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The decrease in natural gas production was due
primarily to the sale of the Metro Project during 2000 and the natural
decline in production primarily at the initial Matagorda Project
wells offset by the commencement of production at the additional
Cedar Point Project wells, the West Bay Project well and the Pitchfork
Ranch well. Oil and natural gas revenues include the cash effect
of hedging activities as discussed below under "Volatility
of Oil and Natural Gas Prices".
Average oil prices decreased 13% to $24.28
per bbl in 2001 from $27.81 per bbl in 2000.
The following table summarizes production
volumes, average sales prices and operating revenues for the Company's
oil and natural gas operations for the years ended December 31,
2000 and 2001:
(1) Including the impact of hedging.
Oil and natural gas operating expenses
for 2001 decreased 16% to $4.1 million from $4.9 million in 2000.
Oil and natural gas operating expenses decreased primarily as a
result of the lower production taxes and the implementation of cost
reduction measures in fields with decreased production. Operating
expenses per equivalent unit in 2001 increased to $0.77 per Mcfe
from $0.74 per Mcfe in 2000. The per unit cost increased primarily
as a result of an increase in severance taxes and decreased production
of natural gas as wells naturally decline.
Depreciation, depletion and amortization
("DD&A") expense for 2001 decreased 9% to $6.5 million from $7.2
million in 2000. This decrease was primarily due to the seismic
and drilling costs added to the proved property cost base.
General and administrative ("G&A") expense
for 2001 increased 6% to $3.3 million from $3.1 million for 2000.
The increase in G&A was due primarily to the addition of staff to
handle increased drilling and production activities. Stock option
compensation expense is a non-cash charge resulting from a decrease
during 2001 and an increase during the last six months of 2000 in
the stock price underlying the stock options that were repriced
in February 2000.
Interest expense, net of amounts capitalized,
for 2001 decreased 47% to $7,000 from $13,003 in 2000.
Income taxes increased to $5.3 million in
2001 from $1.0 million in 2000. The increase was the result of an
adjusted valuation allowance during 2000 on net operating loss carryforwards
expected to be realized that resulted in a deferred income tax benefit
adjustment of $3.6 million which reduced the Company's effective
tax rate to 8% in 2000.
Other income for the year ended December
31, 2001 included a gain on the sale of an investment in Michael
Petroleum Corporation ("MPC") of $3.9 million offset by (1) a charge
and related legal expenses of $1.4 million in respect of the final
settlement of litigation with BNP Petroleum Corporation and (2)
a non-cash valuation allowance of $0.8 million relating to certain
hedge arrangements with Enron North America Corp.
Net income for 2001 decreased to $9.5 million
from $12.0 million in 2000 as a result of the factors described
above.
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