Property Impairments Lead to Loss for EPL Shareholders
For the fourth quarter of 2007, Energy Partners Ltd (EPL) reported a net loss to common stockholders of $73.4 million, or $2.31 per diluted share, compared to a net loss for the fourth quarter of 2006 of $52.5 million, or $1.35 per diluted share. The Company said the majority of the net loss for the fourth quarter of 2007 was attributable to $100.4 million of pre-tax, non-cash costs associated with property impairments.
The vast majority of the impairments were associated with properties located in its Western offshore area. Five properties, located primarily in the Western area, experienced mechanical difficulties requiring significant capital to restore production, and accounted for over 60% of the impairments. The Company determined, with its decreased capital budget for 2008, this capital would be better deployed to projects with more potential.
The remaining impairment costs were mainly due to six fields in the Western offshore area that depleted earlier than anticipated or experienced production underperformance and were partially impaired. Excluding the after-tax impact of $64.2 million of impairment costs, EPL's adjusted fourth quarter net loss, a non-GAAP measure, would have been $9.2 million or $0.29 per diluted share (see reconciliation of adjusted net loss in the appendix). In addition, the net loss for the fourth quarter also included $9.0 million of after-tax non-cash unrealized losses on derivative instruments.
For the full year 2007, the net loss to common stockholders was $80.0 million, or $2.32 per diluted share, compared to a net loss in 2006 of $50.4 million, or $1.32 per diluted share. The benefit of record annual revenue was offset by $114.9 million of non-cash, pre-tax property impairment costs for the full year 2007, the majority of which were associated with the impairments recorded in the fourth quarter of 2007, and $9.4 million of pre-tax costs incurred in the first half of the year comprised of financial and legal advisory fees mainly related to the exploration of strategic alternatives.
Excluding the after-tax impact of $79.6 million of impairment costs and the noted legal and financial advisory fees, EPL's adjusted 2007 net loss, a non-GAAP measure, would have been $0.4 million or $0.01 per diluted share (see reconciliation of adjusted net loss in the appendix). In addition, the net loss for the year also included $8.8 million of after-tax non-cash unrealized losses on derivative instruments.
Revenue for the fourth quarter of 2007 was $114.1 million, up from the fourth quarter 2006 revenues of $111.6 million. Revenue for the year 2007 increased to $454.6 million from $449.6 million in 2006. Discretionary cash flow, which is cash flow from operations before changes in working capital and exploration expenditures, totaled $70.7 million in the fourth quarter of 2007, versus $65.0 million in the fourth quarter last year.
For the full year, discretionary cash flow was $278.9 million compared to $279.1 million in 2006 (see reconciliation of discretionary cash flow in appendix). Cash flow from operations in the most recent quarter was $64.0 million, compared to $86.7 million in the fourth quarter of 2006. Cash flow from operations for 2007 totaled $293.9 million compared to $272.1 million in 2006.
In the fourth quarter of 2007, production averaged 20,806 barrels of oil equivalent (Boe) per day, compared to 27,080 Boe per day in the fourth quarter of 2006. Natural gas production in the fourth quarter of 2007 averaged 73.9 million cubic feet (Mmcf) per day and oil production averaged 8,489 barrels per day.
Production for the full year 2007 averaged 24,130 Boe per day, down from the 2006 average of 25,912 Boe per day primarily due to the sale of substantially all of the Company's onshore south Louisiana properties in June of 2007. Natural gas production averaged 92.2 Mmcf per day in 2007, and oil production averaged 8,769 barrels per day.
Price realizations, all of which are stated before the impact of derivative instruments, averaged $84.44 per barrel for oil and $7.07 per thousand cubic feet (Mcf) of natural gas in the fourth quarter of 2007, compared to $53.64 per barrel and $6.64 per Mcf in the fourth quarter of 2006. For 2007, oil price realizations averaged $66.78 per barrel and natural gas averaged $7.15 per Mcf compared to $59.78 per barrel and $6.98 per Mcf in 2006.
As of December 31, 2007, the Company had cash on hand of $8.9 million and total debt of $484.5 million. The Company also had $170.0 million of remaining capacity available under its bank facility at year end 2007.
Richard A. Bachmann, EPL's Chairman and CEO, commented, "Our fourth quarter and full year results were clearly overshadowed by the impairments of properties in our Western offshore area. These impairments were the result of mechanical and performance issues. The performance in our Western offshore area is unacceptable, and we have taken decisive steps to correct this issue. These steps include reducing our capital spending in this area going forward, an area that we no longer consider one of our core focus areas for capital investment. It is important to note that these impairments occurred in areas outside of our core focus areas in the Central and Eastern offshore areas where we have experienced tremendous success, particularly in our South Timbalier area. Our 2008 spending plans will be focused primarily on our core areas in South Timbalier and our East Bay field where we have enjoyed a good return on our capital deployed, and initiating production from our deepwater Raton discovery."
- W&T Sells South Timbalier Stake to Energy Partners (May 15)
- Energy Partners Concludes Acquisition of GOM Properties (Feb 15)
- Energy Partners Regains Supplemental Waiver Status from MMS (May 03)