THX Houston Expl

HOUSTON, Nov. 8 /PRNewswire-FirstCall/ -- The Houston Exploration Company (NYSE:THX) today reported third quarter 2006 net income of $34.0 million, or $1.22 per diluted share. This compares to $8.1 million of net income, or $0.28 per diluted share, reported in the third quarter 2005. Excluding certain items described below and in the attached schedules, the company's adjusted net income for the third quarter 2006 was $20.0 million, or $0.72 per diluted share, versus $1.30 per diluted share in the third quarter 2005 on a comparable basis. Cash from operations before changes in operating assets and liabilities totaled $86.2 million for the quarter compared to $138.9 million reported in the third quarter 2005. The comparability of the company's third quarter and year-to-date 2006 results to those of the prior year were impacted by the sale of substantially all of the company's Gulf of Mexico assets during the first half of 2006. Adjusted net income and cash from operations before changes in operating assets and liabilities are non-GAAP financial measures that are defined and reconciled to GAAP measures in the attached schedules. "I am pleased with our overall performance in this, our first full quarter as predominantly an onshore operator," stated William G. Hargett, chairman, president and chief executive officer. "Despite a challenging price environment, our third quarter production growth, coupled with our healthy balance sheet and liquidity position, provides us with a strong platform for growth in 2007." Third Quarter 2006 Consolidated Results Daily production for the third quarter 2006 averaged 204 million cubic feet of natural gas equivalent per day (MMcfe/d), compared to 308 MMcfe/d in the third quarter 2005. This 34 percent decline was primarily due to the sale of substantially all of the company's Gulf of Mexico assets during the first half of 2006. The company's average unhedged natural gas sales price for the third quarter 2006 was $5.85 per thousand cubic feet (Mcf), compared to $8.15 per Mcf in the third quarter 2005. The company's average realized natural gas price for the third quarter 2006 was $5.70 per Mcf, compared to $5.78 per Mcf reported during the third quarter 2005. Crude oil prices averaged $59.86 per barrel for this year's third quarter compared to $54.08 per barrel reported during the comparable 2005 period. Revenues for the third quarter 2006 totaled $131.3 million, compared to $125.4 million during the third quarter 2005. Total revenues for the third quarter 2006 included $19.9 million of net gains associated with the company's natural gas hedging activities, compared to $108.1 million of net losses in the third quarter 2005. The current period net gains of $19.9 million were comprised of the following: * $1.8 million of realized losses associated with the settlement of hedge contracts; * $0.9 million of realized losses associated with the unwinding of certain hedge contracts following the sale of the company's Gulf of Mexico assets; and * $22.6 million of net unrealized gains resulting primarily from changes in the fair value of the company's hedge portfolio, all of which is now being accounted for using mark-to-market accounting. The company's lease operating, severance tax and transportation expenses for the third quarter 2006 totaled $1.04 per thousand cubic feet of natural gas equivalent (Mcfe) versus $0.89 per Mcfe reported in the third quarter 2005. Total depreciation, depletion and amortization and asset retirement accretion expenses for the quarter were $2.83 per Mcfe compared to $2.61 per Mcfe in the third quarter 2005. Third quarter 2006 net general and administrative expenses were $0.50 per Mcfe compared to $0.36 per Mcfe in the prior year period. Third Quarter 2006 Onshore Results The company's onshore production increased by 10 percent during the third quarter 2006, to an average rate of 204 MMcfe/d, compared to 185 MMcfe/d during the third quarter 2005. The company's average unhedged natural gas sales price for its onshore production was $5.86 per Mcf for the third quarter 2006, compared to $7.75 per Mcf in the third quarter 2005. This 24 percent decline in price more than offset the 10 percent increase in production, resulting in a 15 percent decline in onshore oil and gas revenues during the quarter, to $112.5 million, from $132.0 million during the third quarter 2005. Onshore lease operating, severance tax and transportation expenses during the third quarter 2006 totaled $1.03 per Mcfe compared to $0.82 per Mcfe reported in the third quarter 2005. Strategic Restructuring Plan Update Since November 2005, Houston Exploration has been implementing a strategic restructuring plan, the primary purpose of which is to improve the company's financial and operating performance by focusing its operations onshore. The following is a recap of the key restructuring milestones achieved to date, along with an update on certain related initiatives: Recap of Key Milestones * In March 2006, the company completed the sale of 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 at year-end 2005, for a gross sales price of $220 million. * In May 2006, the company initiated activity under its share repurchase program. To date, the company has repurchased 1,176,500 shares of its common stock, or approximately 4 percent of its outstanding shares, for approximately $61.6 million. * In June 2006, the company completed the sale of substantially all of the Louisiana portion of its Gulf of Mexico assets, which included 186.1 Bcfe of estimated proved reserves at year-end 2005, for a gross sales price of $590 million. Net cash proceeds from the sale totaled $530.8 million, of which $314.2 million was deposited with qualified intermediaries for potential reinvestment in like-kind exchange transactions under Section 1031 of the Internal Revenue Code. The remaining balance of these escrowed funds is shown on the company's balance sheet as designated cash. * In June 2006, and in connection with the sale of its Gulf of Mexico assets, the company completed the unwinding of natural gas hedges totaling 60,000 million British thermal units per day (MMBtu/d) for the period July 2006 through December 2006 for a cost of $14.3 million. * In June 2006, the company announced that its Board of Directors had engaged Lehman Brothers to assist the company in an evaluation of a broad range of strategic alternatives. This evaluation is ongoing. Update on Related Initiatives * In August 2006, following the sale of its Gulf of Mexico assets, the company elected to unwind natural gas hedges totaling 20,000 MMBtu/d for the period September 2006 through October 2006 for a cost of $0.9 million. * On November 27, 2006, the 180-day time period prescribed by Section 1031 for reinvestment of the company's designated cash associated with the sale of its offshore Louisiana assets will expire. Currently, the company does not expect to complete any qualifying like-kind exchange transactions prior to that expiry date. As a result, the company anticipates that during the fourth quarter 2006, (i) the remaining balance of the company's designated cash will be released from escrow and reclassified as cash, and (ii) a tax gain of $250 million to $260 million on the sale of the company's offshore assets will be recognized. The company estimates that, after considering available net operating losses, alternative minimum tax credits and other corporate tax attributes, this gain will result in a current net income tax liability of $35 million to $40 million. * The company is continuing to explore a broad range of strategic alternatives. These alternatives may complement or replace the continued execution of the company's existing business plan and include, but are not limited to, a recapitalization of the company either through additional share repurchases or a special dividend; operating partnerships and/or strategic alliances; and the sale or merger of the company. The company does not expect to make any public comments regarding this process until after the company's Board of Directors has completed its review of the strategic alternatives and approved a definitive course of action. Guidance As described in the following table, the company has updated its guidance for the fourth quarter and full-year 2006 and for 2007. The estimated financial and operational results do not reflect any decision regarding the ongoing review of strategic alternatives and assume no additional capital spending for potential acquisitions. Other factors that could materially impact the company's actual results are noted below in the forward-looking statements section of this release. 4Q06 2006 2007 Total Onshore Offshore (A) Total Total Capital Spending (in millions) Exploration and development $121 $470 $49 $519 $466 Acquisitions 0 18 21 (B) 39 0 Subtotal $121 $488 $70 $558 $466 Capitalized interest, G&A and other 5 --- --- 26 24 Total $126 $488 $70 $584 $490 Production Total (Bcfe) 20 75 14 89 85 Average daily (MMcfe/d) 215 205 37 242 233 Percent hedged 82% N/A N/A 86% 12% (C) Unit Costs ($/Mcfe) Lease operating expense 0.64 0.64 1.23 0.73 0.66 Severance tax 0.27 0.28 N/A 0.24 0.30 Transportation 0.15 0.14 0.05 0.13 0.14 DD&A and ARO 2.80 N/A N/A 2.85 2.75 General and administrative, net 0.45 N/A N/A 0.40 0.41 Interest expense, net 0.27 N/A N/A 0.29 0.17 (A) Substantially all of the company's offshore assets were sold during the first half of 2006. (B) Reflects a net profits interest payment to a predecessor owner in certain of the company's offshore Louisiana properties that were sold during the first half of 2006. (C) Based on existing 2007 hedge portfolio of 30,000 MMBtu/d. The company will hold a conference call on Wednesday, November 8, at 9:00 a.m. Central Time to further review the quarter's financial and operational results and activities. To access the call, dial (800) 288-8960 prior to the start and provide the confirmation code 845293. In addition, a listen-only webcast of the call can be accessed at http://www.houstonexploration.com/ . A replay of both the call and the webcast will be available for one week beginning at approximately 1:00 p.m. Central Time on November 8. Dial (800) 475-6701 and provide the confirmation code 845293, or access the company's Web site for either of these options. About the Houston Exploration Company The Houston Exploration Company is an independent natural gas and crude oil producer engaged in the exploration, development, exploitation and acquisition of natural gas and crude oil properties. The company's operations are focused in South Texas, 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 includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact, such as estimated reserves and future drilling and development activity. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Factors that could cause actual results to vary materially from those targeted, expected or implied include the terms, timing and impact of our business strategy or other strategic alternatives, if any, ultimately selected by the Board, price volatility, the business outlook, any changes to the company's capital program, the impact of onshore asset concentration, the risks associated with the consummation and successful integration of acquisitions, any tax deferrals, 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 market and other factors for stock repurchases, 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 uncertainties inherent in the exploration for and production of natural gas and crude oil discussed in the company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2005, and other filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward- looking statements contained in this news release. The Houston Exploration Company Consolidated Financial Information Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Unaudited Income Statement Data: (in thousands, except (in thousands, except per share data) per share data) Revenues Natural gas revenues $105,793 $213,643 $434,083 $558,666 Oil revenues 7,004 19,470 42,624 55,395 Gain (loss) on settled derivatives (2,715) (62,216) (67,664) (100,726) Unrealized gain (loss) on derivatives 22,591 (45,900) 44,462 (47,324) Other (1,336) 416 1,350 939 Total revenues 131,337 125,413 454,855 466,950 Operating Expenses Lease operating 12,208 17,771 52,052 52,263 Severance tax 4,609 4,165 15,598 11,629 Transportation 2,546 3,000 8,176 8,759 Asset retirement accretion 489 1,313 2,885 3,964 Depreciation, depletion and amortization 52,565 72,702 194,184 215,249 General and administrative, net 9,392 10,229 26,703 27,552 Total operating expenses 81,809 109,180 299,598 319,416 Income from Operations 49,528 16,233 155,257 147,534 Other (income) expense (8,302) (101) (10,500) 286 Interest expense 6,173 5,898 24,000 16,943 Capitalized interest (993) (2,357) (3,648) (6,772) Interest expense, net 5,180 3,541 20,352 10,171 Income before taxes 52,650 12,793 145,405 137,077 Provision for income tax Current (852) (3,502) 2,467 12,526 Deferred 19,499 8,214 55,792 39,202 Total provision for taxes 18,647 4,712 58,259 51,728 Net Income $34,003 $8,081 $87,146 $85,349 Earnings per Share Net income per share - Basic $1.22 $0.28 $3.06 $2.98 Net income per share - Diluted $1.22 $0.28 $3.06 $2.95 Weighted average shares - Basic 27,845 28,744 28,458 28,641 Weighted average shares - Diluted 27,936 29,120 28,492 28,966 Sept. 30, Dec. 31, 2006 2005 Unaudited Balance Sheet Data: (in thousands, except debt- to-capitalization) Assets Cash and equivalents $18,435 $7,979 Accounts receivable 69,229 146,020 Inventories 6,269 2,726 Deferred tax asset 83,265 145,922 Prepayments and other 27,153 19,709 Total current assets 204,351 322,356 Natural gas and oil properties, full-cost method Unevaluated properties 45,322 107,146 Properties subject to amortization 3,270,984 3,556,755 Other property and equipment 14,782 12,971 3,331,088 3,676,872 Less: Accumulated depreciation, depletion and amortization 1,852,530 1,658,532 1,478,558 2,018,340 Designated cash 314,043 --- Other non-current assets 16,616 20,928 Total other assets 330,659 20,928 Total Assets $2,013,568 $2,361,624 Liabilities Accounts payable and accrued expenses $159,475 $177,159 Derivative financial instruments 5,251 352,457 Asset retirement obligation --- 7,265 Total current liabilities 164,726 536,881 Long-term debt and notes 362,000 597,000 Deferred federal income taxes 456,786 341,302 Derivative financial instruments 22,324 65,201 Asset retirement obligation 40,015 112,406 Other non-current liabilities 11,008 15,696 Total Liabilities 1,056,859 1,668,486 Stockholders' Equity Common stock 280 289 Additional paid-in capital 250,380 297,218 Retained earnings 750,513 663,367 Accumulated other comprehensive income (loss) (44,464) (267,736) Total Stockholders' Equity 956,709 693,138 Total Liabilities and Stockholders' Equity $2,013,568 $2,361,624 Total Debt-to-Capitalization 27.5% 46.3% Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Unaudited Cash Flow Data: (in thousands) (in thousands) Operating Activities Net income $34,003 $8,081 $87,146 $85,349 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 52,565 72,702 194,184 215,249 Deferred income tax expense 19,499 8,214 55,792 39,202 Unrealized (gain) loss on derivatives (22,591) 45,900 (44,462) 47,324 Asset retirement accretion 489 1,313 2,885 3,964 Other non-cash adjustments 2,260 2,725 7,704 6,628 Changes in operating assets and liabilities (369) (12,146) 35,914 (13,735) Net cash provided by operating activities 85,856 126,789 339,163 383,981 Investing Activities Investment in property and equipment (168,521) (146,327) (447,093) (401,163) Net (deposits) withdrawals of designated cash 9,632 --- (314,043) --- Dispositions and other (2,041) --- 721,607 165 Net cash provided by (used in) investing activities (160,930) (146,327) (39,529) (400,998) Financing Activities Net borrowings (repayments) of long- term debt 87,000 19,000 (235,000) (6,000) Repurchase of common stock --- --- (61,638) --- Debt issuance costs --- --- (199) --- Proceeds and tax benefits from issuance of common stock from exercise of stock options 3,021 4,621 7,659 13,217 Net cash provided by (used in) financing activities 90,021 23,621 (289,178) 7,217 Increase (decrease) in cash $14,947 $4,083 $10,456 $(9,800) Cash at beginning of period 3,488 4,694 7,979 18,577 Cash at end of period $18,435 $8,777 $18,435 $8,777 Unaudited Non-GAAP Financial Measures: Adjusted net income and adjusted net income per diluted share are non-GAAP financial measures consisting of net income and net income per diluted share, as the case may be, after the adjustments noted in the table below. We believe that adjusted net income and adjusted net income per diluted share are useful to analysts and investors because they are more reflective of our operating performance and improve period-to-period comparability. Adjusted net income and adjusted net income per diluted share should not be considered a substitute for net income and net income per diluted share in accordance with GAAP. The table below reconciles net income to adjusted net income and net income per diluted share to adjusted net income per diluted share. Cash from operations before changes in operating assets and liabilities is a non-GAAP financial measure consisting of net cash provided by operating activities before changes in operating assets and liabilities. Cash from operations before changes in operating assets and liabilities is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Cash from operations before changes in operating assets and liabilities 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 before changes in operating assets and liabilities should not be considered an alternative to net income or net cash provided by operating activities in accordance with GAAP. The table below reconciles cash from operations before changes in operating assets and liabilities to net cash provided by operating activities. EBITDA is a non-GAAP financial measure consisting of net income before interest expense, income tax expense (benefit) and depreciation, depletion and amortization. EBITDA is presented as a supplemental financial measurement in the evaluation of our business. We believe that EBITDA provides additional information regarding our ability to meet our future debt service, capital expenditures and working capital requirements. EBITDA is widely used by investors, bankers and rating agencies to value, compare and rate companies. EBITDA should not be considered as a substitute for net income, income from operations, or net cash provided by operating activities prepared in accordance with GAAP. EBITDA is reconciled to net income in the table below. Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Reconciliation of Non-GAAP Measures: (in thousands, except (in thousands, except per share amounts) per share amounts) Net Income $34,003 $8,081 $87,146 $85,349 Adjustments: Unrealized (gain) loss on derivatives, net of tax (14,594) 29,651 (28,722) 30,571 Loss on hedge unwind, net of tax 589 --- 9,825 --- Special compensation expenses, net of tax (A) --- --- 726 4,601 Additional tax items (B) --- --- 6,800 --- Adjusted Net Income $19,998 $37,732 $75,775 $120,521 Net Income per Diluted Share $1.22 $0.28 $3.06 $2.95 Adjustments: Unrealized (gain) loss on derivatives, net of tax (0.52) 1.02 (1.01) 1.06 Loss on hedge unwind, net of tax 0.02 --- 0.34 --- Special compensation expenses, net of tax (A) --- --- 0.03 0.16 Additional tax items (B) --- --- 0.24 --- Adjusted Net Income per Diluted Share $0.72 $1.30 $2.66 $4.16 Cash from Operations Before Changes in Operating Assets and Liabilities $86,225 $138,935 $303,249 $397,716 Plus: Changes in operating assets and liabilities (369) (12,146) 35,914 (13,735) Net Cash Provided by Operating Activities $85,856 $126,789 $339,163 $383,981 EBITDA $110,884 $90,349 $362,826 $366,461 Less: Interest, net 5,180 3,541 20,352 10,171 Income taxes 18,647 4,712 58,259 51,728 Asset retirement accretion 489 1,313 2,885 3,964 Depreciation, depletion and amortization 52,565 72,702 194,184 215,249 Net Income $34,003 $8,081 $87,146 $85,349 (A) In 2006, special compensation expenses, net of tax, included the non-capitalized portion of special bonus and severance payments made in connection with the sale of the company's Gulf of Mexico assets. In 2005, special compensation expenses, net of tax, included payments made in connection with the renegotiation of employment contracts for the executive officers. (B) In 2006, additional tax items represented the Texas margin tax accrual. Note: Totals may not foot due to rounding. Three Months Ended Three Months Ended September 30, 2006 September 30, 2005 Onshore Offshore (A) Total Onshore Offshore (A) Total Production Natural gas (MMcf) 18,081 --- 18,081 16,879 9,338 26,217 Oil (Mbbls) 108 9 117 24 336 360 Equivalent (MMcfe) 18,729 54 18,783 17,023 11,354 28,377 Daily Equivalent (MMcfe/d) 204 --- 204 185 123 308 Average Sales Price Natural gas - unhedged ($/Mcf) $5.86 $N/A $5.85 $7.75 $8.86 $8.15 Natural gas - realized (B) ($/Mcf) N/A N/A 5.70 N/A N/A 5.78 Oil - unhedged ($/Bbl) 61.53 39.89 59.86 46.46 54.63 54.08 Oil - realized ($/Bbl) N/A N/A 59.86 N/A N/A 54.08 Revenues (in thousands) Natural gas revenues $105,875 $(82) $105,793 $130,894 $82,749 $213,643 Oil revenues 6,645 359 7,004 1,115 18,355 19,470 Gain (loss) on settled derivatives N/A N/A (2,715) N/A N/A (62,216) Unrealized gain (loss) on derivatives N/A N/A 22,591 N/A N/A (45,900) Other N/A N/A (1,336) N/A N/A 416 Total revenues $131,337 $125,413 Operating Expenses (in thousands) Lease operating $11,984 $224 $12,208 $7,398 $10,373 $17,771 Severance tax 4,608 1 4,609 4,131 34 4,165 Transportation 2,543 3 2,546 2,502 498 3,000 Asset retirement accretion 489 --- 489 305 1,008 1,313 Depreciation, depletion and amortization N/A N/A 52,565 N/A N/A 72,702 General and administrative, net N/A N/A 9,392 N/A N/A 10,229 Total operating expenses $81,809 $109,180 Income from Operations per Unit ($/Mcfe) Total revenues N/A N/A $6.99 N/A N/A $4.42 Lease operating (0.64) (4.15) (0.65) (0.43) (0.91) (0.63) Severance tax (0.25) (0.02) (0.25) (0.24) (0.00) (0.15) Transportation (0.14) (0.06) (0.14) (0.15) (0.04) (0.11) Asset retirement accretion (0.03) (0.00) (0.03) (0.02) (0.09) (0.05) Depreciation, depletion and amortization N/A N/A (2.80) N/A N/A (2.56) General and administrative, net N/A N/A (0.50) N/A N/A (0.36) Income from operations per unit $2.62 $0.56 Oil and Gas Capital Expenditures (in thousands) Exploration, development and leasehold $139,133 $6,314 $145,447 $71,442 $63,290 $134,732 Acquisitions 598 (9,034)(C) (8,436) --- 57 57 Subtotal 139,731 (2,720) 137,011 71,442 63,347 134,789 Capitalized interest and G&A --- --- 5,654 --- --- 6,537 Total $139,731 $(2,720) $142,665 $71,442 $63,347 $141,326 (A) Substantially all of the company's offshore assets were sold during the first half of 2006. (B) Realized natural gas prices include the effects of gains and losses on contracts settled and unwound during the period, and do not include unrealized gains and losses recognized pursuant to SFAS 133. (C) Reflects an adjustment and reduction to a previously announced estimate for a net profits interest paid to a predecessor owner in certain of the company's offshore Louisiana properties that were sold during the second quarter 2006. Note: Totals may not foot due to rounding. Nine Months Ended Nine Months Ended September 30, 2006 September 30, 2005 Onshore Offshore (A) Total Onshore Offshore (A) Total Production Natural gas (MMcf) 53,261 11,087 64,348 50,681 30,333 81,014 Oil (Mbbls) 289 433 722 69 1,103 1,172 Equivalent (MMcfe) 54,995 13,685 68,680 51,095 36,951 88,046 Daily Equivalent (MMcfe/d) 202 50 252 187 136 323 Average Sales Price Natural gas - unhedged ($/Mcf) $6.49 $7.97 $6.75 $6.62 $7.35 $6.90 Natural gas - realized (B) ($/Mcf) N/A N/A 5.69 N/A N/A 5.65 Oil - unhedged ($/Bbl) 58.87 59.15 59.04 51.36 47.01 47.27 Oil - realized ($/Bbl) N/A N/A 59.04 N/A N/A 47.27 Revenues (in thousands) Natural gas revenues $345,679 $88,404 $434,083 $335,598 $223,068 $558,666 Oil revenues 17,012 25,612 42,624 3,544 51,851 55,395 Gain (loss) on settled derivatives N/A N/A (67,664) N/A N/A (100,726) Unrealized gain (loss) on derivatives N/A N/A 44,462 N/A N/A (47,324) Other N/A N/A 1,350 N/A N/A 939 Total revenues $454,855 $466,950 Operating Expenses (in thousands) Lease operating $35,162 $16,890 $52,052 $20,493 $31,770 $52,263 Severance tax 15,549 49 15,598 11,540 89 11,629 Transportation 7,461 715 8,176 7,564 1,195 8,759 Asset retirement accretion 1,447 1,438 2,885 1,025 2,939 3,964 Depreciation, depletion and amortization N/A N/A 194,184 N/A N/A 215,249 General and administrative, net N/A N/A 26,703 N/A N/A 27,552 Total operating expenses $299,598 $319,416 Income from Operations per Unit ($/Mcfe) Total revenues N/A N/A $6.62 N/A N/A $5.30 Lease operating (0.64) (1.23) (0.76) (0.40) (0.86) (0.59) Severance tax (0.28) (0.00) (0.23) (0.23) (0.00) (0.13) Transportation (0.14) (0.05) (0.12) (0.15) (0.03) (0.10) Asset retirement accretion (0.03) (0.11) (0.04) (0.02) (0.08) (0.05) Depreciation, depletion and amortization N/A N/A (2.83) N/A N/A (2.44) General and administrative, net N/A N/A (0.39) N/A N/A (0.31) Income from operations per unit $2.25 $1.68 Oil and Gas Capital Expenditures (in thousands) Exploration, development and leasehold $350,194 $48,326 $398,520 $199,513 $169,480 $368,993 Acquisitions 17,843 20,966(C) 38,809 31,355 336 31,691 Subtotal 368,037 69,292 437,329 230,868 169,816 400,684 Capitalized interest and G&A --- --- 19,223 --- --- 19,032 Total $368,037 $69,292 $456,552 $230,868 $169,816 $419,716 (A) Substantially all of the company's offshore assets were sold during the first half of 2006. (B) Realized natural gas prices include the effects of gains and losses on contracts settled and unwound during the period, and do not include unrealized gains and losses recognized pursuant to SFAS 133. (C) Reflects an adjustment and reduction to a previously announced estimate for a net profits interest paid to a predecessor owner in certain of the company's offshore Louisiana properties that were sold during the second quarter 2006. Note: Totals may not foot due to rounding. Contact: The Houston Exploration Company Melissa R. Aurelio 713-830-6887 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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