Announces Accelerated 2003 Activity
HOUSTON, March 31 /PRNewswire-FirstCall/ -- KCS Energy, Inc. (NYSE: KCS)
today announced financial and operating results for the fourth quarter and
year ended December 31, 2002. At the same time the Company announced its
growth plans for 2003.
Commenting on 2002, KCS President and Chief Executive Officer James W.
Christmas said, "We are pleased to report that the Company successfully
executed its strategies in 2002 which were geared primarily toward meeting our
Senior Note obligations due January 15, 2003. In order to meet these
objectives and position the Company for future growth, we curtailed our
drilling and overall capital expenditure programs and sold certain non-core
assets. These actions allowed us to reduce debt and negotiate the financing
necessary to pay off the remaining portion of the maturing Senior Notes during
a challenging period in the capital markets. We also focused on developing new
prospects in our core areas that could be developed early in 2003. As a
result, we exited the year in a stronger financial position, with increased
financial flexibility, a focused asset base in our core areas, and a quality
multi-year drilling prospect inventory. We have now turned our attention to
building value through oil and gas reserve and production growth, and remain
committed to further debt reduction."
Financial Highlights
($ thousands except per share)
12 mos. 2002 12 mos. 2001
Revenue $118,819 $ 191,991
Operating Income $29,481 $80,648
Income Before Income Taxes $9,815 $57,220
Income (Loss) Before Accounting Change $(3,948) $65,579
Net Income (Loss) $(10,114) $65,579
Diluted Earnings (Loss) Per
Share Before Accounting Change $(0.14) $1.69
Diluted Earnings (Loss) Per Share $(0.31) $1.69
Note: 2002 includes non-cash charges of $15.9 million related to the
write-off of net deferred tax assets and $6.2 million for the cumulative
effect of an accounting change to the "units of production" method of
amortizing oil and gas properties.
4th Qtr. 2002 4th Qtr. 2001
Revenue $29,246 $ 30,778
Operating Income $ 8,445 $276
Net Income (Loss) $ 3,349 $(3,628)
Diluted Earnings (Loss) Per Share $0.08 $(0.11)
Total revenue was $118.8 million in 2002 compared to $192.0 million in
2001. Oil and gas revenue decreased $54.4 million due to a 14% reduction in
average realized oil and gas prices and a 20% decline in production. The
production declines were the result of the sale of non-core properties, the
expiration of the Company's remaining VPP's, and the natural decline of
production from existing properties, which was not fully offset by production
from new reserves added due to the reduced capital spending program. Other
revenue was down $18.7 million in 2002 compared to 2001 primarily due to non-
recurring sales of emission credits and non-cash gains on derivative
instruments in 2001. In 2002, lifting costs (lease operating expenses and
production taxes) were reduced by 20% to $30.8 million and general and
administrative expenses were reduced 7% to $8.3 million. In addition, we
reduced interest expense 9% to $19.9 million, primarily as a result of ongoing
debt reduction. Income before income taxes for 2002 was $9.8 million, compared
to $57.2 million in 2001. However, at June 30, 2002, the Company increased
its deferred income tax valuation allowance by $15.9 million, thereby reducing
to zero the carrying value of net deferred tax assets with a corresponding
non-cash charge to income tax expense. This resulted in a net loss before
cumulative effect of accounting change for 2002 of $3.9 million. The
cumulative effect of a change to the units of production method of accounting
for depreciation, depletion and amortization of oil and gas properties was a
$6.2 million charge, resulting in a net loss for 2002 of $10.1 million,
compared to net income of $65.6 million in 2001.
For the three months ended December 31, 2002, net income was $3.3 million
compared to a net loss of $3.6 million for the same period in 2001 as a result
of rebounding natural gas and oil prices and lower operating expenses in the
current year period. The net loss in the 2001 period reflected a $3.7 million
reserve against receivables due from an Enron affiliate.
Operating Highlights
Despite the capital constraints, KCS drilled 53 wells in 2002 with a 74%
success ratio. Oil and gas reserves were 196 Bcfe at December 31, 2002 with an
associated SEC PV-10 value of $344 million based on year-end prices of $4.74
per Mmbtu and $28.00 per Bbl. The Company replaced 150% of net production
with reserve additions of 39.3 Bcfe at an average finding and development cost
of $1.21 per Mcfe. Property sales totaled 26.7 Bcfe and reserve revisions were
a negative 20.8 Bcfe, largely due to the removal of certain proved undeveloped
(PUD) locations in Wyoming and downward revision of certain Michigan
properties. Production volumes in the fourth quarter declined to 89 Mmcfepd
primarily as a result of property sales, the expiration of the Company's VPP
program, hurricane related downtime in the Gulf of Mexico and normal declines
associated with reduced capital expenditures.
While drilling activity was largely curtailed throughout the fourth
quarter, KCS participated in a number of key wells including:
-- Two wells drilled in the Panola Field in Latimer County, Oklahoma. The
Ozment Christian #1 well (KCS WI = 38.4%) was placed on line at 3,300
Mcfpd and the Shelby 27#1, operated by KCS, began production in January
at 5,600 Mcfpd (KCS WI = 31.0%).
-- The Guerra C #1 well in the La Reforma Field, Hidalgo County, Texas
(KCS WI = 25%) was drilled by Newfield Exploration Company to 11,500
feet and found approximately 600 feet of Vicksburg pay in six zones.
The well tested in late 2002 at 9,450 Mcfpd from two deeper zones and
in February a temporary plug was set and three shallower zones tested
at an initial rate of 14,200 Mcfpd. Upon completion of a testing
period and facility expansion, the well will be evaluated for
commingling of the lower zones and rate increases. The Company is
assessing an offset location and other prospects in the area.
-- The KCS operated Thomas 16 #1 well in the West Arcadia Field, Bienville
Parish, Louisiana was completed in Hosston intervals in December at an
initial rate of 3,200 Mcfpd (KCS WI = 53%).
-- Development of the Elm Grove Field in north Louisiana continued with
the drilling of two wells in the fourth quarter; the Pilkington 5#2
(KCS WI = 100%) commenced production at 1,200 Mcfpd in the Cotton
Valley formation and the Roos #10 (KCS WI = 100%) was completed in a
Hosston zone at 960 Mcfpd.
2003 Activity
With the completion of the financing and repayment of the Senior Notes in
January and the strong natural gas and oil price environment, KCS has
accelerated its drilling and workover programs in 2003 with the following
results to date:
-- The Georgia Hoff #1 exploration well (KCS WI = 25%) was drilled in
Goliad County, Texas and found several stacked Wilcox sands. The well
was tested at a rate of 5,700 Mcfpd, and was placed on production in
early March.
-- The Weyerhauser 2-22 well in the Talihina Field in Latimer County,
Oklahoma, reached total depth in the third quarter of 2002 and began
production in late January 2003 at an initial rate of 3,200 Mcfpd
(KCS WI = 32.1%). Two offset locations have been staked and will be
drilled in 2003.
-- Three Sawyer Canyon Field wells in Sutton County, Texas have been
drilled and completed, and are producing at a combined rate of 1,800
Mcfpd (KCS WI = 92%). An additional 10 to 15 well drilling program in
this field has commenced and should be completed by mid-year.
-- Continuing the development program in the Elm Grove Field in north
Louisiana, the Pilkington 5#3 well (KCS WI=100%) has been drilled and
completed in the lower Cotton Valley formation. The well was turned on
line in late February at a rate of 2,100 Mcfpd. Six workovers have
also been completed recently, adding 3,000 Mcfpd of production. At
least six drill wells and additional workovers are planned for the Elm
Grove Field this year.
KCS anticipates drilling between 60 and 80 wells in 2003 with an initial
budget of $50 million. Two thirds of the exploration and development budget is
allocated to the Mid-Continent region and one third to the Gulf Coast region.
Thirteen wells were drilled in the first quarter with only one dry hole. The
Company anticipates spudding 7-10 wells per month for the next four months.
Commenting on the current activity, Chief Operating Officer William N.
Hahne stated, "Capital was curtailed throughout 2002, particularly in the
fourth quarter, to conserve cash for the retirement of the Senior Notes. But
in 2003, we are off and running with an exciting capital program that should
grow production and reserves. We have an excellent mix of low risk
development projects in the Sawyer Canyon and Elm Grove fields and higher
impact drilling projects in the Panola, Talihina, La Reforma and East Marshall
fields as well as other Gulf Coast exploration projects. The current pricing
levels significantly increase the impact of these drilling opportunities."
Hedging Program
The Company has entered into a series of transactions designed to limit
exposure to downside price movements, yet participate in increasing prices.
These transactions include a combination of purchased $4.25 per Mmbtu floors
covering 0.9 Bcf for June to November 2003 and three-way collars covering
approximately 2.6 Bcf of production for April through November 2003. These
three way collars have an average floor price of $4.61 and allow the Company
to retain all upside prices movements, except for the portion of realized
prices between $5.78 and $6.28. In addition to these hedges, the Company has
entered into fixed price sales contracts covering 0.8 Bcf at an average price
of $5.07 for January through June and oil price swaps covering 45,000 barrels
of oil at a $31.06 for February through April. Commenting on the Company's
hedging program, Harry Lee Stout, Senior Vice President, Marketing and Risk
Management said "KCS will continue to monitor the oil and gas price
environment and intends to continue to layer in additional hedges and fixed
price sales contracts to ensure cash flow to support its drilling program
while enabling the Company to participate in potential price increases".
The Company's 2003 hedge transactions are summarized in the following
table.
Average
2003 Average Equivalent
Type Period Daily Volume NYMEX Price
Gas Fixed Jan.-June 4,650 Mcfpd $5.07 (at point of sale)
Floors June-Nov. 5,000 Mcfpd $4.25
3 Way April-Nov. 10,635 Mcfpd $4.61-5.78/6.28
Oil Swap Feb.-April 500 Bopd $31.06
2003 Outlook
Production (BCFE)
WI 31-35
Production Payment (6.8)(a)
LOE ($MM) 23-25
G&A ($MM) 7.5-8.5
DD&A 42-46
Interest Expense ($MM) 18-19
Capital Expenditures ($MM) 50
(a) The production committed to this production payment will continue to
be reflected as amortization of deferred revenue at the weighted
average net discounted price of approximately $4.05 per Mcfe.
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 .
To receive KCS' latest news and other corporate developments via fax at no
cost, please call 1-800-PRO-INFO. Use Company code KCS. See also
http://www.frbinc.com .
The following abbreviations are utilized herein:
WI - Working Interest
SEC PV-10 - Standardized measure of discounted future net cash flows
discounted at 10%.
Mcf - thousand cubic feet of natural gas
Bcf - billion cubic feet of natural gas
Bcfe - billion cubic feet of natural gas equivalent
Btu - British thermal unit, which is the quantity of heat required to
raise the temperature of one pound of water from 58.5 to 59.5 degrees
Fahreheit.
Mcfpd - thousand cubic feet of natural gas per day
Mmbtu - one million Btus
Mmcfepd - million cubic feet of natural gas equivalent per day
Bcpd - barrels of condensate per day
Bopd - barrels of oil per day
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, fluctuations 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 Energy, Inc.
Condensed Income Statements
Three Months Ended Twelve Months Ended
(Amounts in Thousands December 31, December 31,
Except Per Share Data) 2002 2001 2002 2001
Oil and gas revenue $29,446 $30,453 $120,002 $174,434
Other revenue, net (200) 325 (1,183) 17,557
Total revenue 29,246 30,778 118,819 191,991
Operating costs and expenses
Lease operating expenses 5,907 6,697 25,246 30,456
Production taxes 1,176 1,566 5,589 8,195
General and administrative
expenses 2,117 1,764 8,255 8,885
Stock compensation 116 898 782 1,419
Bad debt expense 100 4,074 215 4,074
Depreciation, depletion and
amortization 11,385 15,503 49,251 58,314
Total operating costs and expenses 20,801 30,502 89,338 111,343
Operating income 8,445 276 29,481 80,648
Interest and other income 158 109 279 1,319
Interest expense (5,624) (4,723) (19,945) (21,799)
Income (loss) before reorganization
items and income taxes 2,979 (4,338) 9,815 60,168
Reorganization items - - - (2,948)
Income (loss) before income taxes 2,979 (4,338) 9,815 57,220
Federal and state income tax
expense(benefit) (370) (710) 13,763 (8,359)
Net income (loss) before cumulative
effect of accounting change 3,349 (3,628) (3,948) 65,579
Cumulative effect of accounting
change - - (6,166) -
Net income (loss) 3,349 (3,628) (10,114) 65,579
Accretion and dividends on
preferred stock (189) (1,020) (1,028) (1,761)
Income (loss)available for
common stockholders $3,160 $(4,648) $(11,142) $63,818
Earnings (loss) per share of
common stock - basic
Before cumulative effect of
accounting change $0.09 $(0.13) $(0.14) $2.02
Cumulative effect of accounting
change - - (0.17) -
Earnings (loss) per share of
common stock - basic $0.09 $(0.13) $(0.31) $2.02
Earnings (loss) per share of
common - diluted
Before cumulative effect of
accounting change $0.08 $(0.13) $(0.14) $1.69
Cumulative effect of accounting
change - - (0.17) -
Earnings (loss) per share of
common stock - diluted $0.08 $(0.13) $(0.31) $1.69
Average shares outstanding for
computation of earnings per share
Basic 36,429 34,508 35,834 31,668
Diluted 40,969 34,508 35,834 38,828
KCS Energy, Inc.
Condensed Balance Sheets
December 31,
(Thousands of Dollars) 2002 2001
Assets
Cash $6,935 $22,927
Trade accounts receivable, net 16,863 20,342
Other current assets 3,396 6,718
Property, plant and equipment, net 240,294 278,677
Deferred charges and other assets 645 18,062
Total assets $268,133 $346,726
Liabilities and stockholders' (deficit) equity
Accounts payable and accrued liabilities $35,499 $43,951
Accrued interest 8,174 9,089
Deferred revenue 66,582 111,880
Deferred credits and other liabilities 961 877
Long-term debt 186,774 204,800
Preferred stock 12,859 15,589
Stockholders' (deficit) equity (42,716) (39,460)
Total liabilities and stockholders'
(deficit) equity $268,133 $346,726
Condensed Statements of Cash Flow
Twelve Months Ended
December 31,
2002 2001
Net income (loss) $(10,114) $65,579
DD&A 49,251 58,314
Amortization of deferred revenue (45,182) (63,089)
Other non-cash charges and credits, net 27,617 7,934
Reorganization items - (2,948)
21,572 65,790
Net changes in assets and liabilities (747) 117,629
Net cash provided by operating activities 20,825 183,419
Cash flow from investing activities:
Investment in oil and gas properties (48,596) (85,033)
Proceeds from sale of oil and gas properties 30,474 5,100
Other capital expenditures, net 56 (2,159)
Net cash used in investing activities (18,066) (82,092)
Cash flow from financing activities:
Net decrease in debt (18,026) (146,905)
Issuance of convertible preferred stock, net - 28,412
Other financing activities (725) 99
Cash flow used by financing activities (18,751) (118,394)
Decrease in cash and cash equivalents $(15,992) $(17,067)
KCS Energy, Inc.
Supplemental Data
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
Production data:
Natural gas (MMcf) 6,402 8,581 29,672 36,873
Oil (Mbbl) 227 296 1,003 1,230
Liquids (Mbbl) 67 98 288 373
Summary (MMcfe):
Working Interest 7,861 9,958 34,959 41,966
VPP 305 987 2,458 4,525
Total 8,166 10,945 37,417 46,491
Other data:
Average realized prices *
Gas (per Mcf) $3.70 $2.88 $3.25 $3.90
Oil (per bbl) $21.89 $15.86 $20.52 $20.67
Liquids (per bbl) $11.69 $10.87 $10.05 $13.74
Total (per Mcfe) $3.61 $2.78 $3.21 $3.75
* Includes the effects of hedging.
SOURCE KCS Energy, Inc.
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Related links:
http://www.kcsenergy.com
http://www.frbinc.com
CONTACT:
James W. Christmas, President and CEO of KCS
Energy, +1-713-877-8006; or General Info, Marilynn Meek,
+1-212-445-8451, Analyst Info, Peter Seltzberg, +1-212-445-8457,
or Media, Suzie Pileggi, +1-212-445-8170, all of FRB Weber
Shandwick
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