DELTA PETROLEUM CORPORATION
Roger A. Parker, President, CEO and Chairman
Kevin K. Nanke, CFO
Dave Donegan, VP Corporate Communications
370 Seventeenth Street, Suite 4300
Denver, Colorado 80202
INCREASE IN PROVED RESERVES SINCE JUNE 30, 2005
PROVED RESERVES REACHED 238 Bcfe FROM NEW DRILLING ACTIVITY, SAVANT RESOURCES ACQUISITION AND NET OF DEERLICK CREEK FIELD DIVESTITURE
DENVER, Colorado (November 7, 2005) -- Delta Petroleum Corporation (NASDAQ: DPTR), an independent energy exploration and development company, today reported its operating results for the quarter ended September 30, 2005.
For the quarter ended September 30, 2005, DPTR reported a net loss of $2.2 million, or $0.05 per diluted share, compared with net income of $3.9 million, or $0.09 per diluted share, in the corresponding period of the previous year. Losses were primarily due to natural gas price changes in the gulf coast, resulting in our natural gas derivative hedges becoming ineffective and the related changes in fair value being reflected in earnings during the quarter ended September 30, 2005.
Net loss for the quarter reflects the following items, pre-tax:
On a pro forma basis, if the above items were excluded from operating results in the most recent quarter, the Company’s net income would have approximated $2.3 million, or $0.05 per diluted share.
For the quarter ended September 30, 2005, total revenue from continuing operations increased 76% to $32.0 million, compared with $18.2 million in the same period in the prior year. Revenue for the quarter ended September 30, 2005 was negatively impacted by a realized loss on derivative instruments of $2.7 million, versus no hedging gain or loss in the year-earlier period.
Production for the quarter increased 11% to approximately 3.7 Bcfe, compared with approximately 3.3 Bcfe in the prior-year period. Production from continuing operations rose 20% to approximately 3.5 Bcfe, versus approximately 2.9 Bcfe in the same quarter last year. Production in the quarter was negatively impacted by approximately 260 Mmcfe of shut in production related to Hurricane Rita and other associated downtime. Effective July 1, 2005, the Company sold its operated Deerlick Creek Field in Tuscaloosa County, Alabama, and later during the quarter sold small interests in numerous non-operated wells. In aggregate, approximately 4 Mmcfe of net daily production was sold during the quarter ended September 30, 2005.
Average prices realized for the quarter ended September 30, 2005 approximated $60.39 per barrel of onshore oil production, $49.23 per barrel of offshore oil production and $8.25 per Mcfe of natural gas production.
The Company’s depletion rate increased to $2.70 per Mcfe for onshore properties which can be attributed to its focus on multi-stage completion projects. It takes several months to complete wells in some of these projects and a majority of the related well costs are initially depleted using only those zones producing by the end of the quarter. As additional zones are completed up-hole, the depletion rate will decrease.
The higher expenses related to drilling operations reflect an increase in the size of the Company’s drilling rig fleet. DHS had seven rigs running during the quarter. There are currently eight rigs in operation with the expectation of having ten rigs in the field by calendar year end.
General and administrative expenses rose as the Company increased its staff. Management believes the Company has now achieved the technical staffing levels necessary to accommodate its significantly increased capital expenditures. Equity compensation expense of $1.5 million is included in general and administrative expenses and incorporates the adoption of SFAS 123(R), which requires the recognition of stock options and other equity based compensation.
Quarter Ended September 30, 2005 Accomplishments:
· Acquired 145,000 net undeveloped acres in the Columbia River Basin in Washington and 6,314 gross acres that are currently being developed in the Piceance Basin in Colorado for $85 million.
· Successfully closed $100 million private placement to fund the acquisition.
· Successfully divested the Deerlick Creek field in Tuscaloosa County, Alabama for net proceeds of $29 million resulting in a gain on sale of oil and gas properties of $9.8 million, net of tax.
Production and Drilling Activity:
Since the last operations update on September 13, 2005, the Company has completed, recompleted or continued to complete eight wells. These wells are currently producing at an aggregate net rate of approximately 5.2 Mmcfe per day. Seven additional wells have been cased and are awaiting completion and ten wells are currently being drilled.
Wind River Basin, Wyoming
In the Howard Ranch development project, DHS Drilling Company Rig #1 reached total depth of 18,520’ at the Diamond State 36-13 (100% WI) in early October. In late October, the Company began producing from the lowermost sands of the Mesaverde Formation. This well drilled deeper into the Mesaverde section and encountered an additional 100’ of net pay. The first zones completed are producing 1.5 Mmcf per day with no water. Although this only represents a small portion of the overall net pay, the Company is very encouraged by the initial flow rates and believes the well will ultimately achieve reserve expectations.
This project as with other unconventional tight gas sand projects is expected to initially produce significant amounts of water. As such, we have experimented with gas lift as a mechanism to allow for more efficient and consistent production. Although results are early, the West Madden 6-27 (100% WIBPO, 70% WIAPO) and the zones that have been completed in the Diamond State 36-31 (100% WI) are exhibiting good response. Current production from these two wells is approximately 2 Mmcf per day and 700 Bbls water per day. Water production is expected to decline and gas production is expected to increase. Testing and flowback of individual zones in the Diamond State 36-31 support significant reserve recoveries and are partly responsible for increases in proved reserves during the period.
DHS Rig #1 is currently drilling the Copper Mountain Unit #35-13 (100% WI), located one mile west of the Diamond State 36-13, at a depth of 7,600’ with a proposed total depth of 18,500’. DHS Rig #7 is drilling the Gates Butte Unit #10-17 (50% WI) at a current depth of 10,700’ going to a total depth of 14,700’. The Gates Butte Unit well is located on a federal lease that is subject to winter stipulations. The Company expects the well to reach total depth after the winter stipulations would have normally become effective and will need a short-term exception from the Bureau of Land Management to complete the well.
Piceance Basin, Colorado
In the Vega Unit (100% WI), DHS Rig #5 has drilled three wells and is currently drilling a fourth well. Two of the three wells are awaiting completion and will be completed next week. The first new well drilled in Vega was completed in late September, came on line with an initial flow rate of approximately 1.2 Mmcfe per day, and is currently producing approximately 1.1 Mmcfe per day.
In the Garden Gulch Field (Piceance Gas Resources, Delta 25% WI), two rigs are currently drilling. Subsequent to the Savant Resources acquisition which closed on September 30, 2005, two additional wells have been drilled and are awaiting completion.
This basin represents an area of multiple location proved reserve growth with each new well drilled. Proved reserve additions were experienced during the quarter and are expected to increase in the future.
Newton County, Texas
In the Newton Field (100% WI) the Company has drilled four wells since the last update. One of the wells has recently been completed and three are awaiting completion. Current field production approximates 11.5 Mmcfe per day. The Company plans to move DHS Rig #9 to the field by year end accelerating development of the field with two rigs. This rate of development should allow field production to double by mid-2006.
Delta has completed the data acquisition phase of its 50 square mile 3D seismic survey in Newton County. Processing and interpretation of the data should be complete by year-end.
Columbia River Basin, Washington
As previously announced EnCana Oil and Gas (USA), Inc. (“EnCana”) has contracted DHS Rig #7 which will move to the Columbia River Basin upon completion of the Gates Butte 10-17 well at the end of November. EnCana is currently drilling at the Anderville Farms 1-6 (15% WIAPPO) location.
Other Development Activity:
Paradox Basin, Colorado and Utah
In the Rocky Mountain Region, the Company is preparing to drill its first test well (70% WI) in the Paradox Basin. The Company has approximately 80,000 gross acres and 50,000 net acres in the basin and will target three separate unconventional resource prospects. The first prospect to be tested will target a thick section of self-sourcing inter-bedded shale, sands and carbonates encased in a salt section located along a large anticline. Numerous older vintage wells have penetrated this section and tested significant gas. We expect that reserve recoveries could be in the range of 1 - 4 Bcfe per well at drilling depths of 6,500’ to 9,500’.
Upper Gulf Coast, Texas
The Company is drilling a dual horizontal lateral in the “C” zone of the Austin Chalk in Polk County in response to successful recent results by other operators near its existing leasehold. In this trend, other operators are exploiting the same horizon and have experienced initial production rates as high as 20 Mmcfg per day and 2,500 Bbl oil per day. The nearest dual lateral horizontal well produced an average of 14 Mmcfg per day and 2,300 Bbl oil per day for the first month of production. That well has produced 2.2 Bcfg and 376,600 Bbl oil during its first nine months of production. The first lateral in Delta’s initial well (Best Kennesson Willsource #1) achieved 4,500’ of displacement. The second lateral is currently being drilled and both laterals should be completed and producing in early December. Delta is the operator and has an approximate 40% working interest in nine contiguous 1,200-acre spacing units scheduled for development over the next 18 months. We are anticipating ultimate recoveries of 8 – 10 Bcfe gross per well.
Central Gulf Coast, Texas
In the Company’s Opossum Hollow Field (98% WI) in McMullen County Delta is developing the deeper Sligo reserves under the existing Wilcox producing fields. The Sligo formation has produced on the large Opossum Hollow structure and is defined by the re-interpretation of the 3-D seismic survey over the field. The structure appears to have approximately 1,500 gross acres of closure and reserve expectations are in the range of 50 - 100 Bcfe recoverable. The Company plans to spud a Sligo well by early December.
Investor Conference Call:
The Company will host an investor conference call at 1:00 p.m. EST on Tuesday November 8, 2005. Shareholders and other interested parties may participate in the conference call by dialing 800-938-0653 (international/local participants dial 973-935-2408) and referencing the ID code 6673493, a few minutes before 1:00 p.m. EST on November 8, 2005. The call will also be broadcast live on the Internet at http://phx.corporate-ir.net/playerlink.zhtml?c=117007&s=wm&e=1157784 or can be accessed through the Company’s website http://www.deltapetro.com/eventscalendar.html. A replay of the conference call will be available two hours after the completion of the conference call from November 8, 2005 until November 15, 2005 by dialing 877-519-4471 (international/local participants dial 973-341-3080) and entering the conference ID 6673493. The call will also be archived on the Internet through February 6, 2006 at http://phx.corporate-ir.net/playerlink.zhtml?c=117007&s=wm&e=1157784.
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.''
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 for additional information.
For further information contact the Company at (303) 293-9133 or via email at info@deltapetro.com
OR
RJ Falkner & Company, Inc., Investor Relations Counsel at (800) 377-9893 or via email at
SOURCE: Delta Petroleum Corporation
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
2005 2005
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 24,077 $ 2,241
Marketable securities available for sale - 1,764
Trade accounts receivable, net 18,770 10,512
Prepaid assets 5,510 2,980
Inventory 4,216 5,062
Deferred tax asset 9,013 2,676
Derivative instruments 137 378
Other current assets 2,253 1,421
Total current assets 63,976 27,034
Property and Equipment:
Oil and gas properties, successful efforts method of accounting
Unproved 186,988 101,935
Proved 389,308 365,306
Drilling and trucking equipment 54,045 40,031
Other 10,469 10,412
Total property and equipment 640,810 517,684
Less accumulated depreciation and depletion (53,157) (44,134)
Net property and equipment 587,653 473,550
Long term assets:
Investment in LNG project 1,022 1,022
Deferred financing costs 5,571 5,825
Deferred tax asset 7,240 4,887
Derivative instruments 321 469
Partnership net assets 630 196
Total long term assets 14,784 12,399
$ 666,413 $ 512,983
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 7,072 $ 3,477
Accounts payable 46,859 38,151
Other accrued liabilities 8,153 5,281
Derivative liabilities 23,489 7,241
Total current liabilities 85,573 54,150
Long-term Liabilities:
7% senior unsecured notes 149,291 149,272
Credit facility 56,000 66,500
Term loan – DHS 28,000 -
Asset retirement obligation 2,920 2,975
Derivative liabilities 8,925 3,620
Other debt, net 99 229
Total long-term liabilities 245,235 222,596
Minority Interest 15,215 14,614
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 47,683,000 shares at September 30, 2005 and 42,017,000
at June 30, 2005 477 420
Additional paid-in capital 340,930 235,300
Unearned compensation (3,517) (1,382)
Accumulated other comprehensive loss (7,847) (5,225)
Accumulated deficit (9,653) (7,490)
Total stockholders' equity 320,390 221,623
$ 666,413 $ 512,983
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
2005 2004
(In thousands except per share amounts)
Revenue:
Oil and gas sales $ 31,560 $ 18,098
Drilling income 3,110 119
Realized loss on derivative instruments, net (2,692) -
Total revenue 31,978 18,217
Operating expenses:
Lease operating expense 4,798 2,534
Transportation expense 478 116
Production taxes 2,221 1,293
Depreciation , depletion and amortization – oil and gas 9,468 4,734
Depreciation and amortization – drilling 942 143
Exploration expense 851 536
Dry hole costs 1,764 2,254
Drilling expenses 2,115 436
Professional fees 734 346
General and administrative
(includes equity compensation of $1,528 and zero, respectively) 6,638 2,590
Total operating expenses 30,009 14,982
Operating income 1,969 3,235
Other income and (expense):
Other income 64 34
Gain on sale of marketable securities, net 1,194 -
Unrealized loss on derivative contracts (18,843) -
Minority interest (531) 81
Interest and financing costs (4,019) (883)
Total other expense (22,135) (768)