EX-99.1 2 exhibit99-1.txt Exhibit 99.1 ------------ AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD -------------- -------------------------------- James W. Christmas Marilynn Meek - General Info (212) 445-8451 Chairman and CEO Peter Seltzberg - Analyst Info (212) 445-8457 (713) 877-8006 FOR IMMEDIATE RELEASE: ---------------------- May 5, 2004 KCS ENERGY REPORTS FIRST QUARTER NET INCOME ------------------------------------------- INCREASES 40% TO $19.4 MILLION ------------------------------ DRILLING PROGRAM YIELDS 100% SUCCESS RATE; PRODUCTION UP 24% ------------------------------------------------------------ HOUSTON, TX, May 5, 2004 -- KCS Energy, Inc. (NYSE: KCS) today announced financial and operating results for the quarter ended March 31, 2004. Commenting on the first quarter results, James W. Christmas, Chairman and Chief Executive Officer, said, "We are extremely pleased to get off to such an excellent start in 2004. We drilled a record 37 wells during the quarter, all of which were successful, reported the second highest quarterly earnings and cash flow in our history and began an exciting south Texas exploration program. Oil and gas production, while down slightly from the fourth quarter of 2003, was up 24% compared to the first quarter of 2003. As we continue to bring these new wells on line, production has continued to increase and we exited the quarter producing 106 MMcfepd." Financial Highlights ($ thousands except per share) 1st Qtr. 2004 1st Qtr. 2003 -------------- ------------- Revenue and other $50,444 $40,440 Operating Income $24,444 $18,941 Income Before Income Taxes $21,427 $14,354 Income Before Cumulative Effect of Accounting Change $19,445 $14,836 Net Income $19,445 $13,902 Diluted Earnings Per Share $ 0.39 $ 0.34 Income before income taxes and cumulative effect of accounting change for the three months ended March 31, 2004 was $21.4 million compared to $14.4 million for the three months ended March 31, 2003. This increase was primarily attributable to a 24% increase in natural gas and oil production as a result of the Company's successful drilling program and substantially lower interest costs. In addition, while the average sales prices for natural gas and oil were 10% lower than in last year's quarter, the average realized price was actually up 2% as a result of less gas dedicated to the production payment obligation and the impact of hedging. For the three months ended March 31, 2004, KCS recorded an income tax expense of $2.0 million (largely non-cash) compared to an income tax benefit of $0.5 million for the three months ended March 31, 2003. The Company's effective income tax rate reflects the utilization of net operating loss carryforwards. During the 2003 three-month period, the Company recorded a cumulative effect of an accounting change of $0.9 million, or $0.02 per basic and diluted share, as a result of the adoption of Financial Accounting Standards Board Statement No. 143, "Accounting for Asset Retirement Obligations". Net income for the three months ended March 31, 2004 increased 40% to $19.4 million, or $0.39 per diluted share, compared to $13.9 million, or $0.34 per diluted share, for the three months ended March 31, 2003. Record Number of Wells Drilled in 1st Quarter --------------------------------------------- Continuing on the drilling momentum in 2003, KCS drilled 37 wells in the first quarter of 2004 with a 100% success rate. This compares with 14 wells drilled in the first quarter of 2003 with a 93% success rate. Highlights of the drilling program include: Gulf Coast: o Five development wells and one exploration well were drilled in the first quarter. o The Coleto Point #3 at the West Mission Valley Field (KCS WI = 25%) in south Texas came on line in early April at 5,300 Mcfepd. o The Guerra C-2 well at the La Reforma Field (KCS WI=31%) found Vicksburg pay sands and is being completed. The deeper exploration section of the hole was not productive. The Guerra D-1 exploration well is currently drilling. o The offshore S.T. 148 D-4 S/T (KCS WI=6%) found two pay zones and is on line at 14,300 Mcfepd. o Two exploratory wells reached target depth in early April in the Coquat Field of south Texas. The Meider #4 well (KCS WI = 58%) logged five apparently productive Wilcox pay sands. The Dunn #1 exploration well (KCS WI = 58%) logged three apparently productive Wilcox pay sands. Both wells should be completed and on line in the next few weeks. Elm Grove Field: o Nine wells were drilled in six different sections of the north Louisiana field. Eight of these wells will be produced initially from the LCV and Davis zones and tested at an average initial rate of 1,740 Mcfpd. One shallower Hosston well was completed at an initial rate of 1,100 Mcfpd. KCS has a 100% WI in each of these wells except one non-operated well in which KCS has a 33% WI. o In April, the Company drilled an 11,800 foot well to test deeper exploratory formations. The well was non-productive in the deeper zones, but will be completed in the field pays. Other Mid-Continent Fields: o Thirteen development wells were drilled in the Sawyer Canyon Field in Sutton County, west Texas. These shallow Canyon sandstone wells tested with average initial rates of 320 Mcfpd. KCS has 91-100% WI in these wells. o Four extension wells were drilled in the Joaquin Field in east Texas (KCS WI=97-100%). These Travis Peak wells tested at average initial rates of 1,200 Mcfpd. o Three additional wells were drilled in the Talihina Field in the Arkoma basin. The first well (KCS WI=30%) tested at 3,900 Mcfpd and the other two wells are currently being completed. o In April, the Roberson 5 #1 (KCS WI=57%) in Washita County, Oklahoma tested at 1,320 Mcfpd from a Granite Wash interval. Production increased by 19.1 MMcfepd, or 24%, from the first quarter of 2003 to the first quarter of 2004. Net production (after subtracting production payment obligations) for the first quarter was 87.4 MMcfepd, or 44% higher than in the first quarter of 2003. As projected, production was essentially flat from the fourth quarter 2003 to the first quarter 2004. The Company remains on track to increase gross production by 12% to 21% and net production by 22% to 32% in 2004, consistent with previous guidance. Lease operating expenses increased as a result of the Company's expanded drilling program, higher salt water disposal costs, increases in ad valorem taxes, higher costs associated with non-operated properties, and increased workover activity. Commenting on the first quarter operations, William N. Hahne, President and Chief Operating Officer summarized "Thirty-seven wells in a row without a dry hole clearly surpasses our expectations. With ten rigs drilling today, we remain on track to grow production and reserves in 2004 with cash flow from operations." Hedging Program --------------- The Company's hedging program consists of a series of transactions designed to limit exposure to downside price movements while continuing to allow significant participation in increasing prices. The Company's current hedge positions are summarized in the following table. Average Type Hedge Amount Price ---------- ------ ----- 2ND Qtr. 2004 Natural Gas ----------- Swap 21,648 MMbtu/day $5.34 Collar 10,000 MMbtu/day $4.00/$6.81 Crude Oil ----------- Swap 1,000 Bopd $30.65 3RD Qtr. 2004 Natural Gas ----------- Swap 20,000 MMbtu/day $5.38 Collar 20,000 MMbtu/day $4.42 /$6.04 Crude Oil ----------- Swap 500 Bopd $31.10 4TH Qtr. 2004 Natural Gas ----------- Swap 10,000 MMbtu/day $5.90 Collar 20,000 MMbtu/day $4.00/$7.52 Crude Oil ----------- Swap 500 Bopd $30.30 1ST Qtr. 2005 Natural Gas ----------- Collar 5,000 MMbtu/day $5.00/$7.42 Swap 5,000 MMbtu/day $6.13 2ND Qtr. 2005 Natural Gas ----------- Swap 10,000 MMbtu/day $5.20 3RD Qtr. 2005 Natural Gas ----------- Swap 5,000 MMbtu/day $5.23 The swaps effectively lock in a specific NYMEX price, while the cost free collars fix the stated floor price and allow participation up to the stated cap price. The Company also sold "call options" giving the purchaser of the options the right to buy 5,000 MMbtu/day of gas for each month during November 2004 through March 2005 at a price of $7.10. The Company received $.455/MMbtu ($343,525) in consideration of conveying such option. In addition to the referenced hedges, the Company will deliver 13.7 MMcfepd in the balance of 2004, 10.7 MMcfepd in 2005 and 8.7 MMcfepd in January 2006 under the production payment sold in 2001, at the weighted average discounted price of approximately $4.05 per Mcfe. 2004 Outlook ------------ Previous Revised -------- ------- Production (Bcfe) WI 39-42 39-42 Production Payment (5) (5) Net Production 34-37 34-37 LOE ($MM) 28-30 29-31 G&A ($MM) 8-10 8-10 DD&A ($MM) 53-57 53-57 Interest Expense ($MM) 12-14 14 Capital Expenditures ($MM) 105 105 The following abbreviations are utilized herein: Net production - Production after considering delivery obligations associated with the Production Payment sold in February 2001. WI - Working Interest Bcfe - Billion Cubic Feet of Natural Gas Equivalent Mcfe - Thousand Cubic Feet of Natural Gas Equivalent MMcfepd - Million Cubic Feet of Natural Gas Equivalent Per Day MMbtu - Million British thermal units Bopd - Barrels of Oil Per Day LOE - Lease operating expenses G&A - General and administrative expenses DD&A - Depreciation, depletion and amortization 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 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 ------------------------ ### 5555 San Felipe, Suite 1200, Houston, TX 77056 -Financial tables follow- KCS Energy, Inc. Condensed Income Statements
Three Months Ended (Amounts in Thousands March 31, Except Per Share Data) ---------------------------------------- 2004 2003 ------------------ ----------------- Oil and gas revenue $ 50,314 $ 39,647 Other, net 130 793 ------------------------------------------------------------------------------------------------------ Total revenue and other 50,444 40,440 ------------------------------------------------------------------------------------------------------ Operating costs and expenses Lease operating expenses 7,773 6,331 Production taxes 2,556 2,293 General and administrative expenses 2,283 1,800 Stock compensation 342 154 Accretion of asset retirement obligation 257 279 Depreciation, depletion and amortization 12,789 10,642 ------------------------------------------------------------------------------------------------------ Total operating costs and expenses 26,000 21,499 ------------------------------------------------------------------------------------------------------ Operating income 24,444 18,941 ------------------------------------------------------------------------------------------------------ Interest and other income, net 4 27 Interest expense (3,021) (4,614) ------------------------------------------------------------------------------------------------------ Income before income taxes 21,427 14,354 Federal and state income (taxes) benefit (1,982) 482 ------------------------------------------------------------------------------------------------------ Net income before cumulative effect of accounting change 19,445 14,836 Cumulative effect of accounting change, net of tax - (934) ------------------------------------------------------------------------------------------------------ Net income 19,445 13,902 ------------------------------------------------------------------------------------------------------ Dividends and accretion of issuance costs on preferred stock - (309) ------------------------------------------------------------------------------------------------------ Income available to common stockholders $ 19,445 $ 13,593 ====================================================================================================== Earnings per share of common stock - basic Before cumulative effect of accounting change $ 0.40 $ 0.38 Cumulative effect of accounting change - (0.02) ------------------------------------------------------------------------------------------------------ Earnings per share of common stock - basic $ 0.40 $ 0.36 ====================================================================================================== Earnings per share of common stock - diluted Before cumulative effect of accounting change $ 0.39 $ 0.36 Cumulative effect of accounting change - (0.02) ------------------------------------------------------------------------------------------------------ Earnings per share of common stock - diluted $ 0.39 $ 0.34 ====================================================================================================== Average shares outstanding for computation of earnings per share Basic 48,646 37,436 Diluted 49,427 41,120 ======================================================================================================
KCS Energy, Inc. Condensed Balance Sheets
March 31, December 31, (Thousands of Dollars) 2004 2003 ---------------- ----------------- Assets ------ Cash $ 4,162 $ 2,178 Trade accounts receivable, net 24,136 23,911 Other current assets 6,131 4,720 Property, plant and equipment, net 315,055 292,005 Deferred taxes 18,622 18,818 Deferred charges and other assets 2,237 1,334 ------------------------------------------------------------------------------------------------------ Total assets $ 370,343 $ 342,966 ====================================================================================================== Liabilities and stockholders' equity ------------------------------------ Accounts payable $ 30,443 $ 27,834 Accrued liabilities 23,546 18,667 Accrued interest 2,326 5,100 Derivative liabilities 4,952 - Deferred revenue 32,869 38,696 Deferred credits and other liabilities 12,883 12,638 Long-term debt 147,000 142,000 Stockholders' equity 116,324 98,031 ------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 370,343 $ 342,966 ======================================================================================================
Condensed Statements of Cash Flow
Three Months Ended March 31, ---------------------------------------- 2004 2003 --------------- ----------------- Net income $ 19,445 $ 13,902 DD&A 12,789 10,642 Amortization of deferred revenue (5,827) (8,223) Other non-cash charges and credits, net 3,486 2,273 ------------------------------------------------------------------------------------------------------ 29,893 18,594 Net changes in assets and liabilities (1,292) (8,511) ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 28,601 10,083 ------------------------------------------------------------------------------------------------------ Cash flow from investing activities: Investment in oil and gas properties, net (31,921) (10,975) Other capital expenditures, net (143) (225) ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (32,064) (11,200) ------------------------------------------------------------------------------------------------------ Cash flow from financing activities: Net increase (decrease) in debt 5,000 (1,274) Deferred financing costs and other, net 447 (2,188) ------------------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activities 5,447 (3,462) ------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents $ 1,984 $ (4,579) ======================================================================================================
KCS Energy, Inc. Supplemental Data Three Months Ended March 31, ----------------------- 2004 2003 ------ ------- Production data: Natural gas (MMcf) 7,867 5,975 Oil (Mbbl) 193 215 Liquids (Mbbl) 58 48 Summary (MMcfe): Working Interest 9,370 7,552 Production Payment (1,413) (2,018) ------ ------ Net Production 7,957 5,534 Average realized prices (a) Gas (per Mcf) $ 5.61 $ 5.51 Oil (per bbl) $27.10 $27.48 Liquids (per bbl) $16.96 $17.27 Total (per Mcfe) $ 5.37 $ 5.25 Notes: (a) Includes the effects of hedging and the Production Payment sold in February 2001. Excluding the non-cash effects of volumes delivered under the Production Payment sold in February 2001 and terminated derivative contracts, total average realized price per Mcfe was $5.73 and $6.07 for the three months ended March 31, 2004 and 2003, respectively.