Mission Resources Announces Third Quarter Earnings, Affirms Guidance for Fourth Quarter and...

Energy Editors/Business Editors

HOUSTON--(BUSINESS WIRE)--Nov. 13, 2003

Mission Resources Corporation (Nasdaq:MSSN) today announced third quarter earnings, affirmed certain financial guidance for the fourth quarter and full year 2003, and gave further details regarding its 2003 drilling

"While we are pleased with the success in our drilling and operations programs this year, a primary focus remains strengthening Mission's balance sheet and completing the recovery program that we began when our management team came aboard a year ago," said Robert L. Cavnar, Mission's chairman, president and chief executive officer. "Reducing leverage, lowering unit operating costs and re-deploying capital to core areas are all near-term goals."

Net Income (Loss): The Company reported a net loss for the third quarter of 2003 of $3.8 million or $0.16 per share - diluted compared to a net loss of $2.4 million or $0.10 per share - diluted in the third quarter of 2002. The third quarter 2002 period included a $1.7 million ($1.1 million after tax) gain attributable to the settlement of a royalty calculation dispute with the MMS. Net income for the nine months ended September 30, 2003 was $3.9 million or $0.16 per share - diluted compared to a net loss of $17.8 million or $0.75 per share - diluted for the same period of 2002. The 2003 year to date period includes a $22.4 million ($14.5 million after tax) non-cash gain related to the purchase in March of $97.6 million of our 10 7/8% notes at a discount to par, and a $1.7 million loss, net of taxes, due to the cumulative effect of change in accounting principle attributable to SFAS No. 143, Accounting for Asset Retirement Obligations.

Production and Revenue: Production for the third quarter of 2003 averaged 10.5 thousand equivalent oil barrels per day ("Mboe/d") and was below the 2002 level of 13.5 Mboe/d. The property sales in late 2002 and the first quarter of 2003 resulted in the production decrease. The average realized oil price, including the effect of hedges, for the third quarter of 2003 was $25.01 per barrel, an increase of 10% over the $22.78 per barrel realized oil price in the same quarter of 2002. The average realized gas price, including the effect of hedges, in the third quarter of 2003 was $4.17 per Mcf, a 38% increase over the average gas price of $3.02 per Mcf realized in the same quarter of 2002. Oil and gas revenues for the third quarter of 2003 were $24.1 million compared to $25.9 million in the third quarter of 2002.

Earnings before Interest, Taxes and Non-Cash Items and Discretionary Cash Flow: Earnings before interest, taxes and non-cash items for the third quarter of 2003 totaled $10.9 million when compared to the same measure for the third quarter of 2002 of $11.4 million. Discretionary cash flow for both the third quarter 2003 and the third quarter of 2002 was $4.8 million. See the attached schedule for reconciliation of net income to earnings before interest, taxes and non-cash items and of net cash provided by operating activities to discretionary cash flow.

Drilling Program Update: The thirteen well 2003 drilling program includes eight development and five exploratory wells. The Davis #26-3, a development well in Cameron Parish, Louisiana was temporarily abandoned after encountering mechanical problems and determining that the well would most likely encounter the target formation too low to be productive. An evaluation of the data is currently ongoing in order to determine whether to abandon the well or to pursue other alternatives. Mission holds a 52% working interest in the Davis #26-3 and has spent about $1.8 million net. The remaining seven developmental projects are successful and result in five primarily gas producers and two oil producers. Three of the five exploratory projects have been successful. The two dry holes were previously disclosed. All of the successful exploratory projects resulted in primarily gas producers. Some of the recent highlights are discussed below:

-- The Phillip LeBlanc #1 well in Vermilion Parish, previously

announced as our Marg howei discovery in South Louisiana, has

been completed in the Marg howei age "Henry Sand" for a gross

rate of 16 million cubic feet of gas per day ("MMcf/d") with

400 barrels of condensate per day and has been producing since

October 6th. Mission holds a 77% working interest in this

production.

-- The Bluntzer #1 was drilled to a total depth of 15,910 feet

through the Lower Wilcox formation. The operator, Unit

Petroleum, is currently testing gas from the Middle Wilcox "J"

Sand in the interval from 9,588 to 9,650 feet at the gross

rate of 1.8 MMcf/d with 36 barrels of condensate per day.

Mission holds a 20% working interest in this well.

-- The Black Stone No. 1 well, drilled on the East Monte Christo

prospect in Hidalgo County, Texas is being tied-in for

production that should begin next week. The gross rate is

expected to be approximately 1.0 MMcf/d and Mission holds a

30% working interest in the well.

-- The JL&S #146 in the West Lake Verret Field, St. Martin

Parish, Louisiana was completed in the "N" Sand for gross 160

barrels of oil per day ("Bo/d") and 0.3 MMcf/d at 180 psi

flowing tubing pressure. Mission is the operator of this well

and holds a 100% working interest.

-- In the Gulf of Mexico federal offshore, Hunt Petroleum is

completing the South Marsh Island Block 142 #A-11 well as a

dual zone completion in the N-O sand where forty-four net feet

of gas pay was encountered in the interval from 8,566 to 8,640

feet and in the K3 Sand from 8,180 to 8198 feet. Production

from the #A-11, in which Mission holds a 31% working interest

should begin later this month and is expected to be

approximately 10.0 MMcf/d gross.

The only remaining well to be drilled in our 2003 thirteen well drilling program is the South Marsh Island Block 142 #C-5 well. This well is an acceleration well targeting gas zones that were discovered by previous boreholes, but have not yet been produced. The #C-5 well will spud immediately following completion of the #A-11 (mentioned above) and should take approximately 45 days to drill and complete.

Permian Basin Capital Update: We have drilled a total of 30 wells in the Brahaney Unit and TXL North Unit for a total net capital outlay of approximately $2.3 million. At the Brahaney Unit, Yoakum County, Texas, where Mission holds a 37% working interest, 10 wells were drilled resulting in an average initial gross production rate of approximately 50 Bo/d per well. An additional seven well program is scheduled to begin in December. At the TXL North Unit, Ector County, Texas, Mission holds a 20% working interest and a 25% net revenue interest. This year 20 wells have been drilled as part of a 10-acre down-spacing program resulting in an average initial gross production rate of approximately 65 Bo/d per well. We expect this infill program to continue into 2004.

Outlook for Fourth Quarter 2003: Guidance on performance for the fourth quarter of 2003 follows below:

Estimated Daily Production                    Daily Average
----------------------------------------------------------------------
Crude Oil (Barrels)                           5,300 - 5,800
----------------------------------------------------------------------
Natural Gas (Mmcf)                            27 - 30
----------------------------------------------------------------------
     Total (Mmcfe)                            60 - 65
----------------------------------------------------------------------
     Total (Boe)                              10,000 - 10,800
----------------------------------------------------------------------


Operating expenses                 Per Mcfe          Per Boe
----------------------------------------------------------------------
Lease operating expense            $1.35 - $1.45     $8.10 - $8.70
----------------------------------------------------------------------
Taxes other than income            $0.32 - $0.37     $1.92 - $2.22
----------------------------------------------------------------------
Depreciation, depletion and
 amortization                      $1.75 - $1.85     $10.50 - $11.10
----------------------------------------------------------------------
General and administrative         $0.45 - $0.50     $2.70 - $3.00
----------------------------------------------------------------------
Cash Interest expense (a)          $5.8 - $6.1 million
----------------------------------------------------------------------
Federal income tax rate            35 percent, 99
                                    percent deferred
----------------------------------------------------------------------

(a) Excludes noncash interest expense of approximately $700,000

Outlook for Full Year 2003: Guidance on performance for the full year
of 2003 is as follows:

Estimated Daily Production                    Daily Average
----------------------------------------------------------------------
Crude Oil (Barrels)                           5,800 - 6,100
----------------------------------------------------------------------
Natural Gas (Mmcf)                            25 - 30
----------------------------------------------------------------------
     Total (Mmcfe)                            60 - 65
----------------------------------------------------------------------
     Total (Boe)                              10,000 - 10,800
----------------------------------------------------------------------


Operating expenses                 Per Mcfe          Per Boe
----------------------------------------------------------------------
Lease operating expense            $1.45 - $1.55     $8.70 - $9.30
----------------------------------------------------------------------
Taxes other than income            $0.37 - $.042     $2.22 - $2.52
----------------------------------------------------------------------
Depreciation, depletion and
 amortization                      $1.60 - $1.70     $9.60 - $10.20
----------------------------------------------------------------------
General and administrative         $0.44 - $0.49     $2.65 - $2.95
----------------------------------------------------------------------
Cash Interest expense (b)          $23 - $25 million
----------------------------------------------------------------------
Federal income tax rate            35 percent, 99
                                   percent deferred
----------------------------------------------------------------------

(b) Excludes noncash interest expense of approximately $1.8 million.

Conference Call Information: Mission will hold its quarterly conference call to discuss third quarter 2003 results on Thursday, November 13, 2003 at 1:00 p.m. Central Time. To participate, dial 877/894-9681 a few minutes before the call begins. Please reference Mission Resources, conference ID 3408973. The call will also be broadcast live over the Internet from our website at www.mrcorp.com. A replay of the conference call will be available approximately two hours after the end of the call until Sunday, November 30, 2003. To access the replay, dial 800/642-1687 and reference conference ID 3408973. In addition, the call will also be archived on the Company's website.

About Mission Resources: Mission Resources Corporation is a Houston-based independent exploration and production company that drills for, acquires, develops, and produces natural gas and crude oil the Permian Basin of West Texas, along the Texas and Louisiana Gulf Coast and in the Gulf of Mexico.

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports the Company has filed with the Securities and Exchange Commission. Mission undertakes no duty to update or revise these forward-looking statements.

                           MISSION RESOURCES
                       STATEMENTS OF OPERATIONS
           (Amounts in thousands, except per share amounts)

                               Three Months Ended   Nine Months Ended
                                  September 30,       September 30,
                               --------------------------------------
                                 2003      2002      2003      2002
                               --------  --------  --------  --------
REVENUES:
 Oil revenues                  $ 14,278  $ 16,606  $ 43,241  $ 55,614
 Gas revenues                     9,793     9,242    31,005    30,482
 Gain on extinguishment of debt      --        --    22,375        --
 Interest and other income
  (expense)                         170     1,723       892    (7,959)
                               --------  --------  --------  --------
                                 24,241    27,571    97,513    78,137
                               --------  --------  --------  --------

COSTS AND EXPENSES:
 Lease operating expense          8,309     8,769    25,563    33,118
 Taxes other than income          2,106     2,365     6,951     7,094
 Transportation costs               130        73       322       211
 Asset retirement obligation
  accretion expense                 350        --     1,038        --
 Loss on asset sales                 --        --        --     2,719
 Depreciation, depletion and
  amortization                   10,037     9,718    27,963    31,917
 General and administrative
  expenses                        2,581     5,016     8,013    10,018
 Interest expense                 6,569     5,365    19,028    20,420
                               --------  --------  --------  --------

                                 30,082    31,306    88,878   105,497
                               --------  --------  --------  --------

INCOME (LOSS) BEFORE TAXES AND
 CHANGE IN ACCTG METHOD          (5,841)   (3,735)    8,635   (27,360)

 Income tax expense (benefit)
    Current                         200        --       275        --
    Deferred                     (2,238)   (1,307)    2,754    (9,576)
                               --------  --------  --------  --------

                                 (2,038)   (1,307)    3,029    (9,576)
                               --------  --------  --------  --------

INCOME (LOSS) BEFORE CHANGE
 IN ACCOUNTING METHOD          $ (3,803) $ (2,428) $  5,606  $(17,784)
                               --------  --------  --------  --------

Cumulative effect of a change
 in accounting method, net of
 deferred tax                        --        --    (1,736)       --

NET INCOME (LOSS)              $ (3,803) $ (2,428) $  3,870  $(17,784)
                               ========  ========  ========  ========


 Earnings (loss) per share
  before change in acctg method  ($0.16)   ($0.10)    $0.24    ($0.75)
 Earnings (loss) per share
  before change in acctg
  method - diluted (1)           ($0.16)   ($0.10)    $0.23    ($0.75)
 Earnings (loss) per share       ($0.16)   ($0.10)    $0.16    ($0.75)
 Earnings (loss) per share
  - diluted (1)                  ($0.16)   ($0.10)    $0.16    ($0.75)

 Weighted avg. common shares
  outstanding                    23,515    23,586    23,508    23,586
 Weighted avg. common shares
  outstanding - diluted          23,515    23,586    24,291    23,586

 Discretionary cash flow (2)   $  4,779  $  4,831  $ 15,399  $ 17,831

 Earnings before interest,
  taxes and non-cash items (3) $ 10,928  $ 11,417  $ 33,686  $ 37,869


(1) Due to a potential antidilutive effect in loss periods, weighted
    average common shares outstanding were used for periods with a
    loss.

(2) Discretionary cash flows consists of net income excluding non-cash
    items. Non-cash items include depreciation, depletion and
    amortization, compensation expense related to stock options, gain
    (loss) due to hedge ineffectiveness (FAS 133), gain (loss) on
    interest rate swap, amortization of debt issue costs, amortization
    of bond premium, gain on extinguishment of debt, asset retirement
    accretion expense, receivable write-offs, loss on asset sales,
    cumulative effect of a change in accounting method and deferred
    taxes.

(3) Earnings before interest, taxes and non-cash items consist of
    earnings before interest expense, taxes, and non-cash items
    detailed in footnote (2).


                           MISSION RESOURCES
                     SUMMARY OPERATING INFORMATION


                                 Three Months Ended  Nine Months Ended
                                    September 30,      September 30,
                                 ------------------ ------------------
                                   2003     2002      2003      2002
                                 --------- -------- ---------- -------
AVERAGE SALES PRICE, INCLUDING
THE EFFECT OF HEDGES:
 Oil and condensate ($/Bbl)      $  25.01  $ 22.78     $25.29  $21.20
 Gas ($/Mcf)                     $   4.17  $  3.02     $ 4.53  $ 2.98
 Equivalent ($/Boe)              $  25.00  $ 20.86     $26.04  $19.90

AVERAGE SALES PRICE, EXCLUDING
THE EFFECT OF HEDGES:
 Oil and condensate ($/Bbl)      $  28.54  $ 23.86     $29.34  $21.35
 Gas ($/Mcf)                     $   4.79  $  3.01     $ 5.44  $ 2.86
 Equivalent ($/Boe)              $  28.62  $ 21.48     $30.67  $19.70

AVERAGE DAILY PRODUCTION:
 Oil and condensate (Bbls)          6,207    7,924      6,264   9,608
 Gas (Mcf)                         25,543   33,272     25,073  37,454
 Equivalent (Boe)                  10,464   13,469     10,443  15,850
 Equivalent (Mcfe)                 62,785   80,816     62,657  95,102

TOTAL PRODUCTION:
 Oil and condensate (MBbls)           571      729      1,710   2,623
 Gas (MMcf)                         2,350    3,061      6,845  10,225
 Equivalent (MBoe)                    963    1,239      2,851   4,327
 Equivalent (MMcfe)                 5,776    7,435     17,105  25,963

OPERATING COSTS PER BOE:
 Lease operating expense         $   8.63  $  7.08     $ 8.97  $ 7.65
 Taxes other than income         $   2.19  $  1.91     $ 2.44  $ 1.64
 General and administrative
  expenses                       $   2.68  $  4.05     $ 2.81  $ 2.32
 Depreciation, depletion, and
  amortization (1)               $  10.25  $  7.75     $ 9.65  $ 7.26

 (1) Depreciation of furniture and fixtures and amortization
  of intangibles is excluded.



                           MISSION RESOURCES
                       CONDENSED BALANCE SHEETS
                        (Amounts in thousands)


                                           September 30,  December 31,
                                               2003          2002
                                           -------------  ------------

ASSETS:
 Current assets                              $ 29,432      $ 32,426
 Property, plant and equipment, net           335,999       300,719
 Leasehold, furniture and equipment, net        2,525         2,096
 Other assets                                   6,147         7,163
                                             --------      --------

                                             $374,103      $342,404
                                             ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities                         $ 36,692      $ 31,474
 Term loan facility                            80,000            --
 Subordinated notes due 2007                  127,426       225,000
 Unamortized premium on $125 million
  subordinated notes                            1,214         1,431
 Deferred tax liability                        18,973        16,946
 Other long-term liabilities,
  excluding current portion                       917         2,176
 Asset retirement obligation,
  excluding current portion                    39,257            --
 Stockholders' equity                          73,420        69,572
    Other comprehensive income (loss),
     net of taxes                              (3,796)       (4,195)
                                             --------      --------

                                             $374,103      $342,404
                                             ========      ========


                           MISSION RESOURCES
                  CONDENSED STATEMENTS OF CASH FLOWS
                        (Amounts in thousands)


                                               Nine Months Ended
                                                 September 30,
                                             ----------------------
                                               2003          2002
                                             --------      --------
OPERATING ACTIVITIES:
Net income (loss)                            $  3,870      $(17,784)
 Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities                         11,529        32,896
 Net changes in operating assets
  and liabilities                               5,942        (2,625)
                                             --------      --------

Net cash provided by operating activities      21,341        12,487

INVESTING ACTIVITIES:
Acquisition of oil and gas properties            (953)         (419)
Capital expenditures                          (23,010)      (16,607)
Leasehold, furniture and equipment               (875)         (147)
Proceeds from sales of properties               2,983        49,095
                                             --------      --------

Net cash (used in) provided by
 investing activities                         (21,855)       31,922

FINANCING ACTIVITIES:
Proceeds from borrowings                       80,000        21,000
Repurchase of notes                           (71,700)           --
Payments of long term debt                         --       (49,000)
Credit facility costs                          (4,787)          (65)
                                             --------      --------

Net cash provided by (used in)
 financing activities                           3,513       (28,065)
                                             --------      --------

Net increase in cash and cash equivalents       2,999        16,344
Cash and cash equivalents at beginning
 of period                                     11,347           603
                                             --------      --------

Cash and cash equivalents at end of period   $ 14,346      $ 16,947
                                             ========      ========


                           MISSION RESOURCES
                  NON-GAAP DISCLOSURE RECONCILIATION
                        (Amounts in thousands)


                               Three Months Ended   Nine Months Ended
                                  September 30,       September 30,
                               ------------------  ------------------
                                 2003      2002      2003      2002
                               --------  --------  --------  --------

NET CASH PROVIDED BY
OPERATING ACTIVITIES           $ 11,229  $ 14,470  $ 21,341  $ 12,487
 Change in assets and
  liabilities                    (6,450)   (9,639)   (5,942)    2,625
 Loss on asset sales                 --        --        --     2,719
                               --------  --------  --------  --------
DISCRETIONARY CASH FLOW (a)    $  4,779  $  4,831  $ 15,399  $ 17,831
                               --------  --------  --------  --------

NET INCOME (LOSS)              $ (3,803) $ (2,428) $  3,870  $(17,784)
 Interest expense (1)             5,949     6,586    18,012    20,038
 Gain on interest rate swap (1)      --    (1,822)     (520)   (1,567)
 Amort. of deferred financing
  costs and bond prem. (1)          620       601     1,536     1,949
 Income tax expense (benefit)    (2,038)   (1,307)    3,029    (9,576)
 Depreciation, depletion and
  amortization                   10,037     9,718    27,963    31,917
 Gain on extinguishment of debt      --        --   (22,375)       --
 Cumulative effect of a chg.
  in acct. method, net of tax        --        --     1,736        --
 Asset retirement accretion
  expense                           350        --     1,038        --
 Receivable write-offs (3)           --       (88)       --       763
 Loss on asset sales                 --        --        --     2,719
 Amortization of stock
  options (2)                        --        --        --       102
 Loss (gain) due to hedge
  ineffectiveness (3)              (187)      157      (603)    9,308
                               --------  --------  --------  --------

EARNINGS BEFORE INTEREST,
 TAXES AND NON-CASH ITEMS (a)  $ 10,928  $ 11,417  $ 33,686  $ 37,869
                               --------  --------  --------  --------


NET INCOME (LOSS)              $ (3,803) $ (2,428) $  3,870  $(17,784)
 Gain on extinguishment of
  debt, net of tax                   --        --   (14,544)       --
 Cumulative effect of a chg.
  in acct. method, net of tax        --        --     1,736        --
                               --------  --------  --------  --------
NET LOSS BEFORE GAIN AND
 CUMULATIVE CHANGE (b)         $ (3,803) $ (2,428) $ (8,938) $(17,784)
                               --------  --------  --------  --------

(1)  Included in interest expense
(2)  Included in general and administrative expenses
(3)  Included in interest and other income (expense)

(a) NOTE - Management believes that earnings before interest, taxes
    and non-cash items and discretionary cash flow are relevant and
    useful information, which are commonly used by analysts, investors
    and other interested parties in the oil and gas industry.
    Accordingly, we are disclosing this information to permit a more
    comprehensive analysis of our operating performance and liquidity,
    and as an additional measure of Mission's ability to meet its
    future requirements for debt service, capital expenditures and
    working capital. Earnings before interest, taxes and non-cash
    items and discretionary cash flow should not be considered in
    isolation or as a substitute for net income, cash flow provided by
    operating activities or other income or cash flow data prepared in
    accordance with generally accepted accounting principles ("GAAP")
    or as a measure of our profitability or liquidity. Earnings before
    interest, taxes and non-cash items and discretionary cash flow
    exclude components that are significant in understanding and
    assessing our results of operations and cash flows. In addition,
    earnings before interest, taxes and non-cash items and
    discretionary cash flow are not terms defined by GAAP and, as a
    result, our measures of earnings before interest, taxes and
    non-cash items and discretionary cash flow might not be comparable
    to similarly titled measures used by other companies.

(b) NOTE - Management believes net loss before gain on extinguishment
    of debt and cumulative effect of a change in accounting method is
    relevant and useful information. We believe it gives a clearer
    picture of the Company's performance excluding material
    non-recurring transactions. Accordingly, we are disclosing this
    information to permit a more comprehensive analysis of our
    operating performance. Net loss before gain on extinguishment of
    debt and cumulative effect of a change in accounting method should
    not be considered in isolation or as a substitute for net income
    prepared in accordance with GAAP.