-- Production Increases 64% over 2006 Level
-- Oil and Gas Revenue Increases 90% in 2007
-- Net Income Increase 83% over 2006 Level
-- Cash Flow from Operations Increases 122% over 2006
-- PDPs Increase by 33% in 2007
-- PV-10 Value of Proved Reserves Increases to $1.05 Billion
NEW YORK, March 4, 2008 (PRIME NEWSWIRE) -- Warren Resources, Inc. (Nasdaq:WRES) today reported record financial and operating results for both the fourth quarter and full-year 2007. Warren's total natural gas and crude oil production for the year ended December 31, 2007 increased 64 percent to a record high of 6.2 billion cubic feet equivalent (Bcfe) compared to 3.8 Bcfe in 2006. Warren reported 2007 net income increased to $11.1 million or $0.20 per share compared to a net income of $6.1 million or $0.11 per share for 2006.
Fourth Quarter of 2007 Results
Warren reported net income of $4.0 million or $0.07 per share for the fourth quarter of 2007, compared to net income of $0.3 million or $0.01 per share for the fourth quarter of 2006.
For the fourth quarter of 2007, total revenue increased 110% to $20.2 million compared to $9.6 million for 2006, while oil and gas revenue increased by 135% to $19.7 million compared to $8.4 million for the fourth quarter of 2006.
Additionally during the fourth quarter, production increased to 1.75 Bcfe which represented a 61% increase over the fourth quarter of 2006. During the fourth quarter of 2007, Warren produced 226,000 barrels of oil and 394 million cubic feet of natural gas.
Total expenses increased 74% to $16.1 million during the fourth quarter of 2007 compared to 2006. Production and exploration expense increased 58% to $6.5 million primarily due to increased production. Additionally, general and administrative expense increased as the Company continues to hire additional qualified personnel to support its growth in exploration and production activities.
Full Year 2007 Results
For 2007, Warren reported net income of $11.1 million or $0.20 per share, compared to net income of $6.1 million or $0.11 per share for 2006. Total revenue increased 71% to $61.6 million compared to 2006. Oil and gas revenue increased by 90% to $59.3 million compared to $31.3 million for 2006.
During 2007, production increased 64% to an all time high of 6.2 Bcfe compared to 3.8 Bcfe in 2006. During 2007, Warren produced 825 thousand barrels of oil and 1.3 Bcfe of natural gas, compared to 456 thousand barrels of oil and 1.1 Bcfe of natural gas in 2006.
Total expenses increased 70% to $50.3 million during 2007 compared to 2006. Production and exploration expense increased 76% to $22.9 million primarily due to increased production. Depletion, depreciation and amortization expense also increased due to increased production.
Total cash flow from operating activities increased by 122% to $27.8 million in 2007 from $12.5 million in 2006. This increase resulted from higher oil production and oil prices during 2007.
Proved Reserves
Estimated total net proved reserves at year-end 2007 were 356 Bcfe, a 2% increase over year-end 2006 reserves. Within the proved reserve categories, Warren increased its proved developed producing reserves ("PDP's") by 33% to 89 Bcfe or 25% of total net proved reserves as of December 31, 2007. This compares to 67 Bcfe of PDP's or 19% of total net proved reserves in 2006. The pre-tax net present value of the net proved reserves for year-end 2007 discounted at 10% (PV-10) was $1.05 billion (including $464 million of PDP's) based on realized prices at December 31, 2007 of $86.21 per barrel of oil and $5.02 per Mcf of gas. This compares to 2006 PV-10 of $609 million (including $206 million of PDP's) based on year-end 2006 realized prices of $50.60 per barrel of oil and $4.35 per Mcf of gas. Warren's production replacement rate, primarily through its active development drilling program in the Wilmington Townlot Unit ("WTU"), was 115% for the year ended 2007.
The Company's current net proved reserve mix is 89% oil and 11% natural gas. All reserves are independently prepared by the reserve engineering firm Williamson Petroleum Consultants, Inc. In accordance with SEC guidelines, reserve estimates do not include any probable or possible reserves which may exist on Warren's non-proved properties. Approximately 90% of Warren's net acreage is undeveloped.
"The Company continued to grow at a record pace in 2007," commented Norman F. Swanton, Warren Resources' Chairman and CEO. "Operationally, we achieved record increases in oil and gas production of 64% year-over-year. Warren's production and PDP reserve growth demonstrates our continuing commitment to deliver consistent creation in value by executing our strategy of developing our large portfolio of proved undeveloped reserves in the Wilmington oil field in California and our highly prospective Atlantic Rim coalbed methane project in Wyoming." Added Mr. Swanton, "With our cash on hand supplemented by growing cash flow from operations and our credit line of up to $250 million, subject to borrowing base limitations, from General Electric Capital Corp. (formerly Merrill Lynch Capital), we believe that we are well positioned to continue executing our growth strategy."
Recent Operational Developments
Wilmington Townlot Unit, California
As previously reported, because the gas volume at the WTU was historically too low to justify gas sales equipment, the gas has been flared for many years under a permit from the South Coast Air Quality Management District ("SCAQMD"). In October 2007, Warren entered into an agreement with the SCAQMD which allowed Warren to commission six microturbines to generate electrical power from the otherwise flared gas and resume full production. However, as oil production grew during the fourth quarter, the excess gas produced but not consumed by our microturbines would have exceeded our gas flare limitation. As a result, wells producing approximately 300 barrels of oil per day were taken off production during December 2007 and remain off-production. As another part of our plan, in October 2007, Warren applied to the SCAQMD for a permit to install a new high efficiency gas flare which would result in allowing higher production and lower emissions. In March 2008, the Company also anticipates presenting its longer-term plan to the SCAQMD which will include seeking approvals from regulatory authorities to dispose of our produced gas by injection, installing and using the use of a high efficiency flare system, and selling the gas directly to a third party user or public utility. As a result of the gas flare limitation and oil trucking issues, estimated production levels in the WTU will not exceed approximately 3,000 gross BOPD during the first quarter of 2008 or possibly longer. If the SCAQMD does not timely issue the necessary permits, the installation of the new flare and our proposed methods of handling associated produced gas could be delayed to mid-2008 or later.
As earlier reported, the Chief Zoning Administrator for the City of Los Angeles intends to review the terms and conditions of construction and operations set forth in the Zoning Administrator's 2006 Zoning Order, which governs the construction and operation of the drilling cellars at the WTU central facility. In response to the Zoning Administrator's request, on February 25, 2008, the Company submitted its Plan Approval Application, wherein Warren outlined its compliance with the terms and conditions set forth in the 2006 Zoning Order, as well as additional efforts and measures implemented by Warren. The review by the Zoning Administrator could entail a lengthy process of six months or more, limiting our ability to further construct and develop facilities and conduct operations while the review is pending. Despite Warren's strong belief that it meets or exceeds the requirements of the existing Zoning Order, the review could result in additional environmental studies, restrictions or costs for the Company's activities in the WTU.
The Company has been advised by Voorhees Thomas LLC that the assembly and delivery of the sound-proofed electric drilling rig contracted for by Warren in December 2007 will be delayed beyond the anticipated April 2008 delivery date. As a result, Warren is evaluating whether it will accept the new rig on a delayed basis or seek another drilling rig.
Atlantic Rim, Wyoming
From August 2007 through February 2008 Warren participated in the drilling of 59 producing wells and 6 injector wells in the Sun Dog Unit. The Company expects to place approximately 48 wells on production during March 2008. From March 2008 to July 2008, drilling and completion operations will cease due to seasonal wildlife timing stipulations. The remaining 11 Sun Dog wells drilled but not placed on production during March 2008 will be placed on production later in 2008. Once gas and water production from the 48 new wells stabilizes, Warren will have a better understanding of any facility constraints that could affect the Sun Dog project during the wildlife stipulation season. Preliminary results in the Sun Dog Unit are encouraging. Current full production in the Sun Dog Unit is approximately 5.0 MMcfd. We have an approximate 44% working interest in the Sun Dog Unit.
Warren participated in drilling 33 gross producing (1.8 net) wells in the Catalina Unit. During the fourth quarter of 2007, 9 new wells were producing approximately 3.5 MMcfd, bringing total gross production in the Catalina Unit to approximately 8.5 MMcfd. According to the Catalina Unit operator, all successful remaining new wells are expected to be hooked up and selling gas by March 15, 2008. Currently, the Company has an approximate 5.3% working interest in the Catalina Unit. Warren expects this working interest percentage to increase to approximately 17% as this project is developed on our acreage.
Other operational updates and 2008 production and capital expenditure guidance were provided in the Company's February 5, 2008 press release.
Financial and Statistical Data Tables
Following are financial highlights for the comparative fourth quarters and annual periods ended December 31, 2007 and 2006. All production volumes and dollars are expressed on a net revenue interest basis.
Warren Resources, Inc.
Consolidated Statements Of
Operations
Three Months Ended Year Ended
December 31, December 31,
------------------------ -------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Revenues
Oil and gas
sales $19,714,310 $8,396,507 $59,308,396 $31,264,379
Interest and
other income 502,772 1,236,640 2,385,220 4,765,303
Net gain
(loss) on
investments (10,790) (17,978) (45,596) 92,191
----------- ----------- ----------- -----------
20,206,292 9,615,169 61,648,020 36,121,873
----------- ----------- ----------- -----------
Expenses
Production &
exploration 6,461,037 4,082,148 22,923,354 13,034,962
Depreciation,
depletion and
amortization 3,624,001 1,870,807 11,393,388 6,256,543
General and
administrative 5,096,911 3,210,342 13,771,407 9,903,193
Interest 952,026 96,884 2,170,401 399,464
----------- ----------- ----------- -----------
16,133,975 9,260,181 50,258,550 29,594,162
----------- ----------- ----------- -----------
Income before
provision for
income taxes 4,072,317 354,988 11,389,470 6,527,711
Deferred
income tax
expense
(benefit) (16,000) -- (16,000) 93,000
----------- ----------- ----------- -----------
Income before
dividends and
accretion on
preferred
shares 4,088,317 354,988 11,405,470 6,434,711
Less dividends
and accretion
on preferred
shares 66,342 67,415 267,197 356,867
----------- ----------- ----------- -----------
Net income
applicable to
common
stockholders $4,021,975 $287,573 $11,138,273 $6,077,844
=========== =========== =========== ===========
Earnings per
share - Basic $0.07 $0.01 $0.20 $0.11
Earnings per
share - Diluted $0.07 $0.01 $0.20 $0.11
Weighted
average
common shares
outstanding -
Basic 57,557,335 53,499,068 55,892,536 52,966,115
Weighted
average
common shares
outstanding -
Diluted 58,979,171 54,704,106 56,978,948 54,511,578
Production:
Gas - MMcf 394 240 1,255 1,052
Oil - MBbls 226 141 825 456
Total
Equivalents
(MMcfe) 1,750 1,085 6,202 3,787
Realized Prices:
Gas - Mcf $4.56 $5.79 $4.81 $5.73
Oil - Bbl 80.65 49.76 64.96 55.36
Oil - Derivative
loss per Bbl (1.33) -- (0.36) --
Total
Equivalents
(Mcfe) $11.27 $7.74 $9.56 $8.25
Three Months Ended Year Ended
December 31, December 31,
------------------------ -------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net cash flow
provided by
operating
activities:
Cash flow from
operations $10,132,138 $4,825,290 $27,819,479 $12,527,121
Changes in
working capital
accounts (1,974,263) (2,875,599) (3,544,571) 308,602
----------- ---------- ----------- -----------
Cash flow from
operations
before working
capital changes $8,157,875 $1,949,691 $24,274,908 $12,835,723
=========== =========== =========== ===========
Conference Call
The public is invited to listen to the Company's conference call set for today, March 4, 2008, at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet at our Web site: www.warrenresources.com. If you are unable to listen during the live broadcast, the call will be archived on Warren's website for approximately 30 days. A telephonic replay will also be available through midnight, March 11, 2008 by dialing 888-286-8010 or 617-801-6888 (international), and enter the passcode number 94401302.
About Warren Resources
Warren Resources, Inc. is a growing independent energy company engaged in the exploration and development of domestic oil and natural gas reserves. Warren's activities are primarily focused on oil in the Wilmington field in California and coalbed methane properties in the Washakie Basin in Wyoming. The Company is headquartered in New York, New York, and its exploration and development subsidiary, Warren E&P, Inc., has offices in Casper, Wyoming and Long Beach, California.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Warren believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release. See "Risk Factors" in the Company's Annual Report on Form 10-K and other public filings.