The Meridian Resource Corp. Says Earnings Increased 70%
The Meridian Resource Corporation (NYSE: TMR) released fourth-quarter and full-year financial results. The Company posted earnings for the fourth quarter of $14.3 million or $0.16 per share, an increase of 70% from the fourth quarter of last year, with full year 2005 net income reported as $27.8 million or $0.31 per share.
During 2005 the Company:
- produced 25.8 billion cubic feet of gas equivalent;
- earned $27.8 million in net income;
- generated $148.3 million in discretionary cash flow;
- incurred $15.9 million in lease operating expenses;
- ended the year with $75 million in long term debt;
- restored production and cash flows above pre-storm levels;
- made 11 new discoveries in the Biloxi Marshland and Ramos Complex area, and;
- expanded exploration efforts into East Texas and unconventional basins.
Net income to common shareholders for the fourth quarter of 2005 increased by $5.9 million to $14.3 million, or $0.16 per diluted common share, compared to $8.4 million, or $0.10 per share for the fourth quarter of 2004. Sequentially, net income increased by $11 million or $0.12 per share from the third quarter of 2005. Net income for the fourth quarter was affected by reduced production during most of October caused by hurricanes Katrina and Rita. Substantially all of the production affected by the storms has been restored with overall volumes at higher than pre-storm levels. The fourth quarter 2005 net income results include $2.3 million in un-reimbursed insurance expenses for repairs to facilities and equipment damaged by the hurricanes. Excluding the impact of these expenses, the Company would have reported net income for the quarter of $15.7 million or $0.17 per share. For full year 2005 net income applicable to common shareholders was $27.8 million, or $0.31 per diluted common share, compared to $29.2 million, or $0.37 per diluted common share, for full year 2004.
Discretionary Cash Flow
Discretionary cash flow for the fourth quarter of 2005 increased by $9.8 million or 24% to $50.8 million, or $0.55 per share, compared to $ 41.1 million, or $0.48 per share for the fourth quarter of 2004. Sequentially, the discretionary cash flow increased by $24.1 million or $0.26 per share from the third quarter of 2005. The sequential increase in discretionary cash flow for the three month period was primarily the result of a 21% improvement in overall production which was heavily impacted by the storms. Improved price realizations were also a factor as the Company received 45% more for its oil and natural gas compared to the third quarter of 2005. The pricing improvements were a result of increased commodity prices and the expiration of unfavorable hedges. For full year 2005, discretionary cash flow was $148.3 million, or $1.65 per share compared to $160.1 million or $2.03 per share for the full year 2004.
Production volumes for the fourth quarter of 2005 totaled 6.1 billion cubic feet of gas equivalent ("Bcfe") compared to 8.2 Bcfe for the fourth quarter of 2004. Sequentially, production increased by 1.1 Bcfe from the third quarter of 2005. Annual production volumes were 25.8 Bcfe, or 70.6 million cubic feet of natural gas equivalent ("Mmcfe") per day, for full year 2005 compared to 35.5 Bcfe, or 96.9 Mmcfe per day, for full year 2004. During the course of the year, production was impacted by i) mechanical issues on higher rate wells; ii) hurricane related delays in drilling additional wells; iii) hurricane related production shut-ins; iv) hurricane related delays in tying in new production, and; v) natural production declines. Where applicable, each issue has been addressed and subsequently corrected. Mechanical issues were repaired; drilling resumed in the Biloxi Marshland area; repaired hurricane related damage in short order; repaired and tied-in and brought online wells affected by the storms, and; expanded the exploration program to include longer lived reserves.
Total revenues for the fourth quarter of 2005 totaled $64.7 million, or $10.60 per Mcfe, an increase of 20% compared to total revenues of $53.8 million, or $6.51 per Mcfe, for the fourth quarter of 2004. Sequentially, revenues are up by $27.9 million from $36.8 million in the third quarter of 2005. Annual revenues totaled $195.7 million, or $7.57 per Mcfe, for full year 2005, compared to $203.1 million, or $5.71 per Mcfe, for full year 2004. Total revenues for the year were affected by previously discussed production impacts, by a 33% increase in average annual commodity prices (per Mcfe), as well as the expiration of unfavorable hedge contracts.
Lease Operating Expenses
Lease operating expenses for the fourth quarter of 2005 decreased by $1.6 million to $3.6 million or $0.60 per Mcfe, compared to $5.2 million, or $0.64 per Mcfe for the fourth quarter of 2004. Sequentially on a Mcfe basis, lease operating expenses decreased by $0.08 from $0.68 in the third quarter of 2005. Lease operating expenses for full year 2005 were up $1.9 million or 13% to $15.9 million, compared to $14 million in full year 2004. Lease operating expenses increased primarily due to operating expenses associated with new wells; salt water disposal expense in the Hornet Nest area of BML; and an overall industry-wide increase in service costs
Depletion and Depreciation
Depletion and depreciation for the fourth quarter of 2005 was $26.9 million compared to $25.5 million for the fourth quarter of 2004. For full year 2005, depletion and depreciation totaled $97.4 million or $3.78 per Mcfe, compared to $102.9 million or $2.90 per Mcfe for full year 2004. 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, the rising costs in the industry for 2005 expenditures and upward revisions of future development costs.
General and Administrative Expenses
General and administrative expenses for the fourth quarter of 2005 was $4.7 million or $0.77 per Mcfe compared to $4.4 million or $0.54 per Mcfe for the fourth quarter of 2004. General and administrative expenses on a per Mcfe basis increased primarily due to lower production rates between the two periods. Sequentially, general and administrative expense was down compared to the third quarter of 2005 which was $4.0 million or $0.79 per Mcfe. For full year 2005, general and administrative expenses totaled $18 million or $0.70 per Mcfe, compared to $15.2 million or $0.43 per Mcfe for full year 2004. The increase in general and administrative expenses between the periods is primarily due to increased employee compensation associated with higher industry wide demand for experienced personnel. Additionally, legal services were higher during 2005 resulting from various litigation matters.
Interest expense for the fourth quarter of 2005 was $1.4 million compared to $1.6 million for the fourth quarter of 2004. For the full year of 2005, interest expense totaled $4.7 million compared to $7.2 million for the full year of 2004. In association with the Company's implemented plan of improving its balance sheet, the decrease in interest expense is due to lower outstanding borrowings.
As of December 31, 2005, the Company's year-end oil and gas reserves totaled 111 Bcfe of which approximately 72% were natural gas. Proved developed reserves accounted for 75% of the Company's total proved reserves with the remaining 25% representing proved undeveloped reserves. No proved undeveloped locations have been included in the Company's year-end reserve estimates for the Biloxi Marshlands project area. Utilizing Securities and Exchange Commission price guidelines, the Company's total proved reserves at December 31, 2005 increased in net present value (discounted at 10%) before income taxes by $136.3 million to approximately $681 million compared to $545 million at year-end 2004. During 2005, the Company added approximately 17.5 Bcfe of reserves as a result of its exploration and development efforts. In addition, the Company reported net negative revisions of approximately 19.9 Bcfe. The previously announced revisions are primarily associated with two wells, the CL&F A-2 (North Turtle Bayou) and the Thibodaux #3. During the second quarter, the Company suspended operations to re-drill a well on its North Turtle Bayou prospect after several unsuccessful attempts to re-establish production from the well, resulting in a revision of the reserve estimates associated with the well. After a lengthy and unsuccessful effort to restore higher levels of production in the Thibodaux #3 well, the Company revised its reserves estimates associated with the well during 2005. These revisions also contributed to higher depletion and depreciation rates for the year.
The Company fully recognizes its declining reserve position and earlier last year formulated and began to implement a strategic plan to address the controllable issues affecting its reserve and production levels. As mentioned in yesterday's operations press release, there are fewer and fewer opportunities in the south Louisiana region, which leads the Company to expand its exploration efforts to diversify into selected tight gas sand or shale production plays which can augment Meridian's asset base with longer-lived reserves. The Company has not only diversified geographically beyond south Louisiana into East Texas, but has also acquired sizable acreage positions in certain shale plays and unconventional resource gas plays in other mid-continent areas. To hit the ground running with this expansion, the Company has retained and brought into the Company a highly regarded technical team who have the experience required to develop these and other similar resource opportunities. The Company has targeted approximately 20% of its 2006 capital budget for unconventional resource projects, with a goal to ultimately strike an appropriate balance in its prospect inventory between shallow, lower-risk wells, and deep, higher-risk wells, and between wells with shorter and longer-lived reserves. Correspondingly, the Company plans to continue to generate and exploit numerous opportunities in south Louisiana.
The following table provides a reconciliation of the Company's proved reserve quantities as of December 31, 2005:
Oil Gas Equiv. (MBbls) (MMcf) (MMcfe) ----------- ---------- ----------- Balance, December 31, 2004 6,364 100,999 139,183 Production (882) (20,490) (25,782) Discoveries and extensions 366 15,283 17,479 Revisions of previous estimates (671) (15,875) (19,901) ----------- ---------- ----------- Balance, December 31, 2005 5,177 79,917 110,979 =========== ========== ===========
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