THX Houston Expl

HOUSTON, May 4 /PRNewswire-FirstCall/ -- The Houston Exploration Company (NYSE:THX) today reported first quarter 2006 net income of $29.8 million, or $1.02 per diluted share. This compares with $33.4 million of net income, or $1.16 per diluted share, reported in the first quarter 2005. Cash from operations before changes in operating assets and liabilities (a non-GAAP measure that is defined and reconciled in the table below) totaled $124.3 million for the quarter compared with $125.1 million reported in the first quarter 2005. First quarter 2006 daily production averaged 312 million cubic feet of natural gas equivalent per day (MMcfe/d), compared with 2005's first quarter average rate of 331 MMcfe/d. The overall 6 percent decline was primarily due to offshore volumes that have yet to be returned to production after last fall's hurricanes. However, the company's onshore production increased by 8 percent in the first quarter to an average of 202 MMcfe/d. The company's average unhedged natural gas sales price for the first quarter 2006 was $7.63 per thousand cubic feet (Mcf), compared to $5.99 per Mcf in the first quarter 2005, an increase of 27 percent. The company's average realized natural gas price for the first quarter 2006 was $5.84 per Mcf, up from $5.48 per Mcf reported during the first quarter 2005. Crude oil prices averaged $58.77 per barrel for the year's first quarter compared with $42.17 per barrel reported during the comparable 2005 period, an increase of 39 percent. Revenues for the first quarter totaled $177.6 million, compared to $165.7 million during the first three months of 2005. First quarter 2006 revenues included $41.9 million in net losses associated with the company's hedging activities. These losses were comprised of the following: * $46.5 million of net realized losses associated with the settlement of hedge contracts; and * $4.6 million of net unrealized gains resulting primarily from that portion of the company's hedge portfolio that was required to be marked-to-market during the quarter. These non-cash gains were partially offset by non-cash losses associated with hedge related production shortfalls that were deferred from the fourth quarter 2005 and other items. Lease operating, severance tax and transportation expenses for the first quarter 2006 totaled $1.10 per thousand cubic feet of natural gas equivalent (Mcfe) versus the $0.71 per Mcfe reported in the first quarter 2005. Depreciation, depletion and amortization and asset retirement accretion expenses for the quarter totaled $3.03 per Mcfe compared to $2.41 per Mcfe in the first quarter 2005. First quarter 2006 net general and administrative expenses were $0.31 per Mcfe compared to $0.37 per Mcfe in the prior year period. "We achieved solid performance from our onshore assets during the first quarter, and by leveraging our operating expertise we should be well positioned to capitalize on a number of opportunities with this portfolio in the future," stated William G. Hargett, chairman, president and chief executive officer. "As we move forward with our restructuring, we intend to maintain a balanced approach to capital allocation that includes returning capital to shareholders, investing in the company's continued growth, and preserving our financial flexibility. This approach has rewarded our shareholders both past and present, and we believe this strategy should create additional value long into the future." Strategic Update * The company continues to further its restructuring efforts to become a pure onshore operator, as highlighted by the recent announcements to sell substantially all of its Gulf of Mexico assets. * The company sold the Texas portion of its Gulf of Mexico assets, which included 58.5 billion cubic feet of natural gas equivalent (Bcfe) of estimated proved reserves, for $220 million, prior to adjustments. This transaction closed on March 31, 2006. * The company entered into an agreement to sell the Louisiana portion of its Gulf of Mexico assets, which includes 186.1 Bcfe of estimated proved reserves, for $590 million, prior to adjustments. This transaction is expected to close on May 31, 2006. * On April 25, 2006, the company completed a tactical acquisition of proved reserves in East Texas totaling 16.2 Bcfe for a gross purchase price of $22 million ($1.36 per Mcfe). Production from these assets is currently 2.4 MMcfe per day, net. * The company announced its estimated 2006 capital spending program of $521 million, which includes $443 million in the onshore region. The company's estimated 2006 production is 91 Bcfe, which includes a 9 percent increase for onshore production to 75 Bcfe. 2006 Guidance Houston Exploration has prepared the following table to assist with understanding the company's estimated financial results and near-term performance based on current expectations. The offshore figures reflect the sale of the Texas portion of the Gulf of Mexico assets on March 31, 2006, and assume the sale of the Louisiana portion of the Gulf of Mexico assets on May 31, 2006. Note that these figures are estimates and do not include additional capital spending for potential acquisitions. Various factors that could materially impact the results are noted below in the forward-looking statements of this release. Full-Year 2006 Guidance Offshore Onshore Total Capital Spending (MM$) E&D $ 53 $ 421 $ 474 Acquisition(s) --- 22 22 Subtotal $ 53 $ 443 $ 496 Capitalized Interest, G&A and other 25 Total $ 521 Production Total (Bcfe) 16 75 91 Percent hedged n/a n/a 81% (A) (A) Assumes unwinding 80,000 MMBtu/d for the period June - Dec. 2006 following the Gulf of Mexico asset sale. Average daily (MMcfe/d) 44 205 249 2006 Exit rate (MMcfe/d) n/a 225 225 2006 Exit rate, percent hedged 13% (B) (B) Based on existing 2007 hedge portfolio of 30,000 MMBtu/d. Unit Costs ($/Mcfe) Lease operating expense 1.04 0.58 0.66 Severance tax n/a 0.27 0.23 Transportation 0.04 0.14 0.12 DD&A and ARO n/a n/a 2.96 General and administrative, net n/a n/a 0.35 Interest expense, net n/a n/a 0.30 Second Quarter 2006 Guidance Offshore Onshore Total Capital Spending (MM$) E&D $ 6 $ 105 $ 111 Acquisition(s) --- 22 22 Subtotal $ 6 $ 127 $ 133 Capitalized Interest, G&A and other 6 Total $ 139 Production Total (Bcfe) 7 18 25 Percent hedged n/a n/a 81% (C) (C) Assumes unwinding 80,000 MMBtu/d for the month of June 2006 following the Gulf of Mexico asset sale. Average daily (MMcfe/d) 75 202 277 Unit Costs ($/Mcfe) Lease operating expense 1.00 0.56 0.67 Severance tax n/a 0.27 0.20 Transportation 0.03 0.15 0.12 DD&A and ARO n/a n/a 2.98 General and administrative, net n/a n/a 0.31 Interest expense, net n/a n/a 0.26 The company will hold a conference call on Thursday, May 4, at 10:00 a.m. Central Time to further review the quarter's financial and operational results. To access the call, dial (800) 230-1093 prior to the start and provide the confirmation code 825828. In addition, a listen-only webcast of the call can be accessed at http://www.houstonexploration.com/ . A replay of the call and an archive of the webcast will both be available for one week beginning at approximately 12:00 p.m. Central Time on May 4. Dial (800) 475-6701 and provide the confirmation code 825828, or access the company's Web site for either of these services. About Houston Exploration: The Houston Exploration Company is an independent natural gas and crude oil producer engaged in the development, exploitation, exploration and acquisition of natural gas and crude oil properties. The company's operations are focused in South Texas, the Gulf of Mexico, the Arkoma Basin, East Texas, and the Rocky Mountains. For more information, visit the company's Web site at http://www.houstonexploration.com/ . Forward-looking statements: This news release and oral statements regarding the subjects of this release contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act. All statements other than statements of historical fact included in this press release are forward- looking statements and reflect the company's current expectations and are based on current available information and numerous assumptions. Important factors that could cause actual results to materially differ from the company's current expectations include, among others, the business outlook, commodity prices, the risks associated with the consummation and successful integration of acquisitions, the impact of hurricanes, the risk of future writedowns, the impact of hedging activities, the accuracy of estimates of reserves and production rates, production and spending requirements, the inability to meet substantial capital requirements, the ability to complete the announced divestiture of the company's remaining offshore assets and effect qualified like-kind exchange transactions to maximize tax efficiencies, the impact of onshore asset concentration, the market and other factors for stock repurchases, the constraints imposed by the company's outstanding indebtedness, the relatively short production life of the company's reserves, reserve replacement risks, drilling risks and results, the competitive nature of the industry, and other risks and factors inherent in the exploration for and production of natural gas and crude oil discussed in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2005. The company assumes no responsibility to update any of the information referenced in this news release. Contact: The Houston Exploration Company Melissa R. Aurelio 713-830-6887 The Houston Exploration Company Three Months Ended March 31, 2006 2005 Unaudited Income Statement Data: (in thousands, except per share data) Revenues Natural gas revenues $198,505 $163,969 Oil revenues 20,453 17,120 Gain (loss) on settled derivatives (46,525) (14,175) Unrealized gain (loss) on settled derivatives 4,586 (1,424) Other 585 230 Total revenues 177,604 165,720 Operating expenses Lease operating 21,812 15,368 Severance tax 6,159 2,934 Transportation 2,771 2,766 Asset retirement accretion 1,327 1,325 Depreciation, depletion and amortization 83,761 70,603 General and administrative, net 8,606 11,123 Total operating expenses 124,436 104,119 Income from operations 53,168 61,601 Other (income) and expense (1,407) 1,454 Interest expense 10,376 5,424 Capitalized interest (1,655) (1,990) Interest expense, net 8,721 3,434 Income before taxes 45,854 56,713 Provision for income tax Current 4,558 7,704 Deferred 11,524 15,571 Total provision for taxes 16,082 23,275 Net income $ 29,772 $ 33,438 Earnings per share Basic $ 1.03 $ 1.17 Diluted $ 1.02 $ 1.16 Weighted average shares 29,042 28,499 Weighted average shares - diluted 29,310 28,871 Three Months Ended March 31, 2006 2005 Operating Data: Production Natural gas (MMcf) Onshore 17,816 16,680 Offshore 8,207 10,677 Total 26,023 27,357 Oil (MBbls) Onshore 67 23 Offshore 281 383 Total 348 406 Total Equivalent (MMcfe) Onshore 18,218 16,818 Offshore 9,893 12,975 Total 28,111 29,793 Average daily production (MMcfe/d) Onshore 202 187 Offshore 110 144 Total 312 331 Average sales price Natural gas - unhedged ($/Mcf) $ 7.63 $ 5.99 Natural gas - realized ($/Mcf) (D) 5.84 5.48 Oil - unhedged ($/Bbl) 58.77 42.17 Oil - realized ($/Bbl) (D) 58.77 42.17 (D) Realized prices include the effects of gains and losses on contracts settled during the period, and do not include unrealized gains and losses recognized pursuant to SFAS 133. Three Months Ended March 31, 2006 2005 Operating Margin per Unit ($/Mcfe) Total revenues $ 6.32 $ 5.56 Lease operating (0.78) (0.52) Severance tax (0.22) (0.10) Transportation (0.10) (0.09) Asset retirement accretion (0.05) (0.04) Depreciation, depletion and amortization (2.98) (2.37) General and administrative, net (0.31) (0.37) Total operating margin $ 1.88 $ 2.07 March 31, December 31, 2006 2005 Unaudited Balance Sheet Data: (in thousands, except debt-to-capitalization) Assets Cash and equivalents $ 19,538 $ 7,979 Accounts receivable 115,012 146,020 Inventories 3,407 2,726 Deferred tax asset 38,952 145,922 Prepayments and other 16,500 19,709 Total current assets 193,409 322,356 Natural gas and oil properties, full-cost method Unevaluated properties 82,337 107,146 Properties subject to amortization 3,483,903 3,556,755 Other property and equipment 13,031 12,971 3,579,271 3,676,872 Less: Accumulated depreciation, depletion and amortization 1,742,138 1,658,532 1,837,133 2,018,340 Other non-current assets 19,624 20,928 Total assets $2,050,166 $2,361,624 Liabilities Accounts payable and accrued expenses $ 132,234 $ 177,159 Derivative financial instruments 103,080 352,457 Asset retirement obligation 6,967 7,265 Total current liabilities 242,281 536,881 Long-term debt and notes 424,000 597,000 Deferred federal income taxes 339,190 341,302 Derivative financial instruments 46,370 65,201 Asset retirement obligation 85,009 112,406 Other non-current liabilities 13,943 15,696 Total liabilities 1,150,793 1,668,486 Stockholders' Equity Common stock 291 289 Additional paid-in capital 303,391 297,218 Retained earnings 693,139 663,367 Accumulated other comprehensive income (97,448) (267,736) Total stockholders' equity 899,373 693,138 Total liabilities and stockholders' equity $2,050,166 $2,361,624 March 31, Dec. 31, 2006 2005 Additional Unaudited Information: Total debt-to-capitalization 32.0% 46.3% Three Months Ended March 31, 2006 2005 Unaudited Cash Flow Data: (in thousands) Operating Activities Net income $ 29,772 $ 33,438 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax expense 11,524 15,571 Depreciation, depletion and amortization 83,761 70,603 Unrealized (gain) loss on derivative instruments (4,586) 1,424 Other non-cash adjustments 3,844 4,061 Changes in operating assets and liabilities (2,194) 8,262 Net cash provided by operating activities 122,121 133,359 Investing Activities Investment in property and equipment (130,591) (131,138) Dispositions and other 189,371 150 Net cash provided by (used in) investing activities 58,780 (130,988) Financing Activities Net repayments of long-term borrowings (173,000) (15,000) Proceeds and tax benefits from issuance of common stock from exercise of stock options 3,658 7,812 Net cash provided by (used in) financing activities (169,342) (7,188) Increase (decrease) in cash $ 11,559 $ (4,817) Cash at beginning of period 7,979 18,577 Cash at end of period $ 19,538 $ 13,760 Unaudited Non-GAAP Financial Measures: Cash from operations represents net cash provided by operating activities before changes in operating assets and liabilities. Cash from operations is presented because management believes it is a useful adjunct to net cash provided by operating activities under accounting principles generally accepted in the United States (GAAP). Cash from operations is widely accepted as a financial indicator of an oil and gas company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. Cash from operations is not a measure of financial performance under GAAP and should not be considered an alternative to net income. The table below reconciles cash from operations to net cash provided by operating activities as disclosed on the statement of cash flows. Three Months Ended March 31, Reconciliation of Non-GAAP Measures: 2006 2005 (in thousands) Cash from operations before changes in operating assets and liabilities $124,315 $125,097 Plus: changes in operating assets and liabilities (2,194) 8,262 Net cash provided by operating activities $122,121 $133,359 DATASOURCE: The Houston Exploration Company CONTACT: Melissa R. Aurelio of The Houston Exploration Company, +1-713-830-6887, or Web site: http://www.houstonexploration.com/

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