DELTA PETROLEUM CORPORATION
Dave Donegan
370 Seventeenth Street, Suite 4300
Denver, Colorado 80202
(303) 293-9133
DENVER, Colorado (May 9, 2005) -- Delta Petroleum Corporation (NASDAQ National Mkt: DPTR); (FRANKFURT STOCK EXCHANGE: DPE), an independent energy exploration and development company, today reported its operating results for the third quarter and first nine months of FY2005.
For the three months ended March 31, 2005, total revenue from continuing operations increased 132% to $24.6 million, compared with $10.6 million in the third quarter of FY2004. Net income rose 101% to $4.9 million, versus net income of $2.4 million in the quarter ended March 31, 2004. Earnings per diluted share increased 50% to $0.12 in the most recent quarter, compared with $0.08 in the year-earlier period. The weighted average number of diluted shares outstanding increased 40% to 42.5 million in the third quarter of FY2005, versus 30.4 million in the corresponding period of the previous fiscal year, reflecting additional shares that were issued in private placement financings and acquisitions during the past twelve months. EBITDAX (see reconciliation table at the end of this release) increased 84% to $14.5 million for the quarter ended March 31, 2005, compared with $7.9 million for the same period a year earlier.
“We are pleased to report significantly higher revenues, earnings and earnings per share for the third fiscal quarter, when compared with the prior-year period,” noted Roger Parker, Chief Executive Officer of Delta Petroleum Corporation. “Production accelerated in the most recent quarter, with average daily production increasing 95% over prior-year levels and 27% over the production levels achieved in the second quarter of Fiscal 2005.”
“While we are confident that revenues and production will continue to increase every quarter as long as commodity prices remain high, our progress continues to be restrained by shortages of drilling and completion rigs and the personnel to operate such equipment in several of the fields under development. This issue has been partially addressed by our recent acquisition of a controlling equity interest in DHS Drilling Company, which provides us with greater access to drilling equipment in the Rocky Mountain region. In other geographic areas, we are working hard to secure equipment that will allow us to achieve our drilling and completion goals as soon as possible.”
The gains in revenue and net income during the most recent quarter were primarily due to higher oil prices and a 95% increase in production, when compared with the prior-year period.
The average price realized for oil during the quarter ended March 31, 2005 approximated $47.97 per barrel (Bbl) onshore and $33.31 per Bbl offshore, compared with $33.88 per Bbl onshore and $21.60 per Bbl offshore in the same period a year earlier. The average price realized for natural gas approximated $5.52 per thousand cubic feet (Mcf) during the quarter ended March 31, 2005, versus $5.72 per Mcf in the same period a year earlier.
Lease operating expenses, production taxes and transportation costs for the Company’s onshore assets approximated $0.96 per Mcf equivalent (Mcfe), $0.42 per Mcfe, and $0.03 per Mcfe in the most recent quarter. These figures compared with $0.69 per Mcfe, $0.27 per Mcfe, and $0.04 per Mcfe, respectively, in the third quarter of FY2004. Depletion, depreciation and amortization (“DDA”) for Delta’s onshore assets approximated $1.31 per Mcfe in the quarter ended March 31, 2005, compared with $1.62 per Mcfe in the corresponding period of the previous year. For the Company’s offshore assets, lease operating expenses and production taxes totaled $3.95 per Mcfe and $0.10 per Mcfe, respectively, in the most recent quarter, compared with $3.40 per Mcfe and $0.04 per Mcfe in the year-earlier period. DDA for offshore assets approximated $0.77 per Mcfe (versus $0.93 a year earlier).
For the nine months ended March 31, 2005, total revenue from continuing operations increased 169% to $66.4 million, compared with $24.7 million in the first nine months of FY2004. Net income rose 206% to $13.7 million, versus net income of $4.5 million in the nine months ended March 31, 2004. Earnings per diluted share increased 100% to $0.32 in the most recent nine-month period, compared with $0.16 in the corresponding period of the previous fiscal year. The weighted average number of diluted shares outstanding increased 53% to 42.3 million in the first nine months of FY2005, versus 27.6 million in the year-earlier period, reflecting additional shares that were issued in private placement financings and acquisitions during the past twelve months. EBITDAX (see reconciliation table at the end of this release) increased 148% to $38.3 million for the nine months ended March 31, 2005, compared with $15.5 million for the same period a year earlier.
Production
Production during the most recent quarter reached 3.82 billion cubic feet equivalents (Bcfe), for an average of 42.2 million cubic feet equivalents (Mmcfe) per day. This represented a 95% increase over the prior-year period and a 27% increase over production levels during the quarter ended December 31, 2004.
Before normal production decline, and averaged for the number of days in the quarter, the Company added 4.2 Mmcfe per day from new drilling activities and 8.3 Mmcfe per day from production acquisitions (the Manti acquisition). In addition, we have nine wells that have been drilled and are waiting on completion. Production increases from these nine wells are anticipated to add 6 to 10 Mmcfe per day. All of these wells are waiting on third party completion services and should be producing by the end of May.
Production shortfalls during the third fiscal quarter were primarily related to three specific situations. The Munson #3 well in the South Angleton Field was originally completed in December and produced at a rate of approximately 5.3 Mmcf per day for about three weeks. In January, the production rate dropped dramatically and water production increased. In February, we attempted a cement squeeze to shut off the water production that we believe was channeling from another zone in the wellbore. The initial results from this workover were encouraging, and the well came back on production at rates in excess of 3.5 Mmcf per day. Subsequently, water encroachment again impaired production and the rate at the end of March was approximately 0.8 Mmcf per day. This well was originally expected to average 5 Mmcf per day for the third quarter, but instead averaged only 1 Mmcf per day.
In the Howard Ranch area, the West Madden #6-27 averaged only 590 Mcf per day during the third quarter due to water production from a single zone at the top of the perforated intervals. Winter stipulations related to the federal lease prevented the Company from beginning workover activity until mid-April. Recently, we were able to move a completion rig onto the well and are currently attempting to increase production.
In the Baffin Bay field, which was acquired in the Manti acquisition, the Company undernominated gas sales by 1 Mmcf per day, and this was not made up during the third quarter. The operator has acknowledged the situation, which has been corrected for future periods.
Events During the Third Quarter of FY2005
• On January 21, 2005, the Company completed the purchase of producing properties in the Texas Gulf Coast from Manti Resources, Inc.
• On March 15, 2005 the Company announced a $150 million offering of senior unsecured notes (due 2015) priced with a coupon of 7%. The proceeds were used to reduce borrowings under the Company’s senior secured revolving credit facility.
• During the quarter, Delta addressed many of its staffing issues and hired 11 new employees primarily in the operations and accounting areas.
• The Company implemented an automated production accounting system to improve the timeliness and quality of production reporting.
• On April 6, 2005, subsequent to the close of the third quarter, the Company announced its acquisition of 90% of DHS Drilling Company, which will provide contract drilling services within the Rocky Mountain region. See the discussion under “DHS Drilling Company.”
• The relocation of Delta’s corporate offices was completed, and a district office was opened in Houston, TX.
• The Company completed the tap into the Cheyenne Plains Pipeline, along with related gathering and compression facilities, in Washington County, CO.
While management is pleased with these accomplishments, the Company recognizes that a systemic change affecting the exploration and production sector will have adverse consequences for the foreseeable future. A current shortage of drilling and completion rigs and the personnel to operate those rigs, along with a shortage of high-pressure pumping equipment and crews for completion services, are increasing the cost of drilling and completing wells and extending the length of time between drilling and initial production. Although efforts are underway to mitigate some of these issues via increased investment in drilling capabilities, management expects the Company to continue suffering from a tight completion service sector. The average time between reaching total depth and initial production from a given well has increased significantly over the past twelve months.
ADDITIONAL INFORMATION
Core Area Drilling Activity
Howard Ranch Anticline, Fremont County, WY
Delta is currently drilling the Diamond State 36-31, which has reached a depth of approximately 16,500 feet enroute to total proposed depth of 18,000 feet. The well should be completed in the fourth quarter of FY2005. The mud log shows, and increased drilling mud weights (which indicates over pressuring) experienced in the Lance formation, are very encouraging. A third well will be spud in mid-May with a DHS Drilling Co. rig and will remain in the Howard Ranch area to drill continuously.
Newton Field, Newton County, TX
During the previous quarter, the Newton Field experienced delays in timely completions due to difficulties in obtaining third party completion services. As drilling activity in the field has increased, the Company has made progress in reducing the time between when a well is drilled and the onset of initial production. Four wells in the field were completed during the third quarter and such wells are performing as expected.
Also as previously communicated, during the second quarter and early in the third quarter, the Company experienced periods of intermittent and/or curtailed production because new compressors could not operate efficiently on the rich (approximately 1,350 BTU) gas that is produced in the Newton Field. This problem has been remedied via the installation of a facility to strip the liquids and return lean gas to fuel field operations. The implementation of the dry fuel gas system identified a downstream bottleneck that is preventing the sale of all produced gas. The bottleneck is outside of Delta’s lease at a compressor station operated by a third party. Management is working with the operator of that facility to remedy the problem and expects it to be resolved in the fourth quarter. We expect to keep one drilling rig in the field continuously. The Company is also reviewing the possibility of adding a second rig to this area for accelerated development. In addition, permitting activities are underway on the Company’s exclusive 50 square-mile 3D seismic option acreage in the immediate area surrounding the Newton Field. Data collection is expected to begin late in the fourth quarter FY2005.
North Hagist Ranch Field, McMullen County, TX
Delta drilled the Acker #4 in the North Hagist Ranch Field during the third fiscal quarter and ran production casing on March 31st. The Company is currently waiting to complete the well and expects to have frac crews available by mid-May. Based on log analysis, sample descriptions and mud log characteristics, the well compares very favorably with the Acker #3, which has produced in excess of 4 Bcfe to date.
South Angleton Field, Brazoria County, TX
During the third quarter, the Company completed the Williamson #8 well, which had an initial production rate of approximately 1.1 Mmcfe per day and was producing approximately 0.8 Mmcfe per day as of the end of the quarter.
Subsequent to the end of the quarter, drilling reached total depth (11,080 feet) on the Williamson #9 well, and production casing has been set. The well should be completed later this month, and the Delta Prison Farms #1 well should spud in June. Additional drilling opportunities in this area will be re-evaluated after results from the new wells are available.
At the time of the acquisition of the South Angleton Field, Delta knew that there were only a handful of drilling locations and that the field would be fully developed within 12 to 18 months. However, management did expect that development drilling would result in more significant near term production increases than has been realized to date.
Eastern DJ Basin, Washington County, CO
Two new wells were drilled and 17 previously drilled wells were completed in the third quarter. Two of the 17 previously drilled wells were plugged and abandoned, while 15 were completed as producers. Of the two wells that were drilled during the quarter, one was completed as a producer and one was plugged. Average initial production rates on the completed wells have trailed expectations based on the regional average. The wells were all drilled on the eastern part of Delta’s acreage. The transitional nature of the gas-water contact in this part of the basin requires larger structures than were originally modeled, and management does not believe these results are indicative of expectations across the Company’s entire leasehold position. As a result, we believe that there are approximately 15 to 25 remaining locations to drill in our Phase I seismic area. The last several wells drilled subsequent to the end of the third quarter were based on revised geologic interpretation, and log characteristics are very encouraging. Delta expects to drill an additional eight wells in the project by fiscal year end. The Phase II seismic shoot has recently been completed and appears to have identified significant additional drilling locations based upon revised geologic models. We plan to commit one DHS drilling rig to Washington County that will drill continuously.
Vega Unit, Mesa County, CO
Currently, four wells are producing in the Vega Unit, and a DHS drilling rig is scheduled to move to the unit in June to develop the field on a continuous basis. This area will also be evaluated for accelerated development, and a second DHS rig may be moved into the area by late summer.
New Transactions / Subsequent Events
DHS Drilling Company
As mentioned above, on April 6, 2005, we announced the acquisition of 90% of DHS Drilling Company (“DHS”). DHS will be operated by Bill Sauer, Jr. and Harold Hastings, the former managers of Sauer Drilling Company.
DHS currently owns six drilling rigs, with depth capacities ranging from 10,000 feet to 18,000 feet, all of which are located within the Rocky Mountain region. Delta has a call on the utilization of all of the rigs, three of which are currently under contract to drill on the Company’s properties.
Columbia River Basin, WA
On May 4, 2005, Delta entered into an agreement with Savant Energy (“Savant”), a private company, to acquire a significant additional acreage position in the Columbia River Basin. Delta will acquire a 14.25% back-in working interest in approximately 427,000 acres for $18.2 million. This leasehold is under the original acreage agreement between EnCana Oil and Gas (USA) Inc. and Savant. It includes the lease on which the Anderville Farms #1-6 well is currently being drilled. The leasehold is also in close proximity to other existing leases owned by Delta. The interest acquired is a non-cost-bearing interest with a back-in after project payout. However, Delta can at anytime (at its election) convert the interest to a cost-bearing working interest by paying its proportionate share of the project’s costs to date at such time.
The Company will host an investor conference call at 12:00 p.m. noon (Eastern Daylight Time) today, Monday, May 9, 2005. Shareholders and other interested parties may participate in the conference call by dialing 800-938-0653 (international/local participants dial 973-935-2408) a few minutes before 12:00 noon EDT. A replay of the conference call will be available two hours after the completion of the call (from May 9, 2005 until May 16, 2005), by dialing 877-519-4471 (US/Canada) or 973-341-3080 (international/local participants) and entering the conference ID 6034974.
Delta Petroleum Corporation is an oil and gas exploration and development company based in Denver, Colorado. The Company’s core areas of operations are the Gulf Coast and Rocky Mountain Regions, which comprise the majority of its proved reserves, production and long term growth prospects. Its common stock is traded on NASDAQ under the symbol ``DPTR'' and on the Frankfurt Stock Exchange under the symbol ``DPE.''
Forward-looking statements in this announcement are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the costs of exploring and developing new oil and natural gas reserves, the price for which such reserves can be sold, environmental concerns effecting the drilling of oil and natural gas wells, as well as general market conditions, competition and pricing. Please refer to the Company’s Securities and Exchange Commission filings, including its Form 10-K for the year ended June 30, 2004, for additional information.
For further information contact Dave Donegan at the Company at (303) 293-9133 or via email at ddonegan@deltapetro.com
OR
RJ Falkner & Company, Inc., Investor Relations Counsel at (800) 377-9893 or via email at info@rjfalkner.com
SOURCE: Delta Petroleum Corporation
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
2005 2004
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,850 $ 2,078
Marketable securities available for sale 1,002 912
Trade accounts receivable, net 26,184 9,092
Prepaid assets 1,755 1,136
Inventory 3,583 1,350
Other current assets 1,107 385
Total current assets 41,481 14,953
Property and Equipment:
Oil and gas properties, successful efforts method of accounting
Unproved 105,593 136,467
Proved 306,717 136,425
Drilling and trucking equipment 12,336 3,965
Other 2,777 1,147
Total property and equipment 427,423 278,004
Less accumulated depreciation and depletion (35,025) (21,665)
Net property and equipment 392,398 256,339
Long term assets:
Investment in LNG project 1,022 1,022
Deferred financing costs 5,754 131
Partnership net assets 125 259
Total long term assets 6,901 1,412
$ 440,780 $ 272,704
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 104 $ 109
Accounts payable 33,109 12,326
Other accrued liabilities 2,490 1,855
Derivative instruments 6,744 -
Total current liabilities 42,447 14,290
Long-term Liabilities:
7% senior unsecured notes 149,253 -
Credit facility 27,000 69,375
Asset retirement obligation 3,228 2,542
Derivative instruments 2,841 -
Other debt, net 270 255
Total long-term liabilities 182,592 72,172
Minority Interest - 245
Commitments
Stockholders' Equity:
Preferred stock, $.10 par value; authorized 3,000,000 shares,
none issued - -
Common stock, $.01 par value; authorized 300,000,000 shares,
issued 41,488,000 shares at March 31, 2005 and 38,447,000
at June 30, 2004 415 384
Additional paid-in capital 234,111 207,811
Accumulated other comprehensive income (loss) (8,962) 342
Unearned compensation (977) -
Accumulated deficit (8,846) (22,540)
Total stockholders' equity 215,741 185,997
$ 440,780 $ 272,704
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2005 2004
(In thousands except per share amounts)
Revenue:
Oil and gas sales $ 24,578 $ 10,594
Drilling and trucking 2,332 -
Loss on derivative instruments, net (344) (286)
Total revenue 26,566 10,308
Operating expenses:
Lease operating expense 4,410 2,035
Production taxes 1,509 471
Transportation costs 113 75
Depreciation, depletion and amortization 5,393 3,085
Exploration expense 1,663 1,698
Dry hole costs 19 210
Drilling and trucking operations 2,012 -
Professional fees 411 308
General and administrative 4,202 1,722
Total operating expenses 19,732 9,604
Operating income 6,834 704
Other income and (expense):
Other income (expense) (161) 43
Minority interest 403 -
Interest and financing costs (2,136) (373)
Total other expense (1,894) (330)
Income from continuing operations 4,940 374
Discontinued operations:
Income from operations of properties sold, net - 298
Gain on sale of properties - 1,782
Net income $ 4,940 $ 2,454
Basic income per common share:
Income from continuing operations $ 0.12 $ 0.01
Discontinued operations - 0.08
Net income $ 0.12 $ 0.09
Diluted income per common share:
Income from continuing operations $ 0.12 $ 0.01
Discontinued operations - 0.07
Net income $ 0.12 $ 0.08
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
March 31,
2005 2004
(In thousands except per share amounts)
Revenue:
Oil and gas sales $ 64,235 $ 25,375
Drilling and trucking 2,632 -
Loss on derivative instruments, net (437) (666)
Total revenue 66,430 24,709
Operating expenses:
Lease operating expense 10,461 5,494
Production taxes 4,415 1,205
Transportation costs 285 193
Depreciation, depletion and amortization 14,052 6,877
Exploration expense 2,946 1,966
Dry hole costs 2,692 387
Drilling and trucking operations 3,086 -
Professional fees 1,258 920
General and administrative 10,306 4,443
Total operating expenses 49,501 21,485
Operating income 16,929 3,224
Other income and (expense):
Other income (expense) (310) 78
Minority interest 718 -
Interest and financing costs (4,372) (1,458)
Total other expense (3,964) (1,380)
Income from continuing operations 12,965 1,844
Discontinued operations:
Income from operations of properties sold, net 729 872
Gain on sale of properties - 1,754
Net income $ 13,694 $ 4,470
Basic income per common share:
Income from continuing operations $ 0.32 $ 0.07
Discontinued operations 0.02 0.11
Net income $ 0.34 $ 0.18
Diluted income per common share:
Income from continuing operations $ 0.31 $ 0.07
Discontinued operations 0.01 0.09
Net income $ 0.32 $ .0.16
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2005 2004
(In thousands)
Cash flows operations activities:
Net income $ 13,694 $ 4,470
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and depletion 13,844 6,829
Depreciation and depletion – discontinued operations &n