HOUSTON, Feb. 27 /PRNewswire-FirstCall/ -- The Houston Exploration
Company (NYSE:THX) today reported full-year 2006 net income of
$67.8 million, or $2.36 per diluted share. This compares with net
income of $105.2 million, or $3.62 per diluted share, reported in
2005. Excluding certain items described below and in the attached
schedules, the company's adjusted net income for 2006 was $93.0
million, or $3.24 per diluted share, versus $3.76 per diluted share
in 2005 on a comparable basis. Cash from operations before changes
in operating assets and liabilities totaled $372.1 million for the
year compared to $469.6 million reported in 2005. For the fourth
quarter 2006, the company reported a net loss of $19.4 million, or
a loss of $0.69 per diluted share. This compares with net income of
$19.8 million, or $0.68 per diluted share, in the fourth quarter
2005. Excluding certain items described below and in the attached
schedules, the company's adjusted net income for the fourth quarter
2006 was $17.2 million, or $0.62 per diluted share, versus a loss
of $0.38 per diluted share in the fourth quarter 2005. Cash from
operations before changes in operating assets and liabilities
totaled $68.8 million for the fourth quarter 2006 compared to $71.9
million during the prior year period. The comparability of the
company's full-year and fourth quarter 2006 results to those of the
prior year periods was significantly impacted by (i) the sale of
substantially all of the company's Gulf of Mexico assets during the
first half of 2006 and (ii) the production shut-ins and delays that
occurred during the fourth quarter 2005 following the hurricanes in
the Gulf of Mexico. Adjusted net income and cash from operations
before changes in operating assets and liabilities are non-GAAP
financial measures that are defined and reconciled to GAAP measures
in the attached schedules. Full-Year 2006 Results - Consolidated
Reserves and Capital. The company's estimated proved reserves as of
year- end 2006 totaled 699.3 billion cubic feet of natural gas
equivalent (Bcfe). Net reserve additions, including purchases and
revisions, were 161.1 Bcfe. Total oil and gas capital expenditures
for the year (including capitalized interest and G&A) were
$612.8 million. Production and Prices. Production for 2006 totaled
88.2 Bcfe, or 242 million cubic feet of natural gas equivalent per
day (MMcfe/d), down from 114.3 Bcfe, or 313 MMcfe/d, in 2005. This
23 percent decline in production was primarily due to the sale of
substantially all of the company's Gulf of Mexico assets during the
first half of 2006. The company's average unhedged natural gas
price for 2006 was $6.56 per thousand cubic feet (Mcf) compared to
$7.71 per Mcf in 2005. The company's average realized natural gas
price for 2006 was $5.72 per Mcf compared to $5.21 per Mcf reported
during 2005. Crude oil prices averaged $56.56 per barrel for 2006
compared to $48.43 per barrel reported during 2005. Revenues and
Expenses. Revenues for 2006 totaled $531.6 million compared to
$621.5 million during 2005, as the impact of higher realized prices
was more than offset by lower production. Total revenues for 2006
included $64.5 million of net losses associated with the company's
natural gas hedging activities compared to $264.5 million of net
losses in 2005. The current year net losses of $64.5 million were
comprised of the following: * $54.0 million of realized losses
associated with the settlement of hedge contracts; * $15.2 million
of realized losses associated with the unwinding of certain hedge
contracts following the sale of the company's Gulf of Mexico
assets; and * $4.7 million of net unrealized gains resulting
primarily from changes in the fair value of the company's hedge
portfolio, all of which is now being accounted for using
mark-to-market accounting. These non- cash gains were partially
offset by non-cash losses associated with hedge related production
shortfalls that were deferred from the fourth quarter 2005 and
other items. The company's lease operating, severance tax and
transportation expenses for 2006 totaled $1.06 per thousand cubic
feet of natural gas equivalent (Mcfe) versus $0.85 per Mcfe
reported in 2005. Depreciation, depletion and amortization and
asset retirement accretion expenses for the year were $2.92 per
Mcfe compared to $2.63 per Mcfe in 2005. As described below (see
"Fourth Quarter 2006 Results - Consolidated"), the company recorded
a non-cash charge of $19.0 million, or $0.22 per Mcfe, during 2006
to write down the carrying value of its natural gas and oil
properties. Net general and administrative expenses for 2006 were
$0.41 per Mcfe compared to $0.34 per Mcfe in the prior year. Other
income for 2006 totaled $13.5 million and was comprised of interest
earned on escrowed cash following the sale of the company's Gulf of
Mexico assets and refunds of prior years' severance tax expense,
and was partially offset by an accrual of certain unbilled prior
years' transportation expenses. Full-Year 2006 Results - Onshore
Reserves and Capital. The company's estimated onshore proved
reserves as of year-end 2006 totaled 697.1 Bcfe, up 13 percent from
year-end 2005. Net onshore reserve additions, including purchases
and revisions, were 155.3 Bcfe. Total onshore oil and gas capital
expenditures for the year (excluding capitalized interest and
G&A) were $516.8 million. Production and Prices. The company's
onshore production increased by 8 percent during 2006, to 74.4
Bcfe, or 204 MMcfe/d, compared to 68.6 Bcfe, or 188 MMcfe/d, during
2005. The company's average unhedged natural gas price for its
onshore production was $6.33 per Mcf in 2006, a decline of 15
percent from $7.44 per Mcf in 2005. Revenues and Expenses. The 15
percent decline in the company's average unhedged natural gas price
more than offset the 8 percent increase in onshore production,
resulting in a 6 percent decline in onshore oil and gas revenues
during the year, to $479.6 million, from $511.2 million in 2005.
Onshore lease operating, severance tax and transportation expenses
during 2006 totaled $1.00 per Mcfe compared to $0.82 per Mcfe
reported in 2005. Fourth Quarter 2006 Results - Consolidated
Production and Prices. Production in the fourth quarter 2006
totaled 19.5 Bcfe, or 212 MMcfe/d, down from 26.3 Bcfe, or 285
MMcfe/d, in the fourth quarter 2005. This 26 percent decline in
production primarily reflects the sale of substantially all of the
company's Gulf of Mexico assets in 2006. In addition, the company's
fourth quarter 2005 production was impacted by delays and shut-ins
that occurred following the hurricanes in the Gulf of Mexico. The
company's average unhedged natural gas price for the fourth quarter
2006 was $5.88 per Mcf compared to $10.39 per Mcf for the fourth
quarter 2005. The company's average realized natural gas price for
the fourth quarter 2006 was $5.80 per Mcf compared to $3.75 per Mcf
for the fourth quarter 2005. Crude oil prices averaged $48.28 per
barrel for the fourth quarter 2006 versus $54.02 for the comparable
quarter in 2005. Revenues and Expenses. Revenues for the fourth
quarter 2006 totaled $76.7 million compared to $154.6 million
during the fourth quarter 2005, as the impact of higher realized
natural gas prices was more than offset by lower production. Total
revenues for the fourth quarter 2006 included $41.2 million of net
losses associated with the company's natural gas hedging activities
compared to $116.5 million of net losses in the fourth quarter
2005. The current period net losses of $41.2 million were comprised
of the following: * $1.5 million of net realized losses associated
with the settlement of hedge contracts; and * $39.7 million of net
unrealized losses resulting primarily from changes in the fair
value of the company's hedge portfolio, all of which is now being
accounted for using mark-to-market accounting. The company's lease
operating, transportation and severance tax expenses for the fourth
quarter 2006 totaled $0.87 per Mcfe versus $0.96 per Mcfe reported
during the fourth quarter 2005. Depreciation, depletion and
amortization and asset retirement accretion expenses for the fourth
quarter 2006 were $3.08 per Mcfe compared to $3.10 per Mcfe in the
fourth quarter 2005. As described below, the company recorded a
non-cash charge of $19.0 million, or $0.98 per Mcfe, during the
fourth quarter 2006 to write down the carrying value of its natural
gas and oil properties. Net general and administrative expenses in
the fourth quarter 2006 were $0.48 per Mcfe compared to $0.41 per
Mcfe reported in the fourth quarter 2005. Other income for the
fourth quarter 2006 totaled $3.0 million and was comprised of
interest earned on escrowed cash following the sale of the
company's Gulf of Mexico assets and refunds of prior years'
severance tax expense, and was partially offset by an accrual of
certain unbilled prior years' transportation expenses. Ceiling Test
Writedown. The company utilizes the full cost method of accounting
for its exploration and development activities. Under full cost
accounting, the company is required to perform a ceiling test each
quarter. In calculating its ceiling test for the fourth quarter
2006, the company estimated that, using an average net wellhead
price of $4.94 per Mcf on December 31, 2006, the carrying value of
its full cost pool exceeded the ceiling limitation by approximately
$582.8 million. However, subsequent to December 31, 2006, the
market price for natural gas increased such that, using an average
net wellhead price of $6.63 per Mcf on February 20, 2007, the
carrying value of the company's full cost pool exceeded the ceiling
limitation by $19.0 million. As a result, and pursuant to full cost
accounting rules, the company recorded a $19.0 million non-cash
charge to write down the carrying value of its natural gas and oil
properties. Fourth Quarter 2006 Results - Onshore Production and
Prices. The company's onshore production increased by 11 percent
during the fourth quarter 2006, to 19.4 Bcfe, or 211 MMcfe/d,
compared to 17.5 Bcfe, or 190 MMcfe/d, during the fourth quarter
2005. The company's average unhedged natural gas price for its
onshore production was $5.88 per Mcf for the fourth quarter 2006, a
decline of 40 percent from $9.82 per Mcf in the fourth quarter
2005. Revenues and Expenses. The 40 percent decline in the
company's average unhedged natural gas price more than offset the
11 percent increase in onshore production, resulting in a 32
percent decline in onshore oil and gas revenues during the quarter,
to $116.9 million, from $172.0 million during the fourth quarter
2005. Onshore lease operating, severance tax and transportation
expenses during the fourth quarter 2006 totaled $0.87 per Mcfe
compared to $0.94 per Mcfe reported in the fourth quarter 2005.
2006 Snapshot * The company's total estimated proved reserves as of
year-end 2006 were 699.3 Bcfe. Onshore reserves increased 13
percent to 697.1 Bcfe. * Onshore net reserve additions totaled
155.3 Bcfe, for a reserve replacement ratio of 209 percent. *
Onshore production totaled 74.4 Bcfe, or 204 MMcfe/d for the year,
compared to 68.6 Bcfe, or 188 MMcfe/d, in 2005. * The company
drilled a record 363 wells during the year, 360 of which were
drilled onshore, at an overall success rate of 91 percent. * The
company's 2006 operations and results, and the comparability of
those results to 2005, were significantly impacted by the sale of
substantially all of its Gulf of Mexico assets, which included
244.6 Bcfe of estimated proved reserves at year-end 2005, for a
total gross sales price of $810.0 million. * Following the sale of
its Gulf of Mexico assets, the company unwound natural gas hedges
totaling 60,000 million British thermal units per day (MMBtu/d) for
the period July 2006 through December 2006 for a cost of $14.3
million, as well as another 20,000 MMBtu/d for the period September
2006 through October 2006 for a cost of $0.9 million. * The company
completed three tactical acquisitions of approximately 32.2 Bcfe of
estimated proved reserves for a total net purchase price of $47.0
million, or $1.46 per Mcfe. In East Texas the company acquired 16.2
Bcfe of proved reserves located in the Willow Springs Field of
Gregg County for $21.3 million. In South Texas the company acquired
1.8 Bcfe of proved reserves in Webb County for $4.3 million.
Lastly, the company acquired 14.2 Bcfe of proved reserves located
in Colorado's DJ Basin for $21.4 million. * The company repurchased
1,176,500 shares of its common stock for approximately $61.6
million. * The company engaged Lehman Brothers to assist the
company in exploring a broad range of strategic alternatives. These
alternatives included, but were not limited to, a recapitalization
of the company either through additional share repurchases or a
special dividend; operating partnerships and/or strategic
alliances; and the sale or merger of the company. Pending Merger
with Forest Oil Corporation On January 7, 2007, Houston Exploration
announced that it had entered into a definitive agreement to merge
with Forest Oil Corporation, under which Forest will acquire all of
the outstanding shares of Houston Exploration for a combination of
cash and Forest common stock. The merger is subject to customary
terms and conditions, including the approval of both Houston
Exploration and Forest shareholders. On February 8, 2007, Forest
filed a registration statement on Form S-4 with the Securities and
Exchange Commission, including a preliminary joint proxy statement
/ prospectus with respect to the proposed merger. Also on February
8, 2007, the companies received notice of early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvement
Act with respect to the transaction. The companies expect to
complete the merger in the second quarter 2007. Hedging Update
Since year-end 2006, the company has added to its portfolio of
natural gas hedges for 2007 and 2008. As a result, the company's
2007 hedge portfolio is currently comprised of the following: *
30,000 MMBtu/d of costless collars for January through December
with weighted average floor and ceiling prices of $5.00 per MMBtu
and $6.59 per MMBtu, respectively; * 80,000 MMBtu/d of costless
collars for March through December with weighted average floor and
ceiling prices of $7.75 per MMBtu and $9.20 per MMBtu,
respectively; and * 80,000 MMBtu/d of basis swaps for March through
December with a weighted average price of $0.30 per MMBtu. The
company's 2008 hedge portfolio is currently comprised of the
following: * 20,000 MMBtu/d of costless collars for January through
December with weighted average floor and ceiling prices of $5.00
per MMBtu and $5.72 per MMBtu, respectively; * 80,000 MMBtu/d of
costless collars for January through February with weighted average
floor and ceiling prices of $7.75 per MMBtu and $9.20 per MMBtu,
respectively; and * 80,000 MMBtu/d of basis swaps for January
through February with a weighted average price of $0.30 per MMBtu.
Guidance In light of the company's pending merger with Forest,
Houston Exploration will no longer issue guidance. Accordingly,
previous estimates of future financial or operational performance
should now be considered obsolete. In addition, as a result of the
pending merger, Houston Exploration will not host a conference call
or webcast regarding its 2006 results. About The Houston
Exploration Company The Houston Exploration Company is an
independent natural gas and crude oil producer engaged in the
development, exploitation, exploration and acquisition of natural
gas and crude oil properties. The company's operations are focused
in South Texas, the Arkoma Basin, East Texas, and the Rocky
Mountains. For more information, visit the company's Web site at
http://www.houstonexploration.com/ . Forward-looking Statements
This news release and oral statements regarding the subjects of
this release contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act. All statements other than statements of
historical fact included in this news release, including estimates,
plans, expectations, opinions, forecasts, projections, guidance,
estimated reserves and future drilling and development activity,
are forward- looking statements. Although the company believes that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will
prove to have been correct. Factors that could cause actual results
to vary materially from those targeted, expected or implied include
the risks associated with the consummation and integration of the
pending merger with Forest, approval of the merger by Houston
Exploration's stockholders and the related share issuance by
Forest's stockholders, the satisfaction of customary closing
conditions, government regulations and approvals, the outcome of
pending shareholder litigation, price volatility, the business
outlook, the impact of onshore asset concentration, changes to the
company's capital program, the impact of hurricanes, the risk of
future writedowns, the impact of hedging activities, the accuracy
of estimates of reserves and production rates, production and
spending requirements, the inability to meet substantial capital
requirements, constraints imposed by the company's outstanding
indebtedness and the merger agreement, the relatively short
production life of the company's reserves, reserve replacement
risks, drilling risks and results, the competitive nature of the
industry, and other risks and uncertainties inherent in the
exploration for and production of natural gas and crude oil
discussed in Houston Exploration's filings with the Securities and
Exchange Commission, including the Annual Report on Form 10-K for
the year ended December 31, 2006 to be filed with the Securities
and Exchange Commission. Houston Exploration assumes no
responsibility to update any of the information referenced in this
news release. Additional Information About the Pending Merger with
Forest Oil Corporation The Houston Exploration Company and Forest
Oil Corporation intend to file materials relating to the
transaction with the SEC, including one or more registration
statement(s) that contain a prospectus and a joint proxy statement,
which proxy statement will be mailed to Houston Exploration's
stockholders. Investors and security holders of Houston Exploration
are urged to read these documents when they become available and
any other relevant documents filed with the SEC, as well as any
amendments or supplements to those documents, because they will
contain important information about Houston Exploration, Forest and
the proposed merger. Investors and security holders may obtain
these documents free of charge at the SEC's Web site at
http://www.sec.gov/ . In addition, the documents filed with the SEC
by Houston Exploration may be obtained free of charge from the
Houston Exploration Web site at http://www.houstonexploration.com/
. The documents filed with the SEC by Forest may be obtained free
of charge from Forest's Web site at http://www.forestoil.com/ . In
addition, a free copy of the proxy statement, when it becomes
available, may be obtained from Houston Exploration at 1100
Louisiana Street, Suite 2000, Houston, Texas 77002. Investors and
security holders are urged to read the joint proxy
statement/prospectus and the other relevant materials when they
become available before making any voting or investment decision
with respect to the proposed transaction. Houston Exploration,
Forest and their respective directors and executive officers may be
considered participants in the solicitation of proxies in
connection with the proposed transaction. Information about the
participants and their direct and indirect interests in the
solicitation will be set forth in the proxy statement/prospectus
when it becomes available. Contact: The Houston Exploration Company
Melissa R. Aurelio 713-830-6887 The Houston Exploration Company
Consolidated Financial Information Three Months Ended Twelve Months
Ended December 31, December 31, 2006 2005 2006 2005 Unaudited
Income Statement Data: (in thousands, (in thousands, except per
share data) except per share data) Revenues Natural gas revenues
$106,902 $257,516 $540,985 $816,182 Oil revenues 10,428 13,236
53,052 68,631 Gain (loss) on settled derivatives (1,544) (164,510)
(69,208) (265,236) Unrealized gain (loss) on derivatives (39,705)
48,018 4,757 694 Other 661 333 2,011 1,272 Total revenues 76,742
154,593 531,597 621,543 Operating Expenses Lease operating 11,907
15,533 63,959 67,796 Severance tax 2,504 6,492 18,102 18,121
Transportation 2,460 3,124 10,636 11,883 Asset retirement accretion
488 1,314 3,373 5,278 Depreciation, depletion and amortization
59,482 80,102 253,666 295,351 Writedown in carrying value of
natural gas and oil properties 19,000 --- 19,000 --- General and
administrative, net 9,310 10,826 36,013 38,378 Total operating
expenses 105,151 117,391 404,749 436,807 Income (Loss) from
Operations (28,409) 37,202 126,848 184,736 Other (income) expense
(2,995) (144) (13,495) 142 Interest expense 5,661 8,358 29,661
25,301 Capitalized interest (807) (1,994) (4,455) (8,766) Interest
expense, net 4,854 6,364 25,206 16,535 Income (loss) before taxes
(30,268) 30,982 115,137 168,059 Provision for income tax Current
22,185 (7,191) 24,652 5,335 Deferred (33,090) 18,353 22,702 57,555
Total provision for taxes (10,905) 11,162 47,354 62,890 Net Income
(Loss) $(19,363) $19,820 $67,783 $105,169 Earnings (Loss) per Share
Net income (loss) per share - Basic $(0.69) $0.69 $2.37 $3.66 Net
income (loss) per share - Diluted $(0.69) $0.68 $2.36 $3.62
Weighted average shares - Basic 27,892 28,901 28,543 28,707
Weighted average shares - Diluted 27,892 29,179 28,693 29,037
December 31, December 31, 2006 2005 Unaudited Balance Sheet Data:
(in thousands, except debt-to-capitalization) Assets Cash and
equivalents $53,950 $7,979 Accounts receivable 86,416 146,020
Inventories 2,900 2,726 Deferred tax asset 10,244 145,922
Prepayments and other 8,370 19,709 Total current assets 161,880
322,356 Natural gas and oil properties, full-cost method
Unevaluated properties 28,317 107,146 Properties subject to
amortization 3,478,878 3,556,755 Other property and equipment
15,101 12,971 3,522,296 3,676,872 Less: Accumulated depreciation,
depletion and amortization 1,930,964 1,658,532 1,591,332 2,018,340
Other assets 18,514 20,928 Total Assets $1,771,726 $2,361,624
Liabilities Accounts payable and accrued expenses $151,482 $177,159
Derivative financial instruments 10,151 352,457 Asset retirement
obligation --- 7,265 Total current liabilities 161,633 536,881
Long-term debt and notes 175,000 597,000 Deferred federal income
taxes 363,322 341,302 Derivative financial instruments 17,247
65,201 Asset retirement obligation 72,782 112,406 Other non-current
liabilities 17,138 15,696 Total Liabilities 807,122 1,668,486
Stockholders' Equity Common stock 281 289 Additional paid-in
capital 253,922 297,218 Retained earnings 731,150 663,367
Accumulated other comprehensive income (loss) (20,749) (267,736)
Total Stockholders' Equity 964,604 693,138 Total Liabilities and
Stockholders' Equity $1,771,726 $2,361,624 Total
Debt-to-Capitalization 15.4% 46.3% Three Months Ended Twelve Months
Ended December 31, December 31, 2006 2005 2006 2005 Unaudited Cash
Flow Data: (in thousands) (in thousands) Operating Activities Net
income (loss) $(19,363) $19,820 $67,783 $105,169 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 59,482 80,102 253,666
295,351 Writedown in carrying value of natural gas and oil
properties 19,000 --- 19,000 --- Deferred income tax expense
(benefit) (33,090) 18,353 22,702 57,555 Unrealized (gain) loss on
derivatives 39,705 (48,018) (4,757) (694) Asset retirement
accretion 488 1,314 3,373 5,278 Other non-cash adjustments 2,590
303 10,294 6,931 Changes in operating assets and liabilities 8,214
4,654 44,128 (9,081) Net cash provided by operating activities
77,026 76,528 416,189 460,509 Investing Activities Investment in
property and equipment (167,135) (327,719) (614,228) (728,882) Net
(deposits) withdrawals of designated cash 314,043 --- --- ---
Dispositions and other (2,372) 1,714 719,235 1,879 Net cash
provided by (used in) investing activities 144,536 (326,005)
105,007 (727,003) Financing Activities Net borrowings (repayments)
of long-term debt (187,000) 248,000 (422,000) 242,000 Repurchase of
common stock --- --- (61,638) --- Debt issuance costs --- (2,394)
(199) (2,394) Proceeds and tax benefits from issuance of common
stock from exercise of stock options 953 3,073 8,612 16,290 Net
cash provided by (used in) financing activities (186,047) 248,679
(475,225) 255,896 Increase (decrease) in cash $35,515 $(798)
$45,971 $(10,598) Cash at beginning of period 18,435 8,777 7,979
18,577 Cash at end of period $53,950 $7,979 $53,950 $7,979
Unaudited Non-GAAP Financial Measures: Adjusted net income and
adjusted net income per diluted share are non-GAAP financial
measures consisting of net income and net income per diluted share,
as the case may be, after the adjustments noted in the table below.
We believe that adjusted net income and adjusted net income per
diluted share are useful to analysts and investors because they are
more reflective of our operating performance and improve
period-to-period comparability. Adjusted net income and adjusted
net income per diluted share should not be considered a substitute
for net income and net income per diluted share in accordance with
GAAP. The table below reconciles net income to adjusted net income
and net income per diluted share to adjusted net income per diluted
share. Cash from operations before changes in operating assets and
liabilities is a non-GAAP financial measure consisting of net cash
provided by operating activities before changes in operating assets
and liabilities. Cash from operations before changes in operating
assets and liabilities is presented because management believes it
is a useful adjunct to net cash provided by operating activities
under GAAP. Cash from operations before changes in operating assets
and liabilities is widely accepted as a financial indicator of an
oil and gas company's ability to generate cash which may be used to
fund exploration and development activities and to service debt.
Cash from operations before changes in operating assets and
liabilities should not be considered an alternative to net income
or net cash provided by operating activities in accordance with
GAAP. The table below reconciles cash from operations before
changes in operating assets and liabilities to net cash provided by
operating activities. EBITDA is a non-GAAP financial measure
consisting of net income before interest expense, income tax
expense (benefit), depreciation, depletion and amortization, and,
if applicable, any non-cash writedown in the carrying value of
natural gas and oil properties. EBITDA is presented as a
supplemental financial measurement in the evaluation of our
business. We believe that EBITDA provides additional information
regarding our ability to meet our future debt service, capital
expenditures and working capital requirements. EBITDA is widely
used by investors, bankers and rating agencies to value, compare
and rate companies. EBITDA should not be considered as a substitute
for net income, income from operations, or net cash provided by
operating activities prepared in accordance with GAAP. EBITDA is
reconciled to net income in the table below. Three Months Ended
Twelve Months Ended December 31, December 31, 2006 2005 2006 2005
Reconciliation of Non-GAAP Measures: (in thousands, (in thousands,
except per share amounts) except per share amounts) Net Income
(Loss) $(19,363) $19,820 $67,783 $105,169 Adjustments: Unrealized
(gain) loss on derivatives, net of tax 25,649 (31,020) (3,073)
(448) Ceiling test writedown, net of tax 12,300 --- 12,300 --- Loss
on hedge unwind, net of tax --- --- 9,825 --- Special compensation
expenses, net of tax [A] --- --- 726 4,601 Additional tax items [B]
(1,400) --- 5,400 --- Adjusted Net Income (Loss) $17,186 $(11,200)
$92,961 $109,322 Net Income (Loss) per Diluted Share $(0.69) $0.68
$2.36 $3.62 Adjustments: Unrealized (gain) loss on derivatives, net
of tax 0.92 (1.06) (0.11) (0.02) Ceiling test writedown, net of tax
0.44 --- 0.43 --- Loss on hedge unwind, net of tax --- --- 0.34 ---
Special compensation expenses, net of tax [A] --- --- 0.03 0.16
Additional tax items [B] (0.05) --- 0.19 --- Adjusted Net Income
(Loss) per Diluted Share $0.62 $(0.38) $3.24 $3.76 Cash from
Operations Before Changes in Operating Assets and Liabilities
$68,812 $71,874 $372,061 $469,590 Plus: Changes in operating assets
and liabilities 8,214 4,654 44,128 (9,081) Net Cash Provided by
Operating Activities $77,026 $76,528 $416,189 $460,509 EBITDA
$53,556 $118,762 $416,382 $485,223 Less: Interest, net 4,854 6,364
25,206 16,535 Income tax expense (benefit) (10,905) 11,162 47,354
62,890 Asset retirement accretion 488 1,314 3,373 5,278
Depreciation, depletion and amortization 59,482 80,102 253,666
295,351 Ceiling test writedown 19,000 --- 19,000 --- Net Income
(Loss) $(19,363) $19,820 $67,783 $105,169 [A] In 2006, special
compensation expenses, net of tax, included the non- capitalized
portion of special bonus and severance payments made in connection
with the sale of the company's Gulf of Mexico assets. In 2005,
special compensation expenses, net of tax, included payments made
in connection with the renegotiation of employment contracts for
the executive officers. [B] In 2006, additional tax items
represented the Texas margin tax accrual. Note: Totals may not foot
due to rounding. Three Months Ended Three Months Ended December 31,
2006 December 31, 2005 Onshore Offshore Total Onshore Offshore
Total [A] Production Natural gas (MMcf) 18,116 64 18,180 17,328
7,467 24,795 Oil (Mbbls) 216 --- 216 33 212 245 Equivalent (MMcfe)
19,412 64 19,476 17,526 8,739 26,265 Daily Equivalent (MMcfe/d) 211
1 212 190 95 285 Average Sales Price Natural gas - unhedged ($/Mcf)
$5.88 $N/A $5.88 $9.82 $11.70 $10.39 Natural gas - realized [B]
($/Mcf) N/A N/A 5.80 N/A N/A 3.75 Oil - unhedged ($/Bbl) 48.22 N/A
48.28 58.24 53.37 54.02 Oil - realized ($/Bbl) N/A N/A 48.28 N/A
N/A 54.02 Revenues (in thousands) Natural gas revenues $106,487
$415 $106,902 $170,121 $87,395 $257,516 Oil revenues 10,416 12
10,428 1,922 11,314 13,236 Gain (loss) on settled derivatives N/A
N/A (1,544) N/A N/A (164,510) Unrealized gain (loss) on derivatives
N/A N/A (39,705) N/A N/A 48,018 Other N/A N/A 661 N/A N/A 333 Total
revenues $76,742 $154,593 Operating Expenses (in thousands) Lease
operating $11,910 $(3) $11,907 $7,375 $8,158 $15,533 Severance tax
2,504 --- 2,504 6,452 40 6,492 Transportation 2,460 --- 2,460 2,610
514 3,124 Asset retirement accretion 488 --- 488 415 899 1,314
Depreciation, depletion and amortization N/A N/A 59,482 N/A N/A
80,102 Ceiling test writedown N/A N/A 19,000 N/A N/A --- General
and administrative, net N/A N/A 9,310 N/A N/A 10,826 Total
operating expenses $105,151 $117,391 Income from Operations per
Unit ($/Mcfe) Total revenues N/A N/A $3.94 N/A N/A $5.89 Lease
operating (0.61) N/A (0.61) (0.42) (0.93) (0.59) Severance tax
(0.13) N/A (0.13) (0.37) (0.00) (0.25) Transportation (0.13) N/A
(0.13) (0.15) (0.06) (0.12) Asset retirement accretion (0.03) N/A
(0.03) (0.02) (0.10) (0.05) Depreciation, depletion and
amortization N/A N/A (3.05) N/A N/A (3.05) Ceiling test writedown
N/A N/A (0.98) N/A N/A --- General and administrative, net N/A N/A
(0.48) N/A N/A (0.41) Income from operations per unit $(1.47) $1.42
Oil and Gas Capital Expenditures (in thousands) Exploration,
development and leasehold $123,216 $1,704 $124,920 $82,339 $68,340
$150,679 Acquisitions 25,614 [C] 257 25,871 166,325 --- 166,325
Subtotal 148,830 1,961 150,791 248,664 68,340 317,004 Capitalized
interest and G&A --- --- 5,447 --- --- 6,610 Total $148,830
$1,961 $156,238 $248,664 $68,340 $323,614 [A] Substantially all of
the company's offshore assets were sold during the first half of
2006. [B] Realized natural gas prices include the effects of gains
and losses on contracts settled and unwound during the period, and
do not include unrealized gains and losses recognized pursuant to
SFAS 133. [C] Primarily includes $21.4 million related to Rocky
Mountain properties and $4.3 million related to South Texas
properties. Note: Totals may not foot due to rounding. Twelve
Months Ended Twelve Months Ended December 31, 2006 December 31,
2005 Onshore Offshore Total Onshore Offshore Total [A] Production
Natural gas (MMcf) 71,377 11,151 82,528 68,009 37,800 105,809 Oil
(Mbbls) 505 433 938 102 1,315 1,417 Equivalent (MMcfe) 74,407
13,749 88,156 68,621 45,690 114,311 Daily Equivalent (MMcfe/d) 204
38 242 188 125 313 Average Sales Price Natural gas - unhedged
($/Mcf) $6.33 $7.97 $6.56 $7.44 $8.21 $7.71 Natural gas - realized
[B] ($/Mcf) N/A N/A 5.72 N/A N/A 5.21 Oil - unhedged ($/Bbl) 54.31
59.18 56.56 53.59 48.03 48.43 Oil - realized ($/Bbl) N/A N/A 56.56
N/A N/A 48.43 Revenues (in thousands) Natural gas revenues $452,166
$88,819 $540,985 $505,719 $310,463 $816,182 Oil revenues 27,428
25,624 53,052 5,466 63,165 68,631 Gain (loss) on settled
derivatives N/A N/A (69,208) N/A N/A (265,236) Unrealized gain
(loss) on derivatives N/A N/A 4,757 N/A N/A 694 Other N/A N/A 2,011
N/A N/A 1,272 Total revenues $531,597 $621,543 Operating Expenses
(in thousands) Lease operating $47,077 $16,882 $63,959 $27,868
$39,928 $67,796 Severance tax 18,053 49 18,102 17,993 129 18,122
Transportation 9,921 715 10,636 10,173 1,709 11,882 Asset
retirement accretion 1,935 1,438 3,373 1,440 3,838 5,278
Depreciation, depletion and amortization N/A N/A 253,666 N/A N/A
295,351 Ceiling test writedown N/A N/A 19,000 N/A N/A --- General
and administrative, net N/A N/A 36,013 N/A N/A 38,378 Total
operating expenses $404,749 $436,807 Income from Operations per
Unit ($/Mcfe) Total revenues N/A N/A $6.03 N/A N/A $5.44 Lease
operating (0.63) (1.23) (0.73) (0.41) (0.87) (0.59) Severance tax
(0.24) (0.00) (0.21) (0.26) (0.00) (0.16) Transportation (0.13)
(0.05) (0.12) (0.15) (0.04) (0.10) Asset retirement accretion
(0.03) (0.10) (0.04) (0.02) (0.08) (0.05) Depreciation, depletion
and amortization N/A N/A (2.88) N/A N/A (2.58) Ceiling test
writedown N/A N/A (0.22) N/A N/A --- General and administrative,
net N/A N/A (0.41) N/A N/A (0.34) Income from operations per unit
$1.42 $1.62 Oil and Gas Capital Expenditures (in thousands)
Exploration, development and leasehold $473,384 $50,056 $523,440
$281,851 $238,156 $520,007 Acquisitions 43,457[C] 21,223[D] 64,680
197,680 --- 197,680 Subtotal 516,841 71,279 588,120 479,531 238,156
717,687 Capitalized interest and G&A --- --- 24,670 --- ---
25,642 Total $516,841 $71,279 $612,790 $479,531 $238,156 $743,329
[A] Substantially all of the company's offshore assets were sold
during the first half of 2006. [B] Realized natural gas prices
include the effects of gains and losses on contracts settled and
unwound during the period, and do not include unrealized gains and
losses recognized pursuant to SFAS 133. [C] Primarily includes
$47.0 million of acquisitions and $(3.5) million of post-closing
adjustments related to the November 2005 acquisition of properties
in South Texas. [D] Primarily includes a $21.0 million net profits
interest payment made to a predecessor owner in certain of the
company's offshore Louisiana properties that were sold during the
second quarter 2006. Note: Totals may not foot due to rounding.
2006 Reserve Reconciliation Natural Gas (Bcf) Offshore [A] Onshore
Total 12/31/05 Balance 196.488 596.586 793.074 Production (11.151)
(71.377) (82.528) Additions 2.109 150.911 153.020 Sales (188.912)
--- (188.912) Purchases --- 30.779 30.779 Revisions 3.536 (37.333)
(33.797) 12/31/06 Balance 2.070 669.566 671.636 Oil & NGLs
(MMbbls) 12/31/05 Balance 8.018 3.273 11.291 Production (0.433)
(0.505) (0.938) Additions 0.023 1.117 1.140 Sales (7.586) ---
(7.586) Purchases --- 0.237 0.237 Revisions 0.001 0.470 0.471
12/31/06 Balance 0.023 4.592 4.615 Natural Gas Equivalent (Bcfe)
12/31/05 Balance 244.596 616.224 860.820 Production (13.749)
(74.407) (88.156) Additions 2.247 157.613 159.860 Sales (234.428)
--- (234.428) Purchases --- 32.201 32.201 Revisions 3.542 (34.513)
(30.971) 12/31/06 Balance 2.210 697.118 699.328 Reserve Statistics
Reserve Growth N/A 13% -19% Reserves, Percent Gas 94% 96% 96%
Production, Percent Gas 81% 96% 94% 2006 Reserve-to-Production
Ratio: Reserve-to-production is defined as year-end total proved
reserves divided by total production. Offshore Onshore Total
Reserves (Bcfe) 2.210 697.118 699.328 Production (Bcfe) 13.749
74.407 88.156 Life (Years) 0.2 9.4 7.9 2006 Reserve Replacement
Ratio: Reserve replacement ratio is defined as net reserve
additions divided by total production. Offshore Onshore Total
Additions (Bcfe) 2.247 157.613 159.860 Purchases (Bcfe) --- 32.201
32.201 Revisions (Bcfe) 3.542 (34.513) (30.971) Net Additions
(Bcfe) 5.789 155.301 161.090 Production (Bcfe) 13.749 74.407 88.156
Replacement Ratio 42% 209% 183% [A] Substantially all of the
company's offshore assets were sold during the first half of 2006.
Note: All reserves are fully engineered by third party consultants.
Totals may not foot due to rounding. DATASOURCE: The Houston
Exploration Company CONTACT: Melissa R. Aurelio of The Houston
Exploration Company, +1-713-830-6887, or Web site:
http://www.houstonexploration.com/ http://www.forestoil.com/
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