Record Production, Cash Flow and Net Income HOUSTON, March 2
/PRNewswire-FirstCall/ -- KCS Energy, Inc. (NYSE:KCS) today
announced financial and operating results for the fourth quarter
and year ended December 31, 2005. Full year highlights include: *
Record 193 wells drilled with a 93% success rate * Record net
production of 46.4 BCFE, up 33% * Record oil and gas reserves of
452.3 BCFE, up 38% * Record operating income of $200.7 million, up
90% * Record earnings of $105.9 million, up 5% * Record operating
cash flow (a non-GAAP financial measure) of $261.4 million, up 94%
Management Comments James W. Christmas, Chairman and Chief
Executive Officer, said: "2005 was a truly outstanding year for
KCS. The Company's focused drilling program and the contributions
of a team of dedicated and talented people in our organization led
us to the most successful year in our history. During the year, we
drilled 193 wells with a success rate of 93%. Gross production for
the year increased 26%, to 50.3 BCFE, while net production, after
production payment delivery obligations that do not contribute to
cash flow from operating activities, increased 33%, to 46.4 BCFE.
"We also increased our oil and gas reserves by 38%, with additions
and revisions equating to 379% of our net production. At the same
time we added significantly to our acreage position and inventory
of drilling locations in our core operating areas to fuel future
growth. The PV10 value of our reserves was $1.7 billion at December
31, 2005, compared to $0.8 billion at December 31, 2004. "We not
only significantly increased reserves and production for the third
straight year, but we also managed to maintain a low cost
structure, with unit operating and administrative costs essentially
flat with prior years, resulting in enhanced margins to fund our
capital program. "In keeping with our growth strategy, we invested
100% of our operating cash flow in our drilling program. While our
principle focus continues to be organic growth, we also completed
two meaningful acquisitions in 2005 which significantly increased
the inventory of potential drilling locations in our core areas of
operations, and added to current reserves and production. The
acquisitions were funded primarily with the proceeds of issuance of
additional senior notes and proceeds from property sales. Capital
expenditures for the year totaled $380 million, including $121
million for acquisitions. "As previously announced, we have set an
initial 2006 capital budget of $315 million, excluding
acquisitions. We are targeting more than 20% net production growth
from the drilling program in 2006." Financial and Operational
Highlights ($ thousands except per share) 3 Mos. 2005 3 Mos. 2004
Oil and Gas Revenue $117,391 $64,476 Operating Income $70,065
$32,576 Income Before Income Taxes $68,318 $29,300 Income Tax
(Expense) Benefit $(27,295) $18,375 Net Income $41,023 $47,675
Diluted Earnings Per Share $0.81 $0.96 Net Production (MMCFE)
12,693 9,571 12 Mos. 2005 12 Mos. 2004 Oil and Gas Revenue $363,701
$218,755 Operating Income $200,679 $105,368 Income Before Income
Taxes $172,558 $86,530 Income Tax (Expense) Benefit $(66,698)
$13,905 Net Income $105,860 $100,435 Diluted Earnings Per Share
$2.11 $2.03 Net Production (MMCFE) 46,376 34,801 Three Months Ended
December 31, 2005 vs. 2004 Oil and gas revenue for the fourth
quarter of 2005 increased 82% to $117.4 million, compared to $64.5
million for the quarter ended December 31, 2004, due to a 26%
increase in oil and natural gas production (33% increase in net
production contributing to cash flow) and a 45% increase in average
realized prices. Operating cash flow for the quarter, a non-GAAP
financial measure, increased 105% to $88.1 million, compared to
$43.1 million in the last quarter of 2004. Operating income was
$70.1 million, up 115%, and income before income taxes was $68.3
million, up 133%, compared to the fourth quarter of 2004. These
record operating results were partially offset by higher income tax
expense of $27.3 million, or 40% of pretax income for the fourth
quarter of 2005, most of which is deferred to future years,
compared to an income tax benefit of $18.4 million for the fourth
quarter of 2004. The tax benefit in 2004 was related to the
reversal of the remainder of the Company's valuation allowance
against net deferred income tax assets. The Company then resumed
recording book income taxes based on statutory rates in 2005. After
considering this $45.7 million increase in income tax expense, net
income was $41.0 million, or $0.82 per basic share and $0.81 per
diluted share, for the fourth quarter of 2005, compared to $47.7
million, or $0.97 per basic share and $0.96 per diluted share for
the fourth quarter of 2004. Twelve Months Ended December 31, 2005
vs. 2004 For the year ended December 31, 2005, oil and gas revenue
increased 66% to $363.7 million compared to $218.8 million for the
year ended December 31, 2004 due to a 26% increase in oil and
natural gas production (33% increase in net production contributing
to cash flow) and a 32% increase in average realized prices.
Operating cash flow for 2005, a non-GAAP financial measure,
increased 94% to $261.4 million compared to $134.9 million in 2004.
Operating income increased 90% to $200.7 million, compared to
$105.4 million in 2004. Income before income taxes increased 99% in
2005, to $172.6 million, compared to $86.5 million in 2004. Income
tax expense in 2005 was $66.7 million, or 38.7% of pretax income.
This compares to an income tax benefit of $13.9 million in 2004 due
to the change in the valuation allowance against net deferred
income tax assets. The Company continued to utilize its net
operating loss carry forwards and paid only federal alternative
minimum tax and state taxes equating, in the aggregate, to
approximately 2% of pretax income in 2005. The remainder of the tax
expense recorded in 2005 is deferred to future years. Net income in
2005 was $105.9 million, or $2.13 per basic share and $2.11 per
diluted share, compared to $100.4 million, or $2.06 per basic share
and $2.03 per diluted share for the same period last year.
Operations Update KCS drilled 193 oil and gas wells in 2005. Of
those, 180 were completed for a 93% success ratio. Sixty-nine
percent of the wells were drilled in the Mid-Continent region and
31% in the Gulf Coast region. Success ratios were 98% in the
Mid-Continent region and 83% in the Gulf Coast region. The 193
gross wells include 69 wells drilled in the Elm Grove/Caspiana
Fields, 29 wells in the O'Connor Ranch Field, 13 wells in the
Sawyer Canyon Field and seven wells in the Terryville Field. In the
fourth quarter, the Company drilled 41 wells, of which 39 were
successfully completed. Overall, KCS averaged a 76% WI in the wells
drilled in 2005. The 2006 budget anticipates drilling 215 gross
wells. Production Net production in 2005, after considering
delivery obligations associated with the production payment sold in
2001, averaged 127 MMCFEPD, an increase of 33% over 2004. During
2005, deliveries under that production payment averaged 10.7
MMCFEPD. Since the final deliveries under the production payment
were made in January 2006, KCS now realizes the cash benefit of its
full production stream. For the fourth quarter of 2005, net
production averaged 138 MMCFEPD. This represents a three percent
increase from third quarter production and a 33% increase from
fourth quarter production in 2004. For the year, lease operating
expenses per MCFE were $0.70 and G&A expenses per MCFE were
$0.22 (excluding stock compensation), reflecting excellent cost
control by the Company's personnel. Reserves Total proved oil and
natural gas reserves at December 31, 2005 (which have been audited
by Netherland, Sewell & Associates, Inc.) increased 38% to 452
BCFE, compared to 328 BCFE on December 31, 2004. KCS added 180 BCFE
during 2005, sold five BCFE and had negative revisions of four
BCFE. Drilling activity accounted for approximately two-thirds of
the total additions, or an organic reserve replacement of net
production of over 260%. In accordance with SEC requirements,
proved reserves were based on year-end 2005 commodity market prices
of $10.08 per MMBTU for natural gas and $57.75 per barrel for oil,
adjusted by lease for basis differentials. Using these prices, the
pre- tax present value of the proved reserves discounted at 10%
totaled $1.7 billion, or over twice the December 31, 2004 PV10
value. At year-end, 88% of the reserves were natural gas, 74% were
proved developed and approximately 86% were on properties operated
by KCS. The Company's reserve life index was 9.8 years at December
31, 2005 based on 2005 net production. Activity Elm Grove /
Caspiana Fields, Bossier Parish, Louisiana * 69 Gross wells were
drilled in 2005 with an average WI of 90%. * 49 of these wells were
drilled on KCS' original acreage position with average initial
production rates of over 2,000 MCFEPD per well. * 20 of these wells
were drilled on lands acquired in the April 2005 acquisition or
other new acreage, with average initial production rates of over
1,700 MCFEPD per well. * Gross operated field production increased
from 45 MMCFEPD at the end of 2004 to over 70 MMCFEPD at year end
2005. * In February 2006, gross operated production rose to over 80
MMCFEPD. * In 2005, KCS initiated a successful recompletion effort,
working over wells initially completed in the Lower Cotton Valley
formation and commingling them with the Hosston formation. To date,
26 wells have been commingled, with 48 additional workovers planned
for 2006. * 75 additional gross wells are anticipated to be drilled
in 2006. Terryville Field, Lincoln Parish, Louisiana * Seven wells
with an average WI of 83% were drilled in 2005. Six were completed
in the Lower Cotton Valley formation and one is awaiting
completion. * Average initial production rates were over 1,700
MCFEPD per well. * KCS has acquired a substantial acreage position
in the area to allow for future drilling if the productive area
proves larger than the area that has been delineated to date. * Two
rigs are currently active in the field, with 30 wells planned in
2006. Other Mid-Continent Activity * Thirteen wells with WI ranging
from 91% to 100% were drilled in the Sawyer Canyon Field in Sutton
County, Texas in 2005 and 25 wells are planned for 2006. * Ten
wells with an average WI of 70% were drilled in the Joaquin Field
in Shelby County, Texas in 2005 and six wells are budgeted for
2006. * Six wells with an average WI of 27% were drilled in the
Talihina Field in Latimer County, Oklahoma in 2005 and 10 wells are
planned for 2006. * In the fourth quarter KCS also participated in
the following wells: - Thorton #3, Panola Field (WI = 22%): 3,200
MCFEPD IP - Jordan #4, Bear Creek Field (WI = 27%): 2,400 MCFEPD IP
- Long Draw 9 #1, Cemetery Field (WI = 19%): 1,750 MCFEPD IP *
During February 2006, KCS drilled its first two unconventional
Fayetteville shale wells in Van Buren County, Arkansas and is
preparing to test them. * The high potential Bowdle 42 #3 well in
the Haley Field, Loving County, Texas (WI = 48%) is scheduled to
spud within the next 30 days. Gulf Coast Activity * KCS closed on
the acquisition of the Magnet Withers Field in Wharton County,
Texas in December 2005 and has moved in a drilling rig to commence
a five well program. * 29 wells were drilled in the O'Connor Ranch
Field in Goliad County, Texas during 2005 with an average WI of
87%. Three wells are budgeted for the field in 2006, with a Wilcox
test well currently drilling (100% WI). * In the fourth quarter,
KCS participated in the following wells: - K. Jackson #4, Austin
Field (WI = 66%): 4,000 MCFEPD IP. - Martin #1, Austin Field (WI =
28%): 4,500 MCFEPD IP. - Hoff #7, Marshall Field (WI = 25%): 1,600
MCFEPD IP. - BOE 16 #11, Pine Grove Field (WI = 22%): Completion
pending. * The previously drilled Guerra D-4 well (WI = 24%) at the
La Reforma Field produced at an initial rate of 7,600 MCFEPD. * The
previously drilled Flores G.U. #1 well (WI = 25%) at the East La
Grulla field produced at an initial rate of 3,200 MCFEPD. * A 3D
seismic survey in Wayne County, Mississippi (WI = 33%) has recently
been completed and three Smackover wells are planned in 2006. * KCS
acquired a 19,000 acre position in Madison County, Texas during
2005 and has budgeted for five wells in 2006. * 40 wells are
budgeted in the Gulf Coast in 2006 with two rigs currently
drilling. Hedging Program The Company's overall hedge position as
of December 31, 2005 covered 19.5 BCF and 254.3 MBO for 2006 and
2.3 BCF and 36 MBO for 2007. The Company's hedge positions are
summarized in the following table. TYPE HEDGE VOLUME AVG. PRICE
2006 - 1st Quarter: Gas - Swap 53,500 MMBTU/day $8.122 - Collar
20,000 MMBTU/day $8.438/$12.887 - Sold call 10,000 MMBTU/day $8.00
Oil - Swap 456 BOPD $55.17 - Collar 250 BOPD $55.00/$81.00 - 2nd
Quarter Gas - Swap 35,604 MMBTU/day $7.345 - Collar 20,000
MMBTU/day $8.375/$11.51 Oil - Swap 453 BOPD $54.73 - Collar 250
BOPD $55.00/$81.00 - 3rd Quarter Gas - Swap 30,217 MMBTU/day $7.355
- Collar 20,000 MMBTU/day $8.375/$11.428 Oil - Swap 439 BOPD $54.16
- Collar 250 BOPD $55.00/$81.00 - 4th Quarter Gas - Swap 20,543
MMBTU/day $6.979 - Collar 5,000 MMBTU/day $9.50/$15.00 Oil - Swap
439 BOPD $53.74 - Collar 250 BOPD $55.00/$81.00 2007 - 1st Quarter
Gas - Swap 20,000 MMBTU/day $7.858 Oil - Swap 100 BOPD $63.85 - 2nd
Quarter Gas - Swap 5,000 MMBTU/day $7.47 Oil - Swap 99 BOPD $63.85
- 3rd Quarter Oil - Swap 98 BOPD $63.85 - 4th Quarter 98 BOPD
$63.85 2006 Guidance 2005 2006 Actual Guidance Production (BCFE)
Working Interest 50.3 55.3-57.3 Production Payment (3.9) (.3) Net
Production 46.4 55-57 LOE ($/MCFE) .70 .73-.77 Production and Other
Taxes (% Revenue) 6 % 6 % G&A ($/MCFE) * .22 .22-.26 DD&A
rate on oil and gas properties ($/MCFE) 1.85 2.05-2.25 Interest
Expense ($MM) 18.6 21-24 Income Taxes ** 38.7 % 38.5 % Capital
Expenditures, Exclusive of Acquisitions ($MM) 259 315 * Excludes
stock compensation. ** 94% Deferred in 2005 and 65-70% deferred in
2006. Non-GAAP Financial Measures This press release includes
certain non-GAAP financial measures which are explained in greater
detail and reconciled to the most directly comparable GAAP measure
in the attached financial table under the heading "Non-GAAP
Financial Measures". Definitions The following abbreviations are
utilized herein: Net Production - Production after considering
delivery obligations associated with the Production Payment sold in
February 2001 WI - Working Interest BOPD - Barrels of Oil Per Day
BCF - Billion Cubic Feet of Natural Gas BCFE - Billion Cubic Feet
of Natural Gas Equivalent G&A - General and Administrative
Expenses IP - Initial rate of production MBO -Thousand Barrels of
Oil MCF - Thousand Cubic Feet of Natural Gas MCFE - Thousand Cubic
Feet of Natural Gas Equivalent MCFEPD - Thousand Cubic Feet of
Natural Gas Equivalent Per Day $MM - Million Dollars MMCFEPD -
Million Cubic Feet of Natural Gas Equivalent Per Day MMBTU -
Million British Thermal Units PV10 - Pre-tax present value of
estimated future net revenues associated from oil and gas reserves,
computed by applying year-end prices to estimated future production
from the reserves, deducting estimated future expenditures, and
applying a discount factor of 10%. This press release contains
forward-looking statements that involve a number of risks and
uncertainties. Among the important factors that could cause actual
results to differ materially from those indicated by such
forward-looking statements are delays and difficulties in
developing currently owned properties, the failure of exploratory
drilling to result in commercial wells, delays due to the limited
availability of drilling equipment and personnel, fluctuation in
oil and gas prices, general economic conditions and the risk
factors detailed from time to time in the Company's periodic
reports and registration statements filed with the Securities and
Exchange Commission. KCS is an independent energy company engaged
in the acquisition, exploration, development and production of
natural gas and crude oil with operations in the Mid-Continent and
Gulf Coast regions. For more information on KCS Energy, Inc.,
please visit the Company's web site at http://www.kcsenergy.com/
KCS Energy, Inc. Condensed Income Statements Three Months Ended For
the Year Ended (Amounts in Thousands December 31, December 31,
Except Per Share Data) 2005 2004 2005 2004 Oil and natural gas
revenue $117,391 $64,476 $363,701 $218,755 Other, net 1,150 201 955
(345) Total revenue and other 118,541 64,677 364,656 218,410
Operating costs and expenses Lease operating expenses 10,135 7,225
35,399 28,600 Production and other taxes 7,293 4,039 21,357 14,208
General and administrative expenses including stock compensation
2,925 3,153 13,493 11,896 Accretion of asset retirement obligation
241 257 964 1,029 Depreciation, depletion and amortization 27,882
17,427 92,764 57,309 Total operating costs and expenses 48,476
32,101 163,977 113,042 Operating income 70,065 32,576 200,679
105,368 Gain (loss) on mark-to- market derivatives, net 3,318 244
(9,679) (1,121) Interest and other income 55 4 149 317 Redemption
premium on early extinguishment of debt - - - (3,698) Interest
expense (5,120) (3,524) (18,591) (14,336) Income before income
taxes 68,318 29,300 172,558 86,530 Federal and state income tax
expense(benefit) 27,295 (18,375) 66,698 (13,905) Net income $41,023
$47,675 $105,860 $100,435 Earnings per share of common stock -
basic $0.82 $0.97 $2.13 $2.06 Earnings per share of common stock -
diluted $0.81 $0.96 $2.11 $2.03 Average shares outstanding for
computation of earnings per share Basic 49,911 48,977 49,656 48,868
Diluted 50,579 49,669 50,248 49,520 KCS Energy, Inc. Condensed
Statements of Cash Flow For the Year Ended December 31, 2005 2004
Net income $105,860 $100,435 DD&A 92,764 57,309 Amortization of
deferred revenue (16,149) (21,370) Deferred income tax expense
(benefit) 63,399 (14,905) Other adjustments and non-cash charges
and credits, net 15,573 13,394 261,447 134,863 Changes in operating
assets and liabilities (22,357) (797) Net cash provided by
operating activities 239,090 134,066 Cash flow from investing
activities: Investment in oil and gas properties, net (368,096)
(155,406) Proceeds from the sale of oil and gas properties 11,156
867 Other, net (2,236) (525) Net cash used in investing activities
(359,176) (155,064) Cash flow from financing activities: Net
increase in debt 116,125 33,000 Other, net 2,131 (7,567) Net cash
provided by financing activities 118,256 25,433 Increase (decrease)
in cash and cash equivalents $(1,830) $4,435 Non-GAAP Financial
Measures KCS reports its financial results in accordance with
generally accepted accounting principles. However, on occasion the
Company also presents certain non-GAAP financial measures, such as
operating cash flow. Operating cash flow is net income adjusted for
depreciation, depletion and amortization, amortization of deferred
revenue, non-cash losses on derivative instruments, deferred income
taxes, accretion of asset retirement obligation, stock compensation
and other non-cash charges and credits, net. While operating cash
flow should not be considered in isolation or as a substitute for
net income, operating income, net cash provided by operating
activities or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as an indication
of the Company's financial performance or liquidity under GAAP, it
is presented because the Company believes that it provides useful
information to investors with respect to its ability to meet future
debt service, capital expenditure commitments and working capital
requirements. Operating cash flow as presented herein may not be
comparable to similarly titled measures of other companies. The
following table reconciles net income to operating cash flow for
the periods presented. Three Months Ended For the Year Ended
December 31, December 31, 2005 2004 2005 2004 (In thousands) Net
income $ 41,023 47,675 $ 105,860 100,435 Depreciation, depletion
and amortization 27,882 17,427 92,764 57,309 Amortization of
deferred revenue (3,489) (4,873) (16,149) (21,370) Non-cash losses
on derivative instruments (3,713) (193) 10,689 4,540 Deferred
income taxes 25,746 (18,374) 63,399 (14,905) Accretion of asset
retirement obligation 241 257 964 1,029 Stock compensation 77 576
2,391 2,621 Other non-cash charges and credits, net 379 589 1,529
5,204 Operating cash flow $ 88,146 $ 43,084 $ 261,447 $ 134,863 The
following table reconciles operating cash flow to net cash provided
by operating activities, its most directly comparable GAAP
financial measure, for the periods presented. Three Months Ended
For the Year Ended December 31, December 31, 2005 2004 2005 2004
(In thousands) Operating cash flow $88,146 $43,084 $261,447
$134,863 Trade accounts receivable (11,626) (8,030) (40,046)
(11,414) Accounts payable and accrued liabilities 9,522 6,149
17,685 13,005 Accrued interest (4,910) (3,118) 1,790 (1,982) Other,
net 114 668 (1,786) (406) Net cash provided by operating activities
$81,246 $38,753 $239,090 $134,066 KCS Energy, Inc. Supplemental
Data Three Months Ended For the Year Ended December 31, December
31, 2005 2004 2005 2004 Production: Gas (MMcf) 12,016 9,194 44,112
33,905 Oil (Mbbl) 215 204 835 795 Natural gas liquids (Mbbl) 38 55
191 216 Total (MMcfe) 13,536 10,747 50,270 39,971 Dedicated to
Production Payment (MMcfe) (843) (1,176) (3,894) (5,170) Net
Production (MMcfe) 12,693 9,571 46,376 34,801 Average realized
prices (a) Gas (per Mcf) $8.91 $6.11 $7.35 $5.61 Oil (per bbl)
$40.24 $34.42 $41.01 $30.53 Natural gas liquids (per bbl) $45.08
$23.58 $28.45 $19.07 Total (per Mcfe) $8.67 $6.00 $7.23 $5.47
Notes: (a) The average realized prices reported above include the
non-cash effects of volumes delivered under the Production Payment
as well as the unwinding of various derivative contracts terminated
in 2001. These items do not generate cash to fund the Company's
operations. Excluding these items, the average realized price per
Mcfe was $9.17 and $7.61 for the three and twelve months ended
December 31, 2005 compared to $6.41 and $5.85 for the three and
twelve months ended December 31, 2004. DATASOURCE: KCS Energy, Inc.
CONTACT: James W. Christmas, Chairman and CEO, +1-713-877-8006 Web
site: http://www.kcsenergy.com/
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