The Exploration Company Reports Record First-Quarter Results

The Exploration Company (Nasdaq: TXCO) reported improved financial results for its quarter ended March 31, 2006. Highlights include:
  • Record total revenues and oil and gas sales.
  • Record first-quarter operating income of $2.8 million, up 141.0 percent from the prior-year period.
  • Net income of $1.3 million, compared to a first-quarter 2005 loss.
  • Closed $30 million private stock offering to fund record drilling program.

TXCO's first-quarter net income was $1.3 million, equal to $0.04 per share, in contrast to a $3.3 million loss, or $0.12 per share, in the first quarter of 2005. Excluding mark-to-market charges related to derivatives, first-quarter 2005 income would have been $262,000. The year-earlier loss was due to a non-cash hedging charge. A portion of the derivative contracts were terminated in late 2005. All per-share amounts are on a diluted basis. Operating income reached $2.8 million, a record for a first-quarter, up 141.0 percent from $1.2 million in the year-earlier period.

Total revenues rose to a record $16.0 million, up 9.6 percent from the 2005 first quarter, while oil and gas sales were a record $10.5 million, up 36.3 percent from $7.7 million. Oil volumes were higher and sold at a higher average realized price, offset by lower natural gas volumes. As previously announced, the Company sold approximately 20 percent of its production, primarily gas, to EnCana Oil & Gas (USA) Inc. in the third quarter of 2005.

Due to reductions in trade payables, cash flow (net cash provided by operating activities) was a negative $0.4 million, compared to a positive $2.5 million a year earlier. Excluding changes in operating assets and liabilities, net cash from operations for the quarter was $4.7 million, up 38.2 percent from $3.4 million in the 2005 period.

Ebitdax -- earnings before income taxes, interest, depreciation, depletion, amortization, impairment, abandonment, exploration expense and certain other non-cash items -- rose to $6.7 million, or $0.22 per share, a 41.9 percent increase from $4.7 million, or $0.17 per share, in the earlier period. Ebitda -- Ebitdax less exploration expense -- increased 48.7 percent to $6.3 million, or $0.20 per share, compared to $4.2 million or $0.15 per share in the year-ago quarter.

Management's Perspective

"The Company improved its already strong balance sheet with very positive financial results in what is usually our weakest quarter of the year," said President and CEO James E. Sigmon. "Cash flow was excellent as Ebitdax and Ebitda increased sharply over the year-earlier period.

"In addition, the private placement of 3 million shares we announced at the end of March raised nearly $30 million, which is going toward funding our largest drilling program ever. I believe TXCO is on track for an excellent 2006 with continuing growth in sales, reserves and profitability. Because we are underleveraged, we retain great flexibility to take advantage of the many opportunities before us," Sigmon added.

About The Exploration Company

The Exploration Company is an independent oil and gas enterprise with interests primarily in the Maverick Basin of Southwest Texas and the Marfa Basin in West Texas. The Company has a consistent record of long-term growth in its proved oil and gas reserves, leasehold acreage position, production and cash flow through its established exploration and development programs. Its business strategy is to build shareholder value by acquiring undeveloped mineral interests and internally developing a multi-year drilling inventory through the use of advanced technologies, such as 3-D seismic and horizontal drilling.