SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information set forth below should be read in conjunction with Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and notes to those financial statements included elsewhere in this report.
Year Ended December 31,
2009 (1) 2008 2007 2006 (2) 2005
(Dollars in thousands, except per share data) Consolidated Statement of Income (Loss)
Information:
Revenues:
Natural gas . . . $ 204,758 $ 527,352 $ 552,687 $ 427,839 $384,985 Oil . . . 400,658 688,097 560,940 372,509 199,579 Other . . . 5,580 160 122 118 572 Total revenues . . . 610,996 1,215,609 1,113,749 800,466 585,136 Operating costs and expenses:
Lease operating expenses (3) . . . 203,922 229,747 234,758 113,993 75,732 Production taxes . . . 1,544 8,827 5,921 1,556 712 Gathering and transportation . . . 13,619 15,957 15,526 16,141 11,990 Depreciation, depletion and amortization . . . . 308,076 482,464 510,903 325,131 174,771 Asset retirement obligation accretion . . . 34,461 39,312 22,007 12,496 9,062 Impairment of oil and natural gas
properties (4) . . . 218,871 1,182,758 — — — General and administrative expenses (5)(6) . . 42,990 47,225 38,853 37,778 24,444 Derivative loss (gain) (7) . . . 7,372 16,464 36,532 (24,244) —
Total costs and expenses . . . 830,855 2,022,754 864,500 482,851 296,711 Operating income (loss) . . . (219,859) (807,145) 249,249 317,615 288,425 Interest expense, net of amounts capitalized . . . 40,087 34,709 37,088 17,180 1,145 Loss on extinguishment of debt (8) . . . 2,926 — 2,806 — — Other income (9) . . . 842 13,372 6,404 5,919 2,746
Income (loss) before income tax expense
(benefit) . . . (262,030) (828,482) 215,759 306,354 290,026 Income tax expense (benefit) . . . (74,111) (269,663) 71,459 107,250 101,003 Net income (loss) . . . $(187,919) $ (558,819) $ 144,300 $ 199,104 $189,023 Earnings (loss) per common share (10)
Basic . . . $ (2.51) $ (7.36) $ 1.89 $ 2.83 $ 2.91 Diluted . . . (2.51) (7.36) 1.89 2.83 2.87 Dividends on common stock (11) . . . 9,158 27,713 39,146 8,522 5,938 Cash dividends per common share (11) . . . 0.12 0.36 0.51 0.12 0.09 Consolidated Cash Flow Information:
Net cash provided by operating activities . . . $ 156,266 $ 882,496 $ 688,597 $ 571,589 $444,043 Capital expenditures – oil and natural gas
properties . . . 276,134 774,879 361,235 1,650,747 322,984
December 31, (1) In the second quarter of 2009, we sold one of our fields in Louisiana state waters, and in the fourth quarter
of 2009, we sold 36 non-core oil and natural gas fields in the Gulf of Mexico.
(2) In August 2006, we acquired working interests in approximately 100 oil and natural gas fields on 242 offshore blocks located in the Gulf of Mexico from Kerr-McGee Oil & Gas Corporation (“Kerr-McGee”) by merger.
(3) Included in lease operating expenses for the years ended December 31, 2009 and 2008 are hurricane remediation costs of $18.4 million and $17.7 million, respectively, related to Hurricanes Ike and Gustav that were either not yet approved by our insurance underwriters’ adjuster or were not covered by insurance.
Included in lease operating expenses for the years ended December 31, 2007, 2006 and 2005 are $18.5 million, $0.5 million and $1.6 million, respectively, for hurricane remediation costs that were not covered by insurance.
(4) The carrying amount of our oil and natural gas properties has been written down by $218.9 million as of March 31, 2009 through application of the full cost ceiling limitation as prescribed by the SEC, primarily as a result of lower natural gas prices at March 31, 2009, as compared to December 31, 2008. In December 2008, the carrying amount of our oil and natural gas properties was written down by $1.2 billion through application of the full cost ceiling limitation as prescribed by the SEC, primarily as a result of the significant decline in both oil and natural gas prices as of December 31, 2008. No such write-downs were required during the other years presented.
(5) In December 2004, our board of directors granted an employee bonus to all employees of record on December 31, 2004 (other than our Chief Executive Officer and our Secretary) in amounts equal to their 2004 salaries. The bonus was paid in two installments, on June 1, 2005 and January 3, 2006, to eligible individuals who were still in our employ on those dates. Approximately $2.6 million of expenses related to this bonus are included in general and administrative expenses (“G&A”) for 2005.
(6) G&A related to our long-term incentive compensation plans were $6.5 million, $11.6 million, $7.8 million,
$8.4 million and $2.3 million in 2009, 2008, 2007, 2006 and 2005, respectively.
(7) In 2009, our derivative loss of $7.4 million included the recognition of realized and unrealized losses of
$0.2 million and $5.4 million, respectively, related to our commodity derivative contracts. Also included in 2009 is an unrealized loss of $1.8 million related to our interest rate swap. In 2008, our derivative loss of
$16.5 million consisted of a realized loss of $27.4 million related to commodity derivatives offset by a gain of $17.4 million related to a change in the fair value of such derivatives. Also included in 2008 are realized and unrealized losses of $2.6 million and $3.9 million, respectively, related to our interest rate swap that was de-designated as a cash flow hedge during 2007. In 2007, our derivative loss of $36.5 million consisted of an unrealized loss of $34.3 million related to commodity derivatives offset by a realized gain of $1.3 million related such derivatives. Also included in 2007 is an unrealized loss of $3.5 million related to our interest rate swap. In 2006, our derivative gain of $24.2 million consisted of realized and unrealized gains of $10.7 million and $13.5 million, respectively, related to commodity derivative contracts.
(8) In May 2009, we repaid the Tranche B term loan facility in full with borrowings under our revolving loan facility. We incurred a loss of $2.9 million related to the write-off of all the deferred financing costs related to the Tranche B term loan facility and the write-off of a portion of the deferred financing costs related to the revolving loan facility, as well as the incurrence of other incidental costs in connection with the payoff of the Tranche B term loan facility. In June 2007, we used a portion of the proceeds from our private offering of the Notes to prepay the balance outstanding on our Tranche A term loan facility and make a
$90.0 million principal payment on our Tranche B term loan facility. We incurred a loss of $2.8 million
related to the write-off of all the deferred financing costs related to the Tranche A term loan facility and a pro-rata portion of the deferred financing costs related to the Tranche B term loan facility.
(9) Consists of interest income.
(10) Earnings (loss) per share data for 2008, 2007, 2006 and 2005 has been calculated and restated
retrospectively for comparability to the 2009 presentation. Refer to Note 16 to our consolidated financial statements.
(11) The amount for 2008 includes a special cash dividend of $20.84 million, or approximately $0.2729 per share, that was paid in December 2008. The amount for 2007 includes a special cash dividend of $30.0 million, or approximately $0.39 per share, that was declared in December 2007 and paid in January 2008.
HISTORICAL RESERVE AND OPERATING INFORMATION
The following presents summary information regarding our estimated net proved oil and natural gas reserves and our historical operating data for the years shown below. All calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the SEC and give no effect to federal or state income taxes. For additional information regarding our reserves, please read Item 1 “Business” and Item 2
“Properties.” The selected historical operating data set forth below should be read in conjunction with Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this report. Proved developed reserves as a percentage of proved reserves . . . . 76.4% 68.0% 61.9% 65.1% 64.8%
Reserve additions (reductions) (Bcfe):
(1) Estimated reserves as of December 31, 2009 are based on the unweighted average of first-day-of-the-month commodity prices over the period January 2009 through December 2009 in accordance with current definitions and guidelines set forth by the SEC. Estimated reserves as of December 31, 2008, 2007, 2006 and 2005 are based on end-of-period commodity prices in accordance with the previous definitions and guidelines of the SEC in effect on those respective dates.
(2) One billion cubic feet equivalent (Bcfe), one million cubic feet equivalent (MMcfe) and one thousand cubic feet equivalent (Mcfe) are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids (totals may not add due to rounding).
(3) Approximately 1.7 Bcfe and 53.9 Bcfe of reserves were shut-in at December 31, 2009 and 2008, respectively, because of damage caused by Hurricane Ike in September 2008. Approximately 20.2 Bcfe and 23.5 Bcfe of reserves were shut-in at December 31, 2006 and 2005, respectively, because of Hurricanes Katrina and Rita in 2005. Also, approximately 5.7 Bcfe of reserves were shut-in at December 31, 2006 because of damage to the High Island Pipeline System which occurred in December 2006.
(4) Revisions for 2009 included decreases attributable to the new reserve reporting requirements for oil and natural gas companies enacted by the SEC, which became effective for annual reporting periods ending on or after December 31, 2009. The initial application of these rules resulted in the removal of 23.2 Bcfe of proved undeveloped reserves associated with two of our fields for which our plan of development was not within five years from when the reserves were initially recorded, as required. In addition, positive revisions of 27.5 Bcfe that would have resulted from using end-of-period commodity prices as of December 31, 2009 ($76.00 per barrel for oil and natural gas liquids and $5.79 per MMBtu for natural gas) were offset by 25.1 Bcfe, the impact of which is attributable to the new requirement that oil and natural gas reserves are to be measured using the 12-month average commodity price for each product ($57.65 per barrel for oil and natural gas liquids and $3.87 per MMBtu for natural gas). Also included in the revisions of previous estimates for 2009 are negative revisions of 4.7 Bcfe due to performance. For 2008, negative revisions due to pricing, performance and hurricane damage were 105.0 Bcfe, 42.4 Bcfe and 10.1 Bcfe, respectively.
(5) Data for 2009, 2008, 2007 and 2006 includes the effects of commodity derivative contracts that did not qualify for hedge accounting. We did not have any commodity derivative contracts in place during 2005.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations