Delta Petroleum Corporation Announces Third Quarter 2010 Results

DENVER, Nov. 9, 2010 /PRNewswire-FirstCall/ -- Delta Petroleum Corporation (the "Company" or "Delta") (Nasdaq: DPTR), an independent oil and gas exploration and development company, today announced its financial and operating results for the third quarter of 2010.

Carl Lakey, Delta's President and CEO, stated, "During the third quarter we closed on the previously announced $130 million Wapiti transaction.  The remaining proceeds that were held in escrow pending receipt of third party consents were received subsequent to the third quarter and used to further reduce our borrowings and fund capital expenditures, which will be reflected in our fourth quarter results. We completed four wells with our redesigned fracture stimulation in the third quarter.  Each of these wells is performing as well as, or better than, expected.  We have continued to take steps to improve our operating results.  We have reduced personnel and associated overhead expenses.  We continue to execute on our planned completion program for the fourth quarter, which includes nine wells.  We are experiencing meaningful improvements in initial production rates and well recoveries from our redesigned completion technique.  We believe this will add materially to the incremental upside of the entire Vega Area."

RESULTS FOR THE THIRD QUARTER

The Company reported third quarter net income attributable to common stockholders of $13.9 million, or $0.05 per diluted share, compared with a net loss attributable to common stockholders of ($96.8 million), or ($0.35) per diluted share, in the third quarter of 2009.

For the quarter ended September 30, 2010, the Company reported total production of 3.65 billion cubic feet equivalents ("Bcfe").  The decrease in production when compared to the same period of 2009 is primarily the result of the asset sale to Wapiti on July 30, 2010.

Total revenue increased 65% to $35.4 million in the quarter, versus revenue of $21.4 million in the quarter ended September 30, 2009.  The increase is primarily related to a $12.7 million increase in contract drilling and trucking fees from improved third party rig utilization.  For the quarter ended September 30, 2010, oil and gas sales increased 6% to $20.2 million, as compared to $19.1 million for the prior year period.  The increase was primarily the result of a 79% increase in natural gas prices and a 12% increase in oil prices, partially offset by a 23% decrease in production from continuing operations. The average natural gas price received during the quarter ended September 30, 2010 increased to $4.52 per thousand cubic feet ("Mcf") compared to $2.52 per Mcf for the prior year period.  The average oil price received during the quarter ended September 30, 2010 increased to $69.13 per barrel ("Bbl") compared to $61.89 per Bbl for the prior year period.

THIRD QUARTER PRODUCTION VOLUMES, UNIT PRICES AND COSTS

Production volumes, average prices received and cost per equivalent Mcf for the three months ended September 30, 2010 and 2009 are as follows:

Lease Operating Expense.  Lease operating expenses for the three months ended September 30, 2010 decreased to $6.0 million from $6.8 million in the year earlier period primarily due to lower water handling costs in the Vega area as a result of the resumption of development activities and due to the Wapiti sale.  Lease operating expense per Mcfe for the three months ended September 30, 2010 increased to $1.76 per Mcfe from $1.55 per Mcfe.  The quarter-over-quarter increase on a per unit basis was primarily due to the effect of fixed costs spread over a 23% decline in production volumes.

Transportation Expense.  Transportation expense for the three months ended September 30, 2010 increased to $3.4 million from $2.0 million in the prior year.  Transportation expense per Mcfe for the three months ended September 30, 2010 increased 117% to $1.00 per Mcfe from $0.46 per Mcfe.  The increase on a per unit basis is primarily the result of changes to the Company's Vega gas marketing contract that went into effect in October 2009 whereby its gas is processed through a higher efficiency plant.  The Vega gas marketing contract has resulted in higher revenues in the Vega area from improved natural gas liquids recoveries and a greater percentage of liquids proceeds retained.

Depreciation, Depletion, Amortization and Accretion – Oil and Gas.  Depreciation, depletion and amortization expense decreased 28% to $14.4 million for the three months ended September 30, 2010, as compared to $20.1 million for the comparable year earlier period. Depletion expense for the three months ended September 30, 2010 decreased to $13.6 million from $19.3 million for the three months ended September 30, 2009 due to lower production volumes and a decrease in the per unit depletion rate. The Company's depletion rate decreased from $4.40 per Mcfe for the three months ended September 30, 2009 to $4.02 per Mcfe for the current year period primarily due to the effect of impairments recorded during late 2009 on high depletion rate properties.

General and Administrative Expense.  General and administrative expense increased 3% to $10.3 million for the three months ended September 30, 2010, as compared to $10.0 million for the comparable prior year period. The increase in general and administrative expenses is attributed to costs associated with the strategic alternatives evaluation process and $1.4 million of allowance for doubtful accounts recorded by DHS, partially offset by decreased non-cash stock compensation expense related to restricted stock granted in December 2009 and by reduced staffing as a result of reductions in force during the third quarter of 2010 resulting in lower cash compensation expense.

RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

The Company reported a nine month net loss attributable to common stockholders of ($148.6 million), or ($0.54) per diluted share, compared with a net loss attributable to common stockholders of ($294.7 million), or ($1.55) per diluted share, in the nine months ended September 30, 2009.  The net loss attributable to common stockholders for the nine months ended September 30, 2010 includes dry hole and impairment costs of $30.9 million as compared to $161.5 million for the year earlier period.  

For the nine months ended September 30, 2010, the Company reported total production of 13.4 Bcfe.  Approximately 2.0 Bcfe of production for the nine month period was from assets sold in the Wapiti Transaction, which is accounted for under "Discontinued Operations".  The following discussion is on a "Continuing Operations" basis.  

Total revenue increased 13% to $110.4 million for the nine months ended September 30, 2010, versus revenue of $97.3 million in the nine months ended September 30, 2009.  The increase is mostly related to a $17.9 million period-over-period increase in oil and gas sales and a $26.8 million increase in contract drilling and trucking fees, due to improved third party rig utilization.  For the nine months ended September 30, 2010, oil and gas sales increased 32% to $74.7 million, as compared to $56.8 million for the prior year period.  The increase was primarily the result of a 95% increase in natural gas prices and a 46% increase in oil prices, partially offset by a 22% decrease in production from continuing operations, due to the asset sale with Wapiti.  The average natural gas price received during the nine months ended September 30, 2010 increased to $5.12 per Mcf compared to $2.62 per Mcf for the year earlier period.  The average oil price received during the nine months ended September 30, 2010 increased to $70.16 per Bbl compared to $47.93 per Bbl for the year earlier period.

NINE MONTHS ENDED PRODUCTION VOLUMES, UNIT PRICES AND COSTS

Production volumes, average prices received and cost per equivalent Mcf for the nine months ended September 30, 2010 and 2009 are as follows:

Lease Operating Expense.  Lease operating expenses for the nine months ended September 30, 2010 of $20.9 million was comparable to $21.3 million in the year earlier period due in part to the Wapiti sale.  Lease operating expense per Mcfe for the nine months ended September 30, 2010 increased to $1.83 per Mcfe from $1.45 per Mcfe for the comparable year earlier period.  The increase on a per unit basis was primarily due to the effect of fixed costs spread over a 22% decline in production volumes.

Transportation Expense.  Transportation expense for the nine months ended September 30, 2010 increased to $11.2 million from $6.7 million in the prior year.  Transportation expense per Mcfe for the nine months ended September 30, 2010 increased to $0.98 per Mcfe from $0.45 per Mcfe.  The increase on a per unit basis is primarily the result of changes to the Company's Vega gas marketing contract that went into effect in October 2009 whereby its gas is processed through a higher efficiency plant.  The Vega gas marketing contract has resulted in higher revenues in the Vega area from improved natural gas liquids recoveries and a greater percentage of liquids proceeds retained.

Depreciation, Depletion, Amortization and Accretion – Oil and Gas.  Depreciation, depletion and amortization expense decreased 28% to $45.5 million for the nine months ended September 30, 2010, as compared to $63.0 million for the comparable year earlier period. Depletion expense for the nine months ended September 30, 2010 was $43.3 million compared to $60.8 million for the nine months ended September 30, 2009. The Company's depletion rate decreased from $4.16 per Mcfe for the nine months ended September 30, 2009 to $3.80 per Mcfe for the current year period primarily due to the effect of impairments recorded during late 2009 on high depletion rate properties and Vega area proved undeveloped reserves added as a result of higher Piceance gas prices.

General and Administrative Expense.  General and administrative expense increased 6% to $33.4 million for the nine months ended September 30, 2010, as compared to $31.5 million for the comparable prior year period. The increase in general and administrative expenses is attributed to costs associated with the strategic alternatives evaluation process, $1.4 million of allowance for doubtful accounts recorded by DHS and by increased non-cash stock compensation expense, partially offset by reduced staffing as a result of reductions in force during both the first half of 2009 and the third quarter of 2010 resulting in lower cash compensation expense.

LIQUIDITY UPDATE

At September 30, 2010, the Company held approximately $14.2 million in cash and $13.5 million was available for borrowing under the current credit facility.  The Company is limited to capital expenditures of $18.5 million for the quarter ending December 31, 2010, based on the original limitation of $10 million and $8.5 million carried forward from the quarter ended September 30, 2010.  The Company was in compliance with its covenants under its credit facility as of September 30, 2010.  The Company continues to move forward with potential lenders to replace its existing facility prior to its maturity.

ADDITIONAL FINANCIAL INFORMATION

The following table summarizes the Company's open derivative contracts at September 30, 2010:

OPERATIONS UPDATE

Total Company net production for October was 34 Mmcfe/d.  During the third quarter 2010 the Company completed four wells in the Vega area.  Two of the four wells completions were up-hole completions in the upper-most section of the gas column.  The other two completions were of the entire gas column.  From the remaining uncompleted well inventory, the Company completed four wells in October and plans on completing an additional five wells by the end of the year.

2010 CAPITAL EXPENDITURES AND PRODUCTION GUIDANCE

In the fourth quarter of 2010, the Company intends to focus capital expenditures on completing nine previously drilled wells and is drilling a deeper well to evaluate potential below the Williams Fork formation in the Vega Area.  Production for the fourth quarter is expected to be in line with previously provided guidance and range between 3.25 Bcfe and 3.55 Bcfe.

INVESTOR CONFERENCE CALL

The Company will host an investor conference call Tuesday, November 9, 2010 at 12:00 noon Eastern Time (10:00 am Mountain Time) to discuss financial and operating results for the third quarter 2010.

Shareholders and other interested parties may participate in the conference call by dialing 877-317-6789 (international callers dial 412-317-6789) and referencing the ID code "Delta Petroleum call," a few minutes before 12:00 noon Eastern Time on November 9, 2010.   The call will also be broadcast live and can be accessed through the Company's website at http://www.deltapetro.com/eventscalendar.html.  A replay of the conference call will be available one hour after the completion of the conference call from November 9, 2010 until November 17, 2010 by dialing 877-344-7529 (international callers dial 412-317-0088) and entering the conference ID 445714.  

ABOUT DELTA PETROLEUM CORPORATION

Delta Petroleum Corporation is an oil and gas exploration and development company based in Denver, Colorado. The Company's core area of operation is the Rocky Mountain Region, where the majority of its proved reserves, production and long-term growth prospects are located.  Its common stock is listed on the NASDAQ Global Market System under the symbol "DPTR."

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this announcement are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Readers are cautioned that all forward-looking statements are based on management's present expectations, estimates and projections, but involve risks and uncertainty, including without limitation the effects of oil and natural gas prices, availability of capital to fund required payments on our credit facility and our projected capital development and working capital needs, as well as general market conditions, competition and pricing, the increase in supply and contraction in demand for natural gas in the United States, lack of availability of third party services including frac crews, the impact of current economic and financial conditions on our ability to raise capital, availability of borrowings under our credit facility and the ability to obtain a new or replacement credit facility prior to the maturity in January 2011 of our existing credit facility, uncertainties in the projection of future rates of production, unanticipated recovery or production problems, unanticipated results from wells being drilled or completed, the effects of delays in completion of gas gathering systems, pipelines and processing  facilities, as well as general market conditions, competition and pricing.  Please refer to the Company's report on Form 10-K for the year ended December 31, 2009 and subsequent reports on Forms 10-Q and 8-K as filed with the Securities and Exchange Commission for additional information.  The Company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

For further information contact the Company at (303) 293-9133 or via email at [email protected].

SOURCE Delta Petroleum Corporation