Bottom of the Barrel: Energy Partners Drills for Dollars - TheStreet

Bottom of the Barrel: Energy Partners Drills for Dollars

The rally in this E&P small-cap may have more to go if the drilling program works.
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There's more oil and gas to come, according to Energy Partners' (EPL) Chairman, President and CEO Richard Bachman, who spoke to the third annual Louisiana Energy conference Wednesday.

The company announced three commercial drilling successes earlier this week, and more should follow this month and into early 2004. It's now involved in drilling eight additional prospects, and another set of announcements will likely come within the next 10 days. It may announce results from one of its exploratory prospects on the Gulf of Mexico shelf.

Energy Partners probably won't give up there. The company will likely begin drilling at least two more wells before year-end. It's now running a total of eight drilling rigs, three on projects it directly controls. In addition, it should begin two other projects either later this year or early in January, one in its well-known East Bay development and another well at High Island 55L, which continues to be successful.

The other impressive detail of this year's drilling flurry is the company's ability to get wells drilled on time and under budget. Energy Partners attributes the vastly improved technical results to William Flores, senior vice president of drilling, who joined the company from

Ocean Energy

earlier this year. Compared to the almost "cover your eyes and pray" strategy in some of last year's wells, the drilling program has been nearly flawless in the fourth quarter.

Still on the Acquisition Trail

In his recent conference address, Bachman noted that the company is still searching for an acquisition in the $100 million area. He indicated that the challenge is in finding the "right properties at the right price," something that becomes more difficult daily on the Gulf of Mexico shelf. He did say that the cash raised earlier this year in hopes of completing an acquisition would not be used to expand the current drilling program; instead it would be reserved only for acquisitive opportunities.

Bachman also noted that Energy Partners is in the early stages of evaluating additional basins that might fit its model of adding value through exploration and exploitation. He said the company would look both domestically and internationally for opportunities over time, but seemed to hint that more "EPL-compatible" opportunities were likely to be found in international venues.

The company reiterated that its 2004 capital program would begin with a budget of $125 million, but was subject to upward adjustment based on commodity prices and cash flow. Consistent with previous guidance, 60% of its budget will be spent on low-risk exploitation and development, 25% on moderate-risk exploration and 15% on high-potential exploration. The company also noted that the 2004 exploration program should be more "level" across quarters, unlike the past two years in which exploration has been pushed into the last months of the year.

Energy Partners has posted good results and had a nice move since I

first profiled it a year ago. However, given the results likely to come in the next several weeks, there's still room for growth, especially with the robust results from the wells now being drilled. It remains in the top performers list in the Bottom of the Barrel portfolio.

Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.