delta 51            #1          Dry                 100%
West Cameron 31          #1          Dry                  45%
East Cameron 111         #1          Gas                  50%
South Timbalier 23       CM-19 ST    Oil                  27%
Eugene Island 247        #J-3 ST     Gas                  98%
Eugene Island 141        #1          Gas                  20%
South Pass 40            #1          Gas                  40%
West Cameron 479         #1          Dry                  50%
West Cameron 455         #1          Dry                  50%
West Delta 52            #1          Dry                 100%
West Cameron 98          #3          Dry                  25%
High Island 19           #1          Dry                  50%
Eugene Island 4          #1          Dry                  50%
South Timbalier 42       #1          Oil                  60%
South Pass 29            #1          Dry                 100%
South Pass 39            #1          Dry                 100%
South Timbalier 23       #CC-6 ST    Oil                  27%