THX Houston Expl

HOUSTON, May 9 /PRNewswire-FirstCall/ -- The Houston Exploration Company (NYSE:THX) today reported first quarter 2007 net income of $9.9 million, or $0.35 per diluted share. This compares with net income of $29.8 million, or $1.02 per diluted share, reported in the first quarter 2006. Excluding certain items described below and in the attached schedules, the company's adjusted net income for the first quarter 2007 was $21.9 million, or $0.77 per diluted share, versus $0.92 per diluted share in the first quarter 2006. Cash from operations before changes in operating assets and liabilities totaled $93.2 million for the first quarter 2007 compared to $124.3 million reported in the first quarter 2006. The comparability of the company's first quarter 2007 results to those of the first quarter 2006 was significantly impacted by the sale of substantially all of the company's Gulf of Mexico assets during 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. First Quarter 2007 Results - Consolidated Production and Prices. Production for the first quarter 2007 totaled 19.5 billion cubic feet of natural gas equivalent (Bcfe), or 216 million cubic feet of natural gas equivalent per day (MMcfe/d), down from 28.1 Bcfe, or 312 MMcfe/d, in the first quarter 2006. This 31 percent decline was primarily due to the sale of substantially all of the company's Gulf of Mexico assets during 2006. The company's average unhedged natural gas price for the first quarter 2007 was $6.24 per thousand cubic feet (Mcf) compared to $7.63 per Mcf for the first quarter 2006. The company's average realized natural gas price for the first quarter 2007 was $6.23 per Mcf compared to $5.84 per Mcf reported during the first quarter 2006. The company's average crude oil and natural gas liquids price was $41.13 per barrel for the first quarter 2007 compared to $58.77 per barrel reported during the first three months of 2006. Revenues and Expenses. Revenues for the first quarter 2007 totaled $103.8 million compared to $177.6 million during the first quarter 2006, reflecting the above noted declines in both production and prices. Total revenues for the first quarter 2007 included $18.7 million of net losses associated with the company's natural gas hedging activities compared to $41.9 million of net losses in the first quarter 2006. Substantially all of the current period net losses of $18.7 million resulted from changes in the fair value of the company's hedge portfolio, all of which is being accounted for using mark-to-market accounting. The company's lease operating, severance tax and transportation expenses for the first quarter 2007 totaled $0.89 per thousand cubic feet of natural gas equivalent (Mcfe) versus $1.05 per Mcfe reported in the first quarter 2006. Depreciation, depletion and amortization and asset retirement accretion expenses for the first quarter 2007 were $2.99 per Mcfe compared to $3.03 per Mcfe in the first quarter 2006. Net general and administrative expenses for the first quarter 2007 were $0.52 per Mcfe compared to $0.31 per Mcfe in the prior year's first quarter. First Quarter 2007 Results - Onshore Production and Prices. The company's onshore production increased by 7 percent during the first quarter 2007, to 19.4 Bcfe, or 216 MMcfe/d, compared to 18.2 Bcfe, or 202 MMcfe/d, during the first quarter 2006. The company's average unhedged natural gas price for its onshore production was $6.21 per Mcf in the first quarter 2007, a decline of 16 percent from $7.35 per Mcf reported in the first quarter 2006. Revenues and Expenses. The 16 percent decline in the company's average unhedged natural gas price more than offset the 7 percent increase in onshore production, resulting in a 10 percent decline in onshore oil and gas revenues during the first quarter 2007, to $121.8 million, from $134.7 million in the first quarter 2006. Onshore lease operating, severance tax and transportation expenses during the first quarter 2007 totaled $0.88 per Mcfe compared to $0.94 per Mcfe reported in the first quarter 2006. Pending Merger with Forest Oil Corporation On January 7, 2007, Houston Exploration announced that it had entered into a definitive agreement to merge with Forest Oil Corporation, under which Forest will acquire all of the outstanding shares of Houston Exploration for a combination of cash and Forest common stock. The merger is subject to customary terms and conditions, including the approval of stockholders of both Houston Exploration and Forest. The special meetings for both companies' stockholders are scheduled for June 5, 2007, to consider and vote on matters associated with the merger. Houston Exploration stockholders of record as of the close of business on April 30, 2007, the record date for its special meeting, are entitled to notice of, and to vote at, the special meeting. Please read the definitive joint proxy statement/prospectus dated May 1, 2007, and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, to obtain important information about Houston Exploration, Forest and the pending merger. If the merger is approved by the stockholders of both Houston Exploration and Forest, it is expected that the transaction would be completed in June 2007. On May 2, 2007, at the request of Forest and in connection with the pending merger, Houston Exploration commenced a tender offer and consent solicitation with respect to its $175 million of 7 percent senior subordinated notes due 2013. Assuming all holders tender their notes and consent to the supplemental indenture, Houston Exploration expects to pay, immediately prior to the closing of the merger, approximately $183 million to fund the purchase price and consent payment with cash on hand and borrowings under its revolving credit facility. Consummation of the tender offer is subject to the satisfaction or waiver of all conditions to completion of the merger and the execution of the supplemental indenture. Nothing herein shall be construed as an offer to purchase, a solicitation of an offer to purchase, or a solicitation to consent with respect to any notes. The offer is being made solely pursuant to the offer to purchase, which sets forth the complete terms and conditions of the tender offer and consent solicitation. Guidance In light of the company's pending merger with Forest, Houston Exploration will no longer issue guidance. Accordingly, previous estimates of future financial or operational performance should be considered obsolete. In addition, as a result of the pending merger, Houston Exploration will not host a conference call or webcast regarding its first quarter 2007 results. About The Houston Exploration Company 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 Arkoma Basin, East Texas, and the Rocky Mountains. For more information, visit the company's Web site at http://www.houstonexploration.com/ . Additional Information and Where to Find It Houston Exploration and Forest have filed a definitive joint proxy statement/prospectus dated May 1, 2007, and other materials relating to their pending merger with the SEC. The definitive joint proxy statement/prospectus was mailed to stockholders of record of Houston Exploration and Forest as of the close of business on April 30, 2007. Investors and security holders are urged to read the definitive joint proxy statement/prospectus and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, before making any voting or investment decision with respect to the proposed transaction, because they contain important information about Houston Exploration, Forest and the proposed transaction. Investors and security holders may obtain these documents free of charge at the SEC's Web site at http://www.sec.gov/ . In addition, the documents filed with the SEC by Houston Exploration may be obtained free of charge from the Houston Exploration Web site at http://www.houstonexploration.com/ . The documents filed with the SEC by Forest may be obtained free of charge from Forest's Web site at http://www.forestoil.com/ . In addition, a free copy of the definitive joint proxy statement/prospectus may be obtained from Houston Exploration at 1100 Louisiana Street, Suite 2000, Houston, Texas 77002, or from Georgeson Inc., the information agent, by calling (866) 783-6553. Houston Exploration, Forest and their respective directors and executive officers may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the participants and their direct and indirect interests in the solicitation is set forth in the joint proxy statement/prospectus. 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 news release are forward- looking statements and reflect Houston Exploration's current expectations and are based on current available information and numerous assumptions. Although Houston Exploration 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 are more fully discussed in the company's filings with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2006, as amended, and in the joint proxy statement/prospectus dated May 1, 2007, with respect to its pending merger with Forest. Houston Exploration 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 Consolidated Financial Information Three Months Ended March 31, 2007 2006 Unaudited Income Statement Data: (in thousands, except per share data) Revenues Natural gas revenues $111,074 $198,505 Oil revenues 11,270 20,453 Gain (loss) on settled derivatives (51) (46,525) Unrealized gain (loss) on derivatives (18,670) 4,586 Other 208 585 Total revenues 103,831 177,604 Operating Expenses Lease operating 13,174 21,812 Severance tax 1,843 4,752 Transportation 2,362 2,771 Asset retirement accretion 1,082 1,327 Depreciation, depletion and amortization 57,089 83,761 General and administrative, net 10,145 8,606 Total operating expenses 85,695 123,029 Income from Operations 18,136 54,575 Other (income) expense (542) --- Interest expense 3,767 10,376 Capitalized interest (662) (1,655) Interest expense, net 3,105 8,721 Income before taxes 15,573 45,854 Provision for income tax Current 1,741 4,558 Deferred 3,887 11,524 Total provision for taxes 5,628 16,082 Net Income $9,945 $29,772 Earnings per Share Net income per share - Basic $0.36 $1.03 Net income per share - Diluted $0.35 $1.02 Weighted average shares - Basic 27,945 29,042 Weighted average shares - Diluted 28,415 29,310 March 31, December 31, 2007 2006 Unaudited Balance Sheet Data: (in thousands, except debt-to-capitalization) Assets Cash and equivalents $29,487 $53,950 Accounts receivable 76,664 86,416 Derivative financial instruments 2,494 --- Inventories 4,786 2,900 Deferred tax asset 19,811 10,244 Prepayments and other 5,506 8,370 Total current assets 138,748 161,880 Natural gas and oil properties, full-cost method Unevaluated properties 34,880 28,317 Properties subject to amortization 3,605,097 3,478,878 Other property and equipment 15,211 15,101 3,655,188 3,522,296 Less: Accumulated depreciation, depletion and amortization 1,988,032 1,930,964 1,667,156 1,591,332 Other assets 16,368 18,514 Total Assets $1,822,272 $1,771,726 Liabilities Accounts payable and accrued expenses $144,190 $151,482 Derivative financial instruments 27,698 10,151 Total current liabilities 171,888 161,633 Long-term debt and notes 175,000 175,000 Deferred federal income taxes 377,912 363,322 Derivative financial instruments 14,165 17,247 Asset retirement obligation 77,314 72,782 Other non-current liabilities 21,243 17,138 Total Liabilities 837,522 807,122 Stockholders' Equity Common stock 282 281 Additional paid-in capital 260,115 253,922 Retained earnings 740,765 731,150 Accumulated other comprehensive income (loss) (16,412) (20,749) Total Stockholders' Equity 984,750 964,604 Total Liabilities and Stockholders' Equity $1,822,272 $1,771,726 Total Debt-to-Capitalization 15.1% 15.4% Three Months Ended March 31, 2007 2006 Unaudited Cash Flow Data: (in thousands) Operating Activities Net income $9,945 $29,772 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 57,089 83,761 Deferred income tax expense 3,887 11,524 Unrealized (gain) loss on derivatives 18,670 (4,586) Asset retirement accretion 1,082 1,327 Other non-cash adjustments 2,504 2,517 Changes in operating assets and liabilities 13,375 (2,194) Net cash provided by operating activities 106,552 122,121 Investing Activities Investment in property and equipment (134,789) (128,391) Deposit paid for property acquisition --- (2,200) Dispositions and other --- 189,371 Net cash provided by (used in) investing activities (134,789) 58,780 Financing Activities Net borrowings (repayments) of long-term debt --- (173,000) Proceeds and tax benefits from issuance of common stock from exercise of stock options 3,774 3,658 Net cash provided by (used in) financing activities 3,774 (169,342) Increase (decrease) in cash $(24,463) $11,559 Cash at beginning of period 53,950 7,979 Cash at end of period $29,487 $19,538 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 may be used to 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), depreciation, depletion and amortization, and, if applicable, any non-cash writedown in the carrying value of natural gas and oil properties. 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 March 31, 2007 2006 Reconciliation of Non-GAAP Measures: (in thousands, except per share amounts) Net Income $9,945 $29,772 Adjustments: Unrealized (gain) loss on derivatives, net of tax 11,930 (2,963) Adjusted Net Income $21,875 $26,809 Net Income per Diluted Share $0.35 $1.02 Adjustments: Unrealized (gain) loss on derivatives, net of tax 0.42 (0.10) Adjusted Net Income per Diluted Share $0.77 $0.92 Cash from Operations Before Changes in Operating Assets and Liabilities $93,177 $124,315 Plus: Changes in operating assets and liabilities 13,375 (2,194) Net Cash Provided by Operating Activities $106,552 $122,121 EBITDA $76,849 $139,663 Less: Interest, net 3,105 8,721 Income tax expense 5,628 16,082 Asset retirement accretion 1,082 1,327 Depreciation, depletion and amortization 57,089 83,761 Net Income $9,945 $29,772 Note: Totals may not foot due to rounding. The Houston Exploration Company Additional Information Three Months Ended March 31, 2007 Onshore Offshore (1) Total Production Natural gas (MMcf) 17,797 12 17,809 Oil (2) (Mbbls) 273 1 274 Equivalent (MMcfe) 19,435 18 19,453 Daily Equivalent (MMcfe/d) 216 0 216 Average Sales Price Natural gas - unhedged ($/Mcf) $6.21 $N/A $6.24 Natural gas - realized (3) ($/Mcf) N/A N/A 6.23 Oil - unhedged (2) ($/Bbl) 41.14 N/A 41.13 Oil - realized (2) ($/Bbl) N/A N/A 41.13 Revenues (in thousands) Natural gas revenues $110,571 $503 $111,074 Oil revenues (2) 11,230 40 11,270 Gain (loss) on settled derivatives N/A N/A (51) Unrealized gain (loss) on derivatives N/A N/A (18,670) Other N/A N/A 208 Total revenues $103,831 Operating Expenses (in thousands) Lease operating $12,791 $383 $13,174 Severance tax 1,843 --- 1,843 Transportation 2,549 (187) 2,362 Asset retirement accretion 1,077 5 1,082 Depreciation, depletion and amortization N/A N/A 57,089 General and administrative, net N/A N/A 10,145 Total operating expenses $85,695 Income from Operations per Unit ($/Mcfe) Total revenues N/A N/A $5.34 Lease operating (0.66) N/A (0.68) Severance tax (0.09) N/A (0.09) Transportation (0.13) N/A (0.12) Asset retirement accretion (0.06) N/A (0.06) Depreciation, depletion and amortization N/A N/A (2.93) General and administrative, net N/A N/A (0.52) Income from operations per unit $0.94 Oil and Gas Capital Expenditures (in thousands) Exploration, development and leasehold $122,241 $1,775 $124,016 Acquisitions 286 ---- 286 Subtotal 122,527 1,775 124,302 Capitalized interest and G&A --- --- 5,030 Total $122,527 $1,775 $129,332 Three Months Ended March 31, 2006 Onshore Offshore Total Production Natural gas (MMcf) 17,816 8,207 26,023 Oil (2) (Mbbls) 67 281 348 Equivalent (MMcfe) 18,218 9,893 28,111 Daily Equivalent (MMcfe/d) 202 110 312 Average Sales Price Natural gas - unhedged ($/Mcf) $7.35 $8.24 $7.63 Natural gas - realized (3) ($/Mcf) N/A N/A 5.84 Oil - unhedged (2) ($/Bbl) 56.63 59.28 58.77 Oil - realized (2) ($/Bbl) N/A N/A 58.77 Revenues (in thousands) Natural gas revenues $130,875 $67,630 $198,505 Oil revenues (2) 3,794 16,659 20,453 Gain (loss) on settled derivatives N/A N/A (46,525) Unrealized gain (loss) on derivatives N/A N/A 4,586 Other N/A N/A 585 Total revenues $177,604 Operating Expenses (in thousands) Lease operating $10,177 $11,635 $21,812 Severance tax 4,717 35 4,752 Transportation 2,274 497 2,771 Asset retirement accretion 479 848 1,327 Depreciation, depletion and amortization N/A N/A 83,761 General and administrative, net N/A N/A 8,606 Total operating expenses $123,029 Income from Operations per Unit ($/Mcfe) Total revenues N/A N/A $6.32 Lease operating (0.56) (1.18) (0.78) Severance tax (0.26) (0.00) (0.17) Transportation (0.12) (0.05) (0.10) Asset retirement accretion (0.03) (0.09) (0.05) Depreciation, depletion and amortization N/A N/A (2.98) General and administrative, net N/A N/A (0.31) Income from operations per unit $1.93 Oil and Gas Capital Expenditures (in thousands) Exploration, development and leasehold $92,512 $25,463 $117,975 Acquisitions (1,891) --- (1,891) Subtotal 90,621 25,463 116,084 Capitalized interest and G&A --- --- 6,849 Total $90,621 $25,463 $122,933 (1) Substantially all of the company's offshore assets were sold during the first half of 2006. (2) Also includes natural gas liquids. (3) 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. Note: Totals may not foot due to rounding. 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/ http://www.forestoil.com/

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