EX-99.2 4 a4589759ex992.txt PRESS RELEASE Exhibit 99.2 The Exploration Company Reports 2003 Earnings SAN ANTONIO--(BUSINESS WIRE)--March 5, 2004--The Exploration Company (Nasdaq:TXCO) today reported earnings and financial results for the year ended Dec. 31, 2003. The Company reported net income for 2003 of $40,877, or $0.002 per share, compared with a loss of $310,970 or ($0.016) per share for 2002. All per-share amounts are on a diluted basis. Total 2003 revenues rose to $39.5 million, more than double 2002 revenues. TXCO's 2003 oil and gas sales increased by more than 50 percent from the prior year, primarily due to a 45 percent increase in oil production and higher realized commodity prices, partially offset by a 15 percent decrease in gas production. The Company's average realized product prices were $5.05 per thousand cubic feet equivalent (Mcfe), a 38 percent increase from $3.67 per Mcfe in 2002. Annual revenues from the Company's gas gathering operations were also sharply higher, reaching $15.1 million versus $2.6 million in 2002. The five-fold increase reflects the first full year of operation since the pipeline's acquisition in mid-2002, higher throughput volumes of third-party gas and higher realized gas prices. Total assets rose to a record $84.2 million at year-end 2003, a 59 percent increase over the prior year. Cash flow, or net cash provided by operating activities, rose to a record $15.2 million, a 105 percent increase from $7.4 million in 2002. Ebitda -- earnings before income taxes, interest expense, depreciation, depletion, amortization, impairment and abandonment expense -- reached $12.6 million, or $0.59 per share, a 66 percent increase from $7.6 million, or $0.40 per share, in 2002. See the accompanying table for a reconciliation of GAAP and non-GAAP measures utilized in calculating Ebitda. TXCO achieved a 186 percent drillbit reserve replacement rate, in 2003. The Company's 2003 year-end proved oil and gas reserves rose 21 percent to a record 28.4 billion cubic feet equivalent (Bcfe), up from 23.5 Bcfe in 2002, as reported by Netherland, Sewell & Associates, Inc., its independent reservoir engineers. Overall oil and gas production in 2003 totaled 4.83 Bcfe, an 11 percent increase from 4.37 Bcfe produced in 2002. Subsequent to Dec. 31, 2003, several European investors elected to exercise their warrants for the purchase of 1.238 million shares of TXCO common stock at $3.00 per share, netting the Company $3.5 million after expenses. Upon exercise of the warrants, TXCO's issued and outstanding common shares increased to approximately 23.38 million shares, compared to 22.14 million shares at year-end 2003. Management's Perspective "Our prospects continue to be very bright as we mark another record-setting year," said President and CEO James E. Sigmon. "The Company had a successful 2003, drilling a record number of wells, and our ambitious exploration and development program continues in 2004. Although we did not have the full measure of success we anticipated in 2003, the information gained from last year's drilling program will be very beneficial as this year's drilling program gets under way. Our expanding Georgetown horizontal gas play and the imminent completion attempt of our deep Jurassic wildcat well are only the beginning of an exciting new year for our shareholders. We continue to enjoy a solid financial structure, with record cash flows, growing reserves and conservative debt levels compared to our peers, allowing us to actively pursue the potential we see in the Maverick Basin's multiple pay opportunities." Sigmon highlighted an expansive list of Company achievements in 2003, confirming his confidence in TXCO's expanded opportunities and continued success: -- Drilled or participated in 80 oil and gas wells in seven separate plays -- Attained a four-year, 46 percent compounded annual asset growth rate -- Attained record cash flows from operations, extending a five year growth trend -- Grew Maverick Basin 3-D seismic database from 455 to over 720 square miles About The Exploration Company The Exploration Company is an independent oil and gas enterprise with interests primarily in the Maverick Basin in Southwest Texas. Its long-term business strategy is to build shareholder value by acquiring undeveloped mineral interests and internally develop a multi-year drilling inventory through the use of advanced technologies, such as 3-D seismic and horizontal drilling. The Company accounts for its oil and gas operations under the successful efforts method of accounting and trades its common stock on the Nasdaq Stock Market under the symbol "TXCO." Forward-Looking Statements Statements in this press release which are not historical, including statements regarding TXCO's or management's intentions, hopes, beliefs, expectations, representations, projections, estimations, plans or predictions of the future, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include those relating to expected establishment of reserves, drilling plans, including the timing, category, number, depth, cost and/or success of wells to be drilled, expected geological formations or the availability of specific services or technologies. It is important to note that actual results may differ materially from the results predicted in any such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the costs of exploring and developing new oil and natural gas reserves, the price for which such reserves can be sold, environmental concerns affecting the drilling of oil and natural gas wells, as well as general market conditions, competition and pricing. More information about potential factors that could affect the company's operating and financial results is included in TXCO's annual report on Form 10-K for the year ended December 31, 2002, and its Form 10-Q for the quarter and year-to-date period ended Sept. 30, 2003. This and all previously filed documents are on file at the Securities and Exchange Commission and can be viewed on TXCO's website at www.txco.com. Copies are available without charge, upon request from the Company. (Financial Information and Selected Operational Tables Follow) THE EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31 ------------------------- 2003 2002 ------------------------------------------------------- Assets Current Assets Cash and equivalents $6,180,560 $2,333,688 Accounts receivable: Joint interest owners 564,116 744,395 Oil and gas production 4,273,849 4,373,875 Prepaid expenses and other 718,853 503,176 ------------------------- Total Current Assets 11,737,378 7,955,134 Property and Equipment, net - successful efforts method of accounting for oil and gas properties 66,155,827 39,327,867 Other Assets Deferred tax asset 5,232,718 5,232,718 Other assets 1,080,290 520,600 ------------------------- Total Other Assets 6,313,008 5,753,318 ------------------------- Total Assets $84,206,213 $53,036,319 ========================= THE EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31 ------------------------- 2003 2002 ------------------------------------------------------- Liabilities And Stockholders' Equity Current Liabilities Accounts payable, trade $8,186,705 $3,695,160 Other payables and accrued liabilities 3,709,016 3,176,564 Undistributed revenue 416,399 1,894,144 Current portion of long-term debt 1,752,286 1,073,773 ------------------------- Total Current Liabilities 14,064,406 9,839,641 Long-Term Liabilities Long-term debt, net of current portion 15,425,598 6,143,458 Redeemable preferred stock, Series B (redemption value - $16 million) 10,135,335 -- Accrued dividends - preferred stock 57,732 -- Asset retirement obligation 1,537,600 -- ------------------------- Total Long-Term Liabilities 27,156,265 6,143,458 Minority Interest in Consolidated Subsidiaries 193,441 82,846 Stockholders' Equity Preferred Stock, Series A; authorized 10,000,000 shares, issued and outstanding -0- shares Common stock, par value $0.01 per share; authorized 50,000,000 shares, issued 22,242,849 and 20,109,516 shares, and outstanding 22,143,049 and 20,009,716 222,428 201,095 Additional paid-in capital 63,976,021 58,216,504 Accumulated deficit (21,160,341) (21,201,218) Less treasury stock, at cost, 99,800 shares (246,007) (246,007) ------------------------- Total Stockholders' Equity 42,792,101 36,970,374 ------------------------- Total Liabilities And Stockholders' Equity $84,206,213 $53,036,319 ========================= THE EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Years Ended December 31 ------------------------------------- 2003 2002 2001 -------------------------------------------------------------------- Revenues Oil and gas sales $24,390,767 $16,049,798 $13,350,699 Gas gathering operations 15,145,154 2,596,955 -- Other operating income 9,281 311,611 408,221 ------------------------------------- Total Revenues 39,545,202 18,958,364 13,758,920 Costs and Expenses Lease operations 4,408,205 4,081,162 2,406,688 Production taxes 1,501,041 973,078 959,143 Exploration expenses 2,187,216 1,567,098 2,986,036 Impairment and abandonments 2,522,548 1,246,495 2,652,705 Gas gathering operations 15,136,279 2,625,313 -- Depreciation, depletion and amortization 8,627,678 6,500,625 3,201,517 General and administrative 3,716,439 2,025,440 1,481,284 ------------------------------------- Total Costs and Expenses 38,099,406 19,019,211 13,687,373 ------------------------------------- Income (loss) from operations 1,445,796 (60,847) 71,547 Other Income (Expense) Interest income 26,626 46,663 188,061 Interest expense (1,365,233) (273,213) (128,373) Loan fee amortization (17,604) (14,507) -- ------------------------------------- Total Other Income (Expense) (1,356,211) (241,057) 59,688 ------------------------------------- Income (loss) before income taxes, minority interest and cumulative effect of change in accounting principle 89,585 (301,904) 131,235 Minority interest in income of subsidiaries 75,292 (84,066) (106,518) ------------------------------------- Income (loss) before income taxes and cumulative effect of change in accounting principle 164,877 (385,970) 24,717 Income tax (expense) benefit, net (50,000) 75,000 (75,000) Cumulative effect of change in accounting principle, net of tax (74,000) -- -- ------------------------------------- Net Income (Loss) $40,877 $(310,970) $(50,283) ===================================== Earnings (Loss) Per Share: Basic earnings before cumulative effect of change in accounting principle $ 0.006 $ (0.016) $ (0.003) Cumulative effect of change in accounting principle (0.004) -- -- ------------------------------------- Basic Earnings Per Share $0.002 $(0.016) $(0.003) ===================================== Diluted earnings before cumulative effect of change in accounting principle $ 0.005 $ (0.016) (0.003) Cumulative effect of change in accounting principle (0.003) -- -- ------------------------------------- Diluted Earnings Per Share $0.002 $(0.016) $(0.003) ===================================== Weighted average number of common shares outstanding: Basic 20,781,223 19,080,847 17,441,242 Diluted 21,295,257 19,080,847 17,441,242 THE EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2003, 2002, 2001 AND 2000 (UNAUDITED) Common Stock Additional ---------------------- Paid-in Shares Amount Capital ---------------------------------------------------------- Balance at December 31, 2000 17,471,849 $174,718 $43,986,983 Common stock options exercised 25,000 250 31,000 Purchases of treasury stock, at cost -- -- -- Net loss for the year -- -- -- ----------------------------------- Balance at December 31, 2001 17,496,849 174,968 44,017,983 Common stock options exercised 113,000 1,130 171,625 Issuance of common stock - net of expenses of $946,112 2,499,667 24,997 14,026,896 Net loss for the year -- -- -- ----------------------------------- Balance at December 31, 2002 20,109,516 201,095 58,216,504 Issuance of common stock - net of expenses of $400,959 2,133,333 21,333 5,741,641 Other adjustments -- -- 17,876 Net income for the year -- -- -- ----------------------------------- Balance at December 31, 2003 22,242,849 $222,428 $63,976,021 =================================== Accumulated Treasury Deficit Stock Total ----------------------------------- Balance at December 31, 2000 $(20,839,965) $-- $23,321,736 Common stock options exercised -- -- 31,250 Purchases of treasury stock, at cost -- (246,007) (246,007) Net loss for the year (50,283) -- (50,283) ----------------------------------- Balance at December 31, 2001 (20,890,248) (246,007) 23,056,696 Common stock options exercised -- -- 172,755 Issuance of common stock - net of expenses of $946,112 -- -- 14,051,893 Net loss for the year (310,970) -- (310,970) ----------------------------------- Balance at December 31, 2002 (21,201,218) (246,007) 36,970,374 Issuance of common stock - net of expenses of $400,959 -- -- 5,762,974 Other adjustments -- -- 17,876 Net income for the year 40,877 -- 40,877 ----------------------------------- Balance at December 31, 2003 $(21,160,341) $(246,007) $42,792,101 =================================== THE EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Years Ended December 31 --------------------------------------- 2003 2002 2001 ---------------------------------------------------------------------- Operating Activities Net income (loss) $40,877 $(310,970) $(50,283) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 8,627,678 6,500,625 3,201,517 Impairments and abandonments 2,522,548 1,246,495 2,652,705 Minority interest in (income) loss of subsidiaries (75,292) 84,066 106,518 Cumulative effect of change in accounting principle 74,000 -- -- Non-cash interest expense and accretion of liability - redeemable preferred stock 677,002 -- -- Changes in operating assets and liabilities: Receivables 280,305 (3,175,627) 1,462,023 Prepaid expenses and other (215,677) (229,573) (46,687) Accounts payable and accrued expenses 3,226,251 3,274,414 1,238,229 --------------------------------------- Net cash provided by operating activities 15,157,692 7,389,430 8,564,022 Investing Activities Development and purchases of oil and gas properties (36,071,216) (27,381,247) (13,675,327) Purchase of other equipment (396,925) -- -- Proceeds from sale of oil and gas properties -- 200,000 2,005,133 Changes in minority interests 185,886 (434,325) (108,902) Other changes -- (39,036) (116,007) --------------------------------------- Net cash (used) by investing activities (36,282,255) (27,654,608) (11,895,103) Financing Activities Proceeds from issuance of redeemable preferred stock, net of offering costs 9,229,931 -- -- Proceeds from long-term debt obligations 11,190,530 7,439,915 153,231 Payments on long-term debt obligations (1,229,876) (1,084,861) (486,244) Proceeds from common stock transactions, net of expenses 5,780,850 14,224,648 31,250 Purchases of treasury stock -- -- (246,007) ------------------------------------- Net cash provided (used) by financing activities 24,971,435 20,579,702 (547,770) ------------------------------------- Change in Cash and Equivalents 3,846,872 314,524 (3,878,851) Cash and Equivalents at Beginning of Year 2,333,688 2,019,164 5,898,015 ------------------------------------- Cash and Equivalents at End of Year $6,180,560 $2,333,688 $2,019,164 ===================================== Supplemental Disclosures: Cash paid for interest $1,200,230 $273,213 $128,373 Cash paid for income taxes -- -- 75,000 THE EXPLORATION COMPANY SELECTED OPERATING DATA Year Ended Dec. 31, ----------------------- 2003 2002 ----------------------- Net cash provided by operating activities $15,157,692 $7,389,430 Debt to asset ratio 34.3% 13.6% Production Oil: Production, in barrels 454,000 314,000 Average sales price per barrel $28.30 $24.56 Natural Gas: Production, in Mcf 2,108,000 2,487,000 Average sales price per Mcf $5.48 $3.35 Equivalent Basis: Production in Boe 805,400 728,500 Average sales price per Boe $30.28 $22.03 Production in Mcfe 4,832,300 4,371,000 Average sales price per Mcfe $5.05 $3.67 Selected Operating Data Production volume - oil properties in barrels 441,700 295,500 Lifting costs-oil (Incl Prod & Sev Tax) $3,350,700 $2,679,500 Lifting costs per barrel $7.59 $9.07 Production volume - gas properties in Mcf 2,096,600 2,474,500 Lifting costs-gas (Incl Prod & Sev Tax) $2,558,600 $2,374,700 Lifting costs per Mcf $1.22 $0.96 Production volume-gas properties, excluding CBM 2,063,500 2,442,100 Lifting costs - gas (Incl. Prod. & Sev. Tax), excluding CBM $2,103,200 $1,775,400 Lifting costs per Mcf excluding CBM activities $1.02 $0.73 Depletion cost per Boe $10.45 $8.36 Depletion cost per Mcfe $1.74 $1.39 Reconciliation of GAAP and Non-GAAP Measures Ebitda represents net income before income taxes, interest expense, depreciation, depletion, amortization, impairment and abandonment expense. We believe Ebitda provides a more complete analysis of TXCO's operating performance and debt servicing ability relative to other companies, and of our ability to fund capital expenditure and working capital requirements. This measure is widely used by investors and rating agencies. Ebitda, with certain negotiated adjustments, is referenced in TXCO's financial covenants and required in reporting under our credit facility. Ebitda is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by operating activities prepared in accordance with GAAP. ($ in thousands) 2003 2002 ------ ------ Net cash provided by operating activities $15,158 $7,389 Current taxes 50 (75) Impairment & abandonments 2,523 1,246 Interest, net 1,356 241 Changes in assets and liabilities (6,489) (1,199) ------ ------ Ebitda 12,598 7,602 Less: Impairment and abandonments 2,523 1,246 Interest, net 1,356 241 Income taxes 50 (75) DD&A 8,628 6,501 ------ ------ Net Income $41 $(311) ====== ====== CONTACT: The Exploration Company, San Antonio Investors: Roberto R. Thomae, 210-496-5300, ext. 214 bthomae@txco.com or Media: Paul Hart, 210-496-5300, ext. 264 pdhart@txco.com