-- Oil and Gas Revenue Increases 124% for 2006 -- Oil and Gas Production Increases 93% Over 2005 Level -- PDPs Increase by 135% in 2006 to 19% of Total Proved Reserves
NEW YORK, March 6, 2007 (PRIME NEWSWIRE) -- Warren Resources, Inc. (Nasdaq:WRES) today announced its fourth quarter and full year 2006 financial results. Warren reported 2006 net income of $0.7 million or $0.01 per share compared to a net loss of $8.9 million or $(0.23) per share for 2005. The net income reported for 2006 included a non-cash charge of $4.6 million primarily related to the recording in the fourth quarter of 2006 of an impairment expense for its entire interest in the uneconomic Pacific Isle unit coalbed methane pilot located in the Pacific Rim of the western Washakie Basin in Wyoming.
The Company utilizes the successful efforts method of accounting for oil and gas properties. Under this method, impairment expense is recorded immediately for costs associated with projects deemed uneconomic.
Fourth Quarter of 2006 Results
Including the foregoing non-cash $4.6 million impairment charge, Warren recorded a net loss of $3.5 million or $(0.07) per share for the fourth quarter of 2006, compared to a net loss of $1.1 million or $(0.02) per share for the fourth quarter of 2005.
For the fourth quarter of 2006, total revenue decreased 18% to $11.3 million compared to 2005, while oil and gas revenue increased by 67% to $8.4 million compared to $5.0 million for the fourth quarter of 2005. These increases in oil and gas revenue were offset by decreases in turnkey revenue and oil and gas sales from marketing activities, reflecting the phase-out of income related to our prior drilling programs.
Additionally during the fourth quarter, production increased to a record 1.1 billion cubic feet of gas equivalent ("Bcfe") which represented a 14% increase over the third quarter of 2006 and an 87% increase over the fourth quarter of 2005. During the fourth quarter of 2006, Warren produced 141,000 barrels of oil and 240 million cubic feet of natural gas. This increase in oil production resulted from growth through the drillbit at the Wilmington Townlot Unit ("WTU") in California as well as the acquisition at year end 2005 of the North Wilmington Unit which is adjacent to the WTU.
Total expenses increased 2% to $14.8 million during the fourth quarter of 2006 compared to 2005. In addition to the non-cash impairment expense referred to above, production and exploration expense increased 74% to $4.2 million primarily due to increased production. Additionally, general and administrative expense increased by 17% to $3.2 million as the Company continues to hire additional qualified personnel to support the growth in exploration and production activities. These expense increases were offset by decreases in turnkey expense and costs from marketing activities as previously mentioned.
Full Year 2006 Results
For 2006, including the non-cash $4.6 million impairment charge mentioned above, Warren reported net income of $0.7 million or $0.01 per share, compared to a net loss of $8.9 million or $(0.23) per share for 2005.
Total revenue increased 3% to $41.1 million compared to 2005. Oil and gas revenue increased by 124% to $31.3 million compared to $14.0 million for 2005, while turnkey revenue and oil and gas sales from marketing activities decreased as our prior drilling programs continued to phase-out. During 2006, production increased to a record 3.8 Bcfe which represented a 93% increase over 2005.
Total expenses decreased 10% to $40.0 million during 2006 compared to 2005. Production and exploration expense increased 88% to $13.7 million primarily due to increased production. Depletion, depreciation and amortization expense increased due to the non-cash successful efforts impairment expense mentioned above and increased production. These increases were offset by decreases in turnkey expense and costs from marketing activities as previously mentioned.
Proved Reserves
As previously reported, within the proved reserve categories, Warren increased its proved developed producing reserves ("PDPs") by 135% to 67 Bcfe or 19% of total net proved reserves as of December 31, 2006. This compares to 28 Bcfe of PDPs or 9% of total net proved reserves in 2005. Estimated total net proved reserves at year-end 2006 were a record 349 Bcfe, a 7% increase over year-end 2005 reserves of 327 Bcfe. The pre-tax net present value of the net proved reserves for year-end 2006 discounted at 10% (PV-10) was $609 million ($206 million of PDPs) based on realized oil prices at December 31, 2006 of $50.60 per barrel and gas prices of $4.35 per Mcf compared to a 2005 PV-10 of $638 million ($108 million of PDPs) based on year-end 2005 realized prices of $49.05 per barrel of oil and $9.92 per Mcf of gas. Warren's production replacement rate, primarily through its active development drilling program in the WTU, was 593% for the year ended 2006.
The Company's current net proved reserve mix is 93% oil and 7% natural gas. In accordance with SEC guidelines, reserve estimates do not include any probable or possible reserves which may exist on Warren's undeveloped properties. Approximately 90% of Warren's acreage is undeveloped.
"The Company continued to grow at a record pace in 2006," commented Norman F. Swanton, Warren Resources' Chairman and CEO. "Operationally, we achieved record increases in oil and gas production of 93% year-over-year and 87% quarter-over-quarter. Warren's production and reserve growth demonstrates our continuing commitment to deliver consistent value creation by executing our strategy of developing our large portfolio of proved undeveloped reserves in the Wilmington oil field in California and, beginning in mid-2007, developing our highly prospective Atlantic Rim coalbed methane project in Wyoming. In 2007, we see continued strong production growth over 2006 levels. With our cash on hand supplemented by growing cash flow from operations and our unused credit line of up to $150 million, subject to borrowing base limitations, from JPMorgan Chase, we believe that we are well positioned to execute our growth strategy."
Operational updates for the fourth quarter and full year 2006 were provided in the Company's January 25, 2007 press release.
Financial and Statistical Data Tables
Following are financial highlights for the comparative fourth quarters and annual periods ended Dec. 31, 2006 and Dec. 31, 2005. All production volumes and dollars are expressed on a net revenue interest basis.
Warren Resources, Inc.
Consolidated Statements Of Operations
Three Months Ended Year Ended
December 31, December 31,
--------------------------- ---------------------------
2006 2005 2006 2005
------------- ------------- ------------- -------------
Revenues
Oil and gas
sales $ 8,396,507 $ 5,035,103 $ 31,264,379 $ 13,959,097
Turnkey
contracts with
affiliated
partnerships 1,016,587 3,471,632 1,621,462 9,756,209
Oil and gas
sales from
marketing
activities 417,647 3,269,794 2,329,945 10,210,681
Well services 296,664 355,318 1,029,442 1,554,760
Net gain on
investments (17,978) 543,107 92,191 960,995
Interest and
other income 1,236,640 1,058,024 4,765,303 3,302,034
Gain on sale
of oil and
gas proper-
ties -- 114,046 -- 203,487
------------- ------------- ------------- -------------
11,346,067 13,847,025 41,102,722 39,947,263
------------- ------------- ------------- -------------
Expenses
Production &
exploration 4,159,236 2,387,190 13,709,966 7,295,520
Turnkey
contracts 149,058 4,588,407 1,001,397 11,275,348
Cost of marketed
oil and gas
purchased from
affiliated
partnerships 400,620 3,234,579 2,254,820 10,078,848
Well services 312,900 304,932 990,033 1,146,590
Depreciation,
depletion,
amortization
and
impairment 6,741,893 913,734 11,711,640 3,628,610
General and
administrative 3,210,342 2,751,273 9,903,193 7,475,919
Interest (164,968) (16,446) 399,464 1,685,694
Retirement of
debt -- 337,894 -- 1,862,164
------------- ------------- ------------- -------------
14,809,081 14,501,563 39,970,513 44,448,693
------------- ------------- ------------- -------------
Income (loss)
before provision
for income taxes
and minority
interest (3,463,014) (654,538) 1,132,209 (4,501,430)
Deferred income
tax expense -- 248,000 93,000 391,000
------------- ------------- ------------- -------------
Income (loss)
before minority
interest (3,463,014) (902,538) 1,039,209 (4,892,430)
Minority interest -- (60,087) -- (279,314)
------------- ------------- ------------- -------------
Net income
(loss) (3,463,014) (962,625) 1,039,209 (5,171,744)
------------- ------------- ------------- -------------
Less dividends
and accretion
on preferred
shares 67,415 127,731 356,867 3,774,395
------------- ------------- ------------- -------------
Net income
(loss) applicable
to common
stockholders $ (3,530,429) $ (1,090,356) $ 682,342 $ (8,946,139)
============= ============= ============= =============
Earnings (loss)
per share -
Basic $ (0.07) $ (0.02) $ 0.01 $ (0.23)
Earnings (loss)
per share -
Diluted $ (0.07) $ (0.02) $ 0.01 $ (0.23)
Weighted average
common shares
outstanding -
Basic 53,317,367 42,673,236 52,966,115 39,177,816
Weighted average
common shares
outstanding -
Diluted 53,317,367 42,673,236 54,511,578 39,177,816
Production:
Gas - MMcf 239.9 284.3 1,052.1 1,073.5
Oil - MBbls 140.8 49.1 455.8 147.6
Total Equivalents
(MMcfe) 1,084.4 579.1 3,786.6 1,958.9
Realized Prices:
Gas - Mcf $ 5.79 $ 9.03 $ 5.73 $ 6.71
Oil - Bbl 49.76 50.17 55.36 45.75
Total Equivalents
(Mcfe) 7.74 8.69 8.25 7.13
Net cash flow
provided by
(used in)
operating
activities:
Cash flow from
operations $ 4,599,934 $ 1,505,719 $ 10,820,887 $(10,348,161)
Changes in
working capital
accounts (1,859,011) (2,236,180) 2,074,432 8,283,482
Cash flow from
operations
before working
capital
changes 2,740,923 (730,461) 12,895,319 (2,064,679)
Conference Call
The public is invited to listen to the Company's conference call set for today, March 6, 2007, at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet at our Web site: www.warrenresources.com. If you are unable to listen during the live broadcast, the call will be archived on Warren's website for approximately 30 days. A telephonic replay will also be available through midnight, March 13, 2007 by dialing 888-286-8010 or 617-801-6888 (international), and entering the passcode number 26396608.
About Warren Resources
Warren Resources, Inc. is a growing independent energy company engaged in the exploration and development of domestic natural gas and oil reserves. Warren is primarily focused on the exploration and development of coalbed methane properties located in the Rocky Mountain region and its water flood oil recovery programs in the Wilmington Units located in the Los Angeles Basin of California. The Company is headquartered in New York, New York, and its exploration and development subsidiary, Warren E&P, Inc., is headquartered in Casper, Wyoming and Long Beach, California.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Warren believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release. See "Risk Factors" in the Company's Annual Report on Form 10-K and other public filings.