Production Up 16% to 15.4 Bcfe Despite 1.3 Bcfe Deferral Due to Storm
Activity; Earnings Affected by Low Energy Prices
Drilling Program Showing Excellent Results -- Two Significant Discoveries
EDISON, N.J., Nov. 16 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced that low commodity prices continue to adversely impact earnings and
cash flow. Despite a 16% increase in production for the quarter over the
prior-year period, energy prices, which were 14% lower than the comparable
prior-year period, and higher interest costs resulted in a third quarter loss
of $3.6 million, or $0.12 per share, compared to net income of $1.6 million,
or $0.05 per share, in the prior-year period. Earnings before interest,
taxes, depreciation, depletion and amortization, and other income ("EBITDA")
were $20.4 million, or $0.69 per share, compared to $21.7 million, or $0.72
per share, in the prior-year period. Cash flow before changes in working
capital was $14.2 million, or $0.48 per share, compared to $16.7 million, or
$0.56 per share, in the prior-year period. The 1998 quarter's earnings were
also adversely affected by the loss of $0.5 million of federal income tax
credits claimed in prior periods as a result of a Net Operating Loss carry
back claim which increased cash flow by $3.2 million.
The net loss for the nine-month period ended September 30, 1998 was $42.6
million, or $1.44 per share, which, as reported in the second quarter,
included a non-cash ceiling writedown of $57.6 million pre-tax ($37.5 million
after-tax), due to the depressed level of second quarter energy prices. The
Company recorded this non-cash writedown in accordance with accounting
procedures prescribed by the Securities and Exchange Commission, which require
a "ceiling test" whereby capitalized oil and gas property costs are limited to
the present value of future net revenues from estimated production of proved
oil and gas reserves, discounted at 10%. The test assumed that all of the
Company's future production will be produced at the low energy prices in
effect at June 30, 1998. Without the effect of the non-cash ceiling
writedown, the Company's year-to-date net loss would have been $5.1 million,
or $0.17 per share, compared to net income from continuing operations of $9.3
million, or $0.32 per share, for the nine-month period ended September 30,
1997.
Production for the Quarter Averaged 167.7 MMcfe per Day Despite Storm
Curtailments
The Company's oil and gas production of 15.4 billion cubic feet equivalent
(Bcfe) during the quarter was 16% higher than the prior-year period and
essentially flat with production levels for the second quarter of 1998. Six
separate storm conditions during the quarter had the effect of deferring
approximately 1.3 Bcfe of Gulf of Mexico production. "Although we were
pleased with the increase over 1997 production levels, we had hoped to realize
an increase over our record second quarter production levels as well," said
James W. Christmas, President and Chief Executive Officer. "Had the storms
not curtailed production, production for the quarter would have been 8.3%
higher than the record second quarter levels."
Success in the Company's drilling program as well as increased volumes
under the Volumetric Production Payment (VPP) program contributed to the
increased production levels.
Operations Highlights
In the Gulf of Mexico, the Company's third quarter production benefited
from the completion of the Brazos 544 #1 well, which went on line in late
July. This well is currently producing at a rate of 8.0 million cubic feet of
natural gas per day and 65 barrels of condensate per day, net to KCS. The
completion of the South Marsh Island 17 #1 well at a rate of 2.5 million cubic
feet per day, net to KCS added to VPP production. Since the end of the third
quarter, two High Island 303/304 wells covered by the VPP program have been
placed on production at a combined rate of 16.4 million cubic feet per day,
net to KCS and will contribute to growing fourth quarter production.
The Company continued its solid drilling program in the third quarter.
"Year to date, we have drilled 64 exploration and development wells, of which
67% have been successful," said William N. Hahne, Senior Vice President and
Chief Operating Officer. Thirty-nine of these wells have been drilled in our
Mid-Continent Division with a 72% success rate. In the third quarter, the
Company participated in a number of successful wells, including three Oakhill
exploitation wells in Rusk County, Texas. The first two have been completed
and are on line at a combined rate of 2.5 million cubic feet per day. KCS has
a 30%-43% average working interest in these wells, varying by lease.
The Company recently completed the West Shugart Federal #19-1, a
significant well in Eddy County, New Mexico, in which it has a 100% working
interest. During a 24-hour test from the Permian Bone Springs formation, the
well flowed of a rate of 1,000 barrels of oil per day and 0.2 million cubic
feet of gas per day. The well will ultimately be produced at a controlled
rate of approximately 230 barrels of oil per day in keeping with New Mexico
oil production allowables. This well has four additional potentially
productive zones. The Company owns sufficient acreage surrounding the Federal
#19-1 to drill several offset wells.
In Ouachita Parish, Louisiana, the Company completed its Butler #1 well in
the Davis sand. This well, in which the Company has a 36.6% working interest,
went on line after fracture stimulation at a rate of 1.0 million cubic feet of
gas per day and 50 barrels of condensate per day. Additionally, there are
four more productive Cotton Valley sands shallower in the well. This is the
second productive well drilled by KCS in the Calhoun Field with additional
drilling planned for these productive horizons in offsetting sections.
In the Gulf Coast Division, KCS participated in a recent exciting
discovery in the Mississippi Salt Basin. The Clay 11-A well found
approximately 100 feet of pay in the Smackover Formation at 16,500 feet. KCS
owns a 20% working interest in this well and the expected offsets. The well
tested, upon initial completion, at a rate of 3.5 million cubic feet of gas
per day and 960 barrels of oil per day at 7,900 PSI flowing tubing pressure.
Production facilities are currently being designed. KCS has also committed to
a 3-D based exploration program which encompasses 7,400 adjacent gross acres
with similar geology.
Looking to the future, KCS has entered into an exploration alliance that
covers 41,500 acres in South Texas and anticipates 11 initial wells. "The
Company also has agreed to operate and participate in an exploration agreement
with three other operators to explore an area adjacent to the Manderson Field
in the Big Horn Basin of Wyoming. In addition, KCS is leading a significant
3-D shoot in South Louisiana. With these exploration opportunities
supplementing our identified development locations, it's clear 1999 will be an
exciting year," Hahne said.
In the first nine months of 1998, KCS invested $140.5 million in its
capital program. For the full year, the Company expects to spend
approximately $155 million, or $5 million less than originally budgeted.
KCS is an independent energy company engaged in the acquisition,
exploration, development and production of natural gas and crude oil with
operations in the Gulf Coast, Mid-Continent and Rocky Mountain regions. The
Company also owns oil and gas property interests in the Gulf of Mexico and
Michigan's Niagaran Reef trend.
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.
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 Nine Months Ended
(Amounts in Thousands September 30, September 30,
Except Per Share Data) 1998 1997 1998 1997
Oil and gas revenue $30,446 $30,573 $92,309 $100,396
Other revenue, net 1,831 1,095 4,940 3,702
Total revenue 32,277 31,668 97,249 104,098
Operating costs and expenses
Lease operating expenses 8,075 6,771 22,993 20,470
Production taxes 961 1,268 3,019 4,354
General and administrative 2,873 1,964 8,465 7,302
Depreciation, depletion
and amortization 15,567 13,921 43,942 42,486
Writedown of oil and
gas properties -- -- 57,631 --
Total operating costs
and expenses 27,476 23,924 136,050 74,612
Operating income (loss) 4,801 7,744 (38,801) 29,486
Interest and other
income, net (82) 158 117 388
Interest expense (9,787) (5,348) (26,589) (15,146)
Income (loss) before income
taxes (5,068) 2,554 (65,273) 14,728
Federal and state income
taxes (benefit) (1,487) 975 (22,675) 5,452
Net income (loss) from
continuing operations (3,581) 1,579 (42,598) 9,276
Net income (loss) from
discontinued operations
Net loss from operations -- -- -- (72)
Net gain on disposition -- -- -- 5,461
Net income (loss) $(3,581) $1,579 $(42,598) $14,665
Basic earnings (loss) per share
of common stock
Continuing operations $(0.12) $0.05 $(1.44) $0.32
Discontinued operations -- -- -- 0.19
Total basic earnings (loss)
per share $(0.12) $0.05 $(1.44) $0.51
Diluted earnings (loss) per share
of common stock
Continuing operations $(0.12) $ 0.05 $(1.44) $0.32
Discontinued operations -- -- -- 0.18
Total diluted earnings
(loss) per share $(0.12) $0.05 $(1.44) $0.50
Average shares outstanding
for computation
of earnings per share
Basic 29,537 29,377 29,486 28,670
Diluted 29,537 29,973 29,486 29,177
KCS Energy, Inc.
Condensed Balance Sheets
September 30, December 31,
(Thousands of Dollars) 1998 1997
Assets
Cash $1,176 $4,802
Other current assets 43,132 46,867
Property, plant and equipment, net 465,271 426,333
Deferred taxes and other assets 46,746 24,412
Total assets $556,325 $502,414
Liabilities and stockholders' equity
Current liabilities $34,644 $64,024
Deferred credits and other liabilities 1,449 875
Long-term debt 420,012 292,445
Stockholders' equity 100,220 145,070
Total liabilities and stockholders' equity$556,325 $502,414
Condensed Statements of Cash Flow
Nine Months Ended
September 30,
1998 1997
Net income (loss) $(42,598) $14,665
DD&A 43,942 42,486
Writedown of oil and gas properties 57,631 --
Gain on sale of discontinued operations -- (5,461)
Deferred income taxes (20,130) 4,581
Other 2,038 1,320
40,883 57,591
Net changes in assets and liabilities (25,460) 4,304
Net cash provided by operating activities 15,423 61,895
Cash flow from investing activities:
Investment in oil and gas properties (143,214) (169,773)
Proceeds from sale of pipeline assets -- 27,907
Proceeds from sale of oil and gas properties 4,895 3,800
Investment in other property, plant
and equipment (2,189) (2,111)
Net cash used in investing activities (140,508) (140,177)
Cash flow provided by financing activities 121,459 77,040
Net decrease in cash and cash equivalents $(3,626) $(1,242)
EBITDA (from continuing operations)(a) $62,772 $71,972
(a) Earnings before interest, taxes, DD&A, and other income. EBITDA is
not a measure of financial performance or liquidity under generally
accepted accounting principles and should not be considered in isolation.
KCS Energy, Inc.
Supplemental Data
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Production data:
Gas (MMcf) 12,728 10,647 36,365 32,806
Oil (Mbbl) 428 413 1,285 1,295
Liquids (Mbbl) 22 30 78 101
Total production (MMcfe)15,430 13,308 44,542 41,180
Other data:
Average sales prices
Gas (per Mcf) $2.00 $2.17 $2.11 $2.28
Oil (per bbl) 11.10 17.46 11.60 18.92
Liquids (per bbl) 10.56 9.39 7.85 11.05
Total (per Mcfe) 1.97 2.30 2.07 2.44
SOURCE KCS Energy, Inc.
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Related links:
http://www.frbinc.com
CONTACT:
Kathryn M. Kinnamon, VP and Treasurer,
732-632-1770, or Paul S. Samett, SVP and CFO, 732-549-6811, both
of KCS Energy, Inc.; or, Marianne Stewart, General Information,
or, Claudine Cornelis, Media, 212-661-8030, or Beth Lewis,
Analyst, 617-342-7003, all of The Financial Relations Board
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