Drilling Activity Continues to Ramp Up
Solid Cash Flow Drives Further Debt Reduction
HOUSTON, May 8 /PRNewswire-FirstCall/ -- KCS Energy, Inc. (NYSE: KCS)
today announced financial and operating results for the three months ended
March 31, 2003.
Commenting on the quarter, KCS Chairman and Chief Executive Officer
James W. Christmas said, "I am pleased to report that we are off to a strong
start in 2003 with very solid earnings and cash flow for the quarter. We
entered 2003 a much stronger company from both a financial and operational
standpoint. Having executed on our 2002 strategies, we are well positioned to
capitalize on the current natural gas and oil price environment and to build
value through oil and gas reserve and production growth and continued debt
reduction. We are off to an excellent start in our drilling program, having
drilled 14 wells in the first quarter, of which 13 were successful.
We have since ramped up our drilling activity further and have increased
our capital expenditure budget to $55 million, and anticipate drilling 25-30
wells in the second quarter. With production beginning to increase as a
result of our successful drilling program and commodity prices remaining
strong, the second quarter is off to a very good start. In addition, we
recently sold emission credits for $4.7 million and continue to make great
strides in reducing our debt. Since closing on our new $90 million credit
facility on January 14, 2003, we have repaid $19.3 million of the
$69.3 million initial borrowing."
Financial Highlights
($ thousands except per share)
3 mos. 2003 3 mos. 2002
Revenue $40,440 $28,824
Operating Income $18,941 $5,422
Income Before Accounting Change $14,836 $1,258
Net Income (Loss) $13,902 $(4,908)
Diluted Earnings (Loss) Per Share Before
Accounting Change $0.36 $0.03
Diluted Earnings (Loss) Per Share $0.34 $(0.15)
Note: 2003 includes a non-cash charge of $0.9 million for the cumulative
effect of an accounting change as a result of the adoption of SFAS
No. 143, "Accounting for Asset Retirement Obligations" and 2002
includes a non-cash charge of $6.2 million for the cumulative
effect of an accounting change to the "units of production" method
of amortizing oil and gas properties.
Revenue increased 40% to $40.4 million for the three months ended
March 31, 2003 from $28.8 million for the same period a year ago. This was
driven primarily by a 91% increase in average realized natural gas prices and
a 61% increase in average realized oil and liquids prices, partially offset by
a 27% decrease in production. The production declines were primarily due to
the 2002 sales of non-core properties and expiration of the Company's
remaining VPP's. Total operating costs and expenses decreased 8% to
$21.5 million in the quarter and interest expense decreased 4% to
$4.6 million. As a result, income before the cumulative effect of an
accounting change was $14.8 million compared to $1.3 million for the first
quarter of last year. As previously reported, the cumulative effect of an
accounting change as a result of the adoption of SFAS No. 143, "Accounting for
Asset Retirement Obligations" was $0.9 million for the current three-month
period. For the three months ended March 31, 2002, the cumulative effect of
an accounting change to the units-of-production method of amortizing
capitalized costs related to oil and gas properties was $6.2 million. Net
income was $13.9 million for the three months ended March 31, 2003 compared to
a net loss of $4.9 million for the three months ended March 31, 2002.
Operating Highlights
"The combination of lower drilling and completion costs, high oil and gas
prices and a substantial prospect inventory have provided a unique environment
for KCS to take advantage of and create value for its shareholders," stated
William N. Hahne, President and Chief Operating Officer.
For the quarter, KCS drilled fourteen wells with a 93% success rate and
continues to ramp up its drilling activity. Highlights included:
-- The commencement of a 20 well drilling program in the Sawyer Canyon
Field in Sutton County, Texas. Four wells were drilled in the first
quarter and eight wells have been completed year to date with average
initial production rates of 360 Mcfpd per well (KCS WI = 92%). If the
success of this phase of the drilling program continues, additional
capital may be allocated for further development of this field during
the second half of the year.
-- Four wells were drilled and six workovers completed in the Elm Grove
Field in Bossier Parish, north Louisiana. The Pilkington 5-3 (KCS WI =
100%), Pilkington 5-4 (KCS WI = 100%) and Womack 11-2 (KCS WI = 33%)
were completed at initial rates of 2,100 Mcfpd, 2,300 Mcfpd and 1,840
Mcfpd respectively. The workover program yielded a combined rate of
3,000 Mcfpd of new production (KCS WI = 100%). Elm Grove Field net
production has been increased from a 2002 average of 4,800 Mcfpd to
12,500 Mcfpd in April. Since the end of the quarter, two additional
wells and one workover have been completed. The Roos 12 and Roos 13
(KCS WI = 100%) tested at initial rates of 1,800 and 3,000 Mcfpd
respectively. The Company anticipates running two drilling rigs in the
Elm Grove Field for the majority of 2003.
-- KCS drilled its first well in a new Joaquin Field project, the Ellis
Unit # 4 (KCS WI = 100%), which tested at initial rates of 2,000 and
2,300 Mcfpd from two of four completion intervals. This play is a
development project to drill and commingle stacked Travis Peak sands in
east Texas. The Company anticipates drilling 5-7 additional wells in
this field in 2003.
-- Early in the second quarter, the Prasek #1 (KCS WI = 57%) in the Dolan
Field in Live Oak County, Texas was re-completed to a zone which tested
at 6,400 Mcfpd. An offset location, the Prasek-Dolan Unit #1, has
recently reached total depth and will be completed shortly. An
additional development well will spud with the same rig in the second
quarter.
-- The KCS Cooley #11 (KCS WI = 50%) recently reached total depth and
logged three apparently productive pay sands in the West Mission Valley
Field in Goliad County, south Texas. This is the first of a four well
development program in this field.
KCS currently has six rigs drilling, including one rig in Sutton County,
Texas, two rigs in south Texas and three rigs in north Louisiana/ east Texas.
Working interest production averaged 84 Mmcfepd during the first quarter,
which was consistent with the working interest production levels experienced
during the fourth quarter of 2002. Recent production increases from the 2003
drilling program should start to impact reported volumes in the second
quarter. The Company exited the first quarter with a field estimated
production rate of approximately 89 Mmcfepd.
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 2.9 Bcf of production for April through November 2003. These
three way collars have an average floor price of $4.71 and allow the Company
to retain all upside prices movements, except for the portion of realized
prices between $5.79 and $6.27. In addition to these hedges, the Company has
entered into fixed price sales contracts covering 0.7 Bcf at an average price
of $5.17 for April through August and oil price swaps covering 15,000 barrels
of oil at $31.06 for April. Commenting on the Company's hedging program,
Harry Lee Stout, Senior Vice President, Marketing and Risk Management said
"KCS continues 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 April-August 4.7 Mmcfpd $5.17 (at point of sale)
Floors June-Nov. 5.0 Mmcfpd $4.25
3 Way April-Nov. 11.9 Mmcfpd $4.71-5.79/$6.27
Oil Swap April 500 Bopd $31.06
2003 Outlook
Previous Revised
Production (Bcfe)
WI 31-35 32-36
Production Payment (6.8)(a) (6.8)(a)
LOE ($MM) 23-25 24-26
G&A ($MM) 7.8-8.5 7.5-8.5
DD&A 42-46 43-47
Interest Expense ($MM) 18-19 17-18
Capital Expenditures ($MM) 50 55
(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
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
Mmcfpd -- million 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
(Amounts in Thousands March 31,
Except Per Share Data) 2003 2002
Oil and gas revenue $39,647 $29,357
Other revenue, net 793 (533)
Total revenue 40,440 28,824
Operating costs and expenses
Lease operating expenses 6,331 6,536
Production taxes 2,293 1,323
General and administrative expenses 1,800 2,127
Stock compensation 154 316
Accretion of asset retirement obligation 279 -
Depreciation, depletion and amortization 10,642 13,100
Total operating costs and expenses 21,499 23,402
Operating income 18,941 5,422
Interest and other income 27 70
Interest expense (4,614) (4,830)
Income before income taxes 14,354 662
Federal and state income tax benefit (482) (596)
Net income before cumulative effect of
accounting change 14,836 1,258
Cumulative effect of accounting change (934) (6,166)
Net income (loss) 13,902 (4,908)
Accretion and dividends on preferred stock (309) (253)
Income (loss) available for common
stockholders $13,593 $(5,161)
Earnings (loss) per share of common
stock - basic
Before cumulative effect of accounting
change $0.38 $0.03
Cumulative effect of accounting change (0.02) (0.18)
Earnings (loss) per share of common
stock - basic $0.36 $(0.15)
Earnings (loss) per share of common stock -
diluted
Before cumulative effect of accounting
change $0.36 $0.03
Cumulative effect of accounting change (0.02) (0.18)
Earnings (loss) per share of common
stock - diluted $0.34 $(0.15)
Average shares outstanding for computation
of earnings per share
Basic 37,436 34,986
Diluted 41,120 34,986
KCS Energy, Inc.
Condensed Balance Sheets
March 31, December 31,
(Thousands of Dollars) 2003 2002
Assets
Cash $2,356 $6,935
Trade accounts receivable, net 27,601 16,863
Other current assets 2,285 3,396
Property, plant and equipment, net 252,143 240,294
Deferred charges and other assets 2,676 645
Total assets $287,061 $268,133
Liabilities and stockholders' deficit
Accounts payable and accrued liabilities $42,722 $35,499
Accrued interest 2,813 8,174
Deferred revenue 58,359 66,582
Deferred credits and other liabilities 12,361 961
Long-term debt 185,500 186,774
Preferred stock 9,101 12,859
Stockholders' deficit (23,795) (42,716)
Total liabilities and stockholders' deficit $287,061 $268,133
Condensed Statements of Cash Flow
Three Months Ended
March 31,
2003 2002
Net income (loss) $13,902 $(4,908)
DD&A 10,642 13,100
Amortization of deferred revenue (8,223) (13,002)
Other non-cash charges and credits, net 2,273 7,121
18,594 2,311
Net changes in assets and liabilities (8,511) (12,760)
Net cash provided by (used in) operating
activities 10,083 (10,449)
Cash flow from investing activities:
Investment in oil and gas properties, net (10,975) (15,243)
Other capital expenditures, net (225) (54)
Net cash used in investing activities (11,200) (15,297)
Cash flow from financing activities:
Net increase (decrease) in debt (1,274) 3,546
Other financing activities (2,188) (221)
Cash flow provided by (used in)
financing activities (3,462) 3,325
Decrease in cash and cash equivalents $(4,579) $(22,421)
KCS Energy, Inc.
Supplemental Data
Three Months Ended
March 31,
2003 2002
Production data:
Natural gas (MMcf) 5,975 8,312
Oil (Mbbl) 215 269
Liquids (Mbbl) 48 71
Summary (MMcfe):
Working Interest 7,552 9,469
VPP - 879
Total 7,552 10,348
Other data:
Average realized prices *
Gas (per Mcf) $5.51 $2.88
Oil (per bbl) $27.48 $17.70
Liquids (per bbl) $17.27 $9.03
Total (per Mcfe) $5.25 $2.84
* Includes the effects of hedging.
SOURCE KCS Energy, Inc.
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Related links:
http://www.kcsenergy.com
CONTACT:
James W. Christmas, Chairman and CEO of KCS
Energy, Inc., +1-713-877-8006; or General Info, Marilynn Meek,
+1-212-445-8451, Analyst Info, Peter Seltzberg, +1-212-445-8457,
or Media Info, Suzie Pileggi, +1-212-445-8170, all of FRB Weber
Shandwick
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