Delta Petroleum Corporation Announces First Quarter 2010 Results

DENVER, May 10 /PRNewswire-FirstCall/ -- Delta Petroleum Corporation (Delta or the Company) (Nasdaq: DPTR), an independent oil and gas exploration and development company, today announced its financial and operating results for the first quarter of 2010.

John Wallace, Delta’s President and COO stated, “The first quarter of this year was a noteworthy quarter for Delta.  We continue to work with our potential partner, Opon International, in moving toward the signing of definitive agreements and closing of the transaction.  We believe this relationship is certainly in the best interests of both our shareholders and our bondholders.  The capital from this transaction would allow for an aggressive development of our main asset in the Piceance Basin, which provides substantial upside in proved reserves.   

“In the Vega Area of the Piceance Basin we continued with moderate completion activity that was measured to preserve our current liquidity position.  This completion activity involves new procedures and we’ve experienced very encouraging results to date.”

LETTER OF INTENT (STRATEGIC ALTERNATIVES) UPDATE

As previously announced on March 18, 2010, Delta entered into a non-binding letter of intent with Opon International LLC (“Opon”) to sell a 37.5% non-operated working interest in the Vega Area assets located in the Piceance Basin for total consideration of $400 million and to issue Opon warrants to purchase 13.3 million shares of Delta common stock at $1.50 per share and 5.7 million shares at $3.50 per share. The consummation of the transaction is contingent upon Opon’s ability to arrange financing and is subject to customary due diligence, negotiation and execution of definitive binding agreements.  The parties are continuing with the proposed transaction and the Company understands that Opon’s financing efforts are ongoing.

LIQUIDITY UPDATE

At March 31, 2010, the Company had $10 million in cash and $52.0 million available under its credit facility (based on the redetermined $145 million borrowing base described below).

On April 26, 2010, Delta entered into the Third Amendment (the “Amendment”) to the Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with JPMorgan Chase Bank, N.A., as agent, and certain of the financial institutions that are party to its credit agreement in which, among other changes, the lenders provided a waiver of Delta’s violation of the quarter ended March 31, 2010 capital expenditures limitation of $10.0 million.  In conjunction with the Amendment and as part of a scheduled redetermination, the borrowing base was reduced from $185.0 million with a $20.0 million required minimum availability to $145.0 million with no required minimum availability for a net reduction in the borrowing base of $20.0 million.  The next scheduled redetermination date is July 1, 2010.  In addition, the Amendment imposed capital expenditures limitations of $20.0 million for the quarter ending June 30, 2010 and $15.0 million for the quarter ending September 30, 2010, provided that any excess of the limitation over the amount of actual expenditures may be carried forward from an earlier quarter to a subsequent quarter. The Company was in compliance with the accounts payable covenant under its credit facility at March 31, 2010.

On April 1, 2010 DHS Drilling amended its credit facility with Lehman Commercial Paper Inc. and renegotiated certain terms of the agreement.  The only financial covenant remaining in the DHS credit agreement is a minimum EBITDA covenant.  The interest rate has been adjusted to LIBOR plus 625 basis points, subject to a LIBOR floor rate of 2.75%.  DHS was in compliance with its amended minimum EBITDA covenant for the quarter ended March 31, 2010.

RESULTS FOR THE FIRST QUARTER

For the quarter ended March 31, 2010, the Company reported production of 5.0 billion cubic feet equivalents (“Bcfe”), a decrease of 20% when compared with the first quarter of 2009.  The production decrease was mostly related to expected production declines in the Rockies that have not been offset by additional drilling.  Total revenue decreased 25% to $44.0 million in the quarter, versus revenue of $58.7 million in the quarter ended March 31, 2009, primarily related to a $31.3 million gain associated with the offshore California litigation in 2009, partially offset by a $12.3 million quarter-over-quarter increase in oil and gas sales.  For the quarter ended March 31, 2010, oil and gas sales increased 55% to $34.5 million, as compared to $22.2 million for the prior year period.  The increase was primarily the result of a 125% increase in oil prices and an 86% increase in natural gas prices, partially offset by the 20% decrease in production. The average oil price received during the quarter ended March 31, 2010 increased to $70.78 per Bbl compared to $31.44 per Bbl for the prior year period.  The average natural gas price received during the quarter ended March 31, 2010 increased to $5.70 per thousand cubic feet (“Mcf”) compared to $3.07 per Mcf for the prior year period.  

The Company reported a first quarter net loss attributable to common stockholders of ($12.8 million), or ($0.05) per share, compared with a net loss attributable to common stockholders of ($25.6 million), or ($0.25) per share, in the first quarter of 2009.  

Lease Operating Expense.  Lease operating expenses for the quarter ended March 31, 2010 decreased to $8.2 million from $9.8 million in the prior year period primarily due to the 20% decrease in production.  

Transportation Expense.  Transportation expense for the quarter ended March 31, 2010 was $3.9 million, comparable to prior year costs of $3.3 million, but increased 53% from $0.51 per Mcfe to $0.78 per Mcfe.  The increase on a per unit basis is primarily the result of changes to the Vega gas marketing contract that went into effect in October 2009 whereby the 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 14% to $23.2 million for the quarter ended March 31, 2010, as compared to $26.8 million for the prior year period. Depletion expense for the quarter ended March 31, 2010 decreased to $22.5 million from $26.1 million for the quarter ended March 31, 2009, due to lower production volumes partially offset by an increase in the per unit depletion rate.  The depletion rate increased from $4.13 per Mcfe for the quarter ended March 31, 2009 to $4.46 per Mcfe for the current year period primarily due to non-operated Piceance reserve revisions made in the second quarter of 2009 to reduce proved developed reserves based on well performance.

General and Administrative Expense.   General and administrative expense decreased 10% to $11.4 million for the quarter ended March 31, 2010, as compared to $12.6 million for the comparable prior year period.  The decrease in general and administrative expenses is attributed to reduced staffing as a result reductions in force during the first half of 2009 resulting in lower cash compensation expense, partially offset by costs associated with the strategic alternatives evaluation process and by increased non-cash stock compensation expense related to restricted stock granted in December 2009.

The net fair value of the Company’s derivative instruments recorded in the financial statements was a liability of approximately $9.7 million at March 31, 2010.  

OPERATIONS UPDATE

Piceance Basin, CO, 31% – 100% WI – Current production from the Piceance Basin approximates 34 million cubic feet equivalent per day (Mmcfe/d) net.  During the first quarter 2010 the Company completed three wells from its drilled and uncompleted inventory in the Vega Area.  The Company expects to complete the remaining 16 drilled and uncompleted wells in 2010 utilizing its redesigned completion techniques.  Additionally, the operator of Garden Gulch has a one rig drilling program ongoing.

2010 CAPITAL EXPENDITURES AND PRODUCTION GUIDANCE

As previously announced, the Company expects to announce its 2010 drilling and completion plans and production guidance once the strategic alternatives evaluation process is complete.

INVESTOR CONFERENCE CALL

The Company will host an investor conference call Tuesday, May 11, 2010 at 12:00 noon Eastern Time (10:00 am Mountain Time) to discuss financial and operating results for the first 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 May 11, 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 May 11, 2010 until May 19, 2010 by dialing 877-344-7529 (international callers dial 412-317-0088) and entering the conference ID 440157.  

ABOUT DELTA PETROLEUM CORPORATION

Delta Petroleum Corporation is an oil and gas exploration and development company based in Denver, Colorado. The Company’s core areas of operations are the Rocky Mountain and Gulf Coast Regions, which comprise the majority of its proved reserves, production and long-term growth prospects.  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 working capital needs, the outcome of our strategic alternatives process, the closing of the pending transaction with Opon, the contraction in demand for natural gas in the United States, 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, 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