EX-99.1 2002 FINANCIAL MODEL ESTIMATES
Exhibit 99.1
2002 Financial Model Estimates
This document is intended to provide information and estimates to permit preparation of models of Tom Brown, Inc. ("Tom Brown" or the "Company") for 2002. This information constitutes the Company's current estimates based on a number of assumptions. The estimates are based on the Company's historical operating performance and trends, estimates of oil and gas reserves at December 31, 2001, the Company's planned capital and operating budget for 2002 and current expectations for oil and gas production, gas trading activities, hedged positions, tax rates and expenses. The following estimates reflect our view of continuing operations only. The 2002 estimates were prepared assuming that demand, curtailment and general market conditions for oil and gas will be substantially similar to those experienced during 2001. We do not account for the potential impact of acquisitions or divestitures except to the extent the transactions are complete or near enough completion that it is more likely than not to be completed. We caution you that the estimates set forth below are given as of the date hereof only and are based on currently available information. We are not assuming any obligation to update any information contained herein.
All of the estimates and assumptions included in this document are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We believe that the forward-looking statements are based on reasonable assumptions but no assurances can be given that our expectations will be met. Actual results may differ materially due to a number of risks and uncertainties, including but not limited to:
For additional information concerning important factors that may cause actual results to differ materially from those estimated, see the Company's Form 10-K for the year ended December 31, 2001. Unless otherwise noted, all of the following dollar amounts are expressed in U.S. dollars.
Oil and gas prices have fluctuated significantly in recent years in response to numerous economic, political and environmental factors and we expect that commodity prices will continue to fluctuate significantly in the future. Changes in commodity prices could significantly affect our expected operating results. In addition to directly effecting revenues, price changes can affect expected production because production estimates necessarily assume that oil and gas can profitably be produced at the assumed pricing levels.
Production estimates
Based upon this anticipated level of spending, Tom Brown expects 2002 production to increase approximately 10%-12% from 2001. The following table summarizes the mid-point values of the estimated production levels for the first quarter and full-year 2002.
| | Third Quarter 2002 | Full Year 2002 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | U.S. | Canada | Total | U.S. | Canada | Total | ||||||
| Natural gas (Mcfpd) | 179,000 | 17,500 | 196,500 | 179,000 | 18,000 | 197,000 | ||||||
| Natural gas liquids (Bonglpd) | 3,400 | 425 | 3,825 | 3,400 | 450 | 3,850 | ||||||
| Oil (Bopd) | 1,400 | 450 | 1,850 | 1,650 | 475 | 2,125 | ||||||
| Total equivalent (Mcfepd) | 207,800 | 22,750 | 230,550 | 209,300 | 23,550 | 232,850 | ||||||
| Total production (Mmcfe) | 19,100 | 2,100 | 21,200 | 76,400 | 8,600 | 85,000 | ||||||
The above production estimates, for the periods indicated, reflect the Company's current projections related to timing of online dates for new wells from development drilling, in-service dates for new gathering and processing facilities and incorporates the sale of non-core oil and gas properties which have been completed or are near completion.
Gas price hedges
Tom Brown has natural gas hedges in the form of costless collars in place at various pipeline delivery points for the period from July 2002 to December 2003. In addition, the Company has entered into certain financial instruments to lock the Rocky Mountain basis differential relative to Henry Hub. The costless collars and basis swaps are summarized below:
| | Natural Gas Collars | Natural Gas Basis Swaps | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Period | Volume in Mmbtu/d | Weighted Average Floor/Ceiling | Volume in Mmbtu/d | Differential to Henry Hub, LA | ||||||
| Third quarter 2002 | 25,000 | $2.80/$4.03 | — | — | ||||||
| Fourth quarter 2002 | 18,000 | $2.98/$4.32 | 23,000 | $ | (0.58 | ) | ||||
| Full-year 2003 | 15,000 | $3.13/$4.57 | 27,000 | $ | (0.70 | ) | ||||
Depending on various circumstances, the Company may enter into additional transactions that would mitigate price volatility on expected crude oil and natural gas production.
Marketing, trading, gathering and processing margin
The Company's marketing group earns a margin from the sale of Tom Brown's working interest gas production and the purchase and resale of third party gas. In addition, the Company owns and operates certain mid-stream gathering and processing assets. The Company expects the marketing, gathering and processing margin to average $2.5 to $3.0 million per quarter for the remainder of 2002.
Oil and gas production costs
The Company's consolidated lease operating expense is expected to average $0.39-$0.42 per Mcfe for the remainder of 2002. Production taxes are estimated to average 8.5%-9.5% percent of wellhead oil and gas sales revenue.
Exploration costs/Impairment of leasehold cost
Exploration expense can fluctuate significantly quarter to quarter, depending on the timing of exploratory expenditures and the recognition of wells as either productive or dry holes. The forecasting of these expenditures are inherently inaccurate. Based upon planned activity levels we estimate
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exploration cost in the range of $28-32 million for 2002. The Company is also budgeting $1.4 million per quarter for amortization of impairment of leasehold cost.
Depreciation, depletion and amortization
Depreciation, depletion and amortization (DD&A) rate for the Company's consolidated operations is expected to be $1.05-$1.07 per Mcfe over the second half of 2002.
General and administrative expense
The Company expects its consolidated general and administrative (G&A) expense per Mcfe to be in the range of $0.21-$0.23 over the remainder of 2002.
Interest expense
The Company's borrowings outstanding at the end of the second quarter of 2002 totaled approximately $152 million. Based upon current LIBOR rates the Company is assuming effective interest cost will average between 5.5%-6.0% for the remainder of 2002. Assuming borrowing levels remain consistent with the balances outstanding at the end of the second quarter of 2002, interest expense is expected to average $0.09-$0.10/Mcfe for the remainder of 2002.
Provision for income taxes
Provision for income taxes of pre-tax earnings is expected to be approximately 25%. Less than one-quarter of the total tax provision is projected to represent taxes currently payable.
2002 Capital Budget
The 2002 capital expenditures are expected to be in the range of $145-$155 million. This is a decrease of approximately 35%-40% from the 2001 oil and gas exploration and development spending of $242 million.
Tom Brown expects the capital expenditures will be funded primarily out of discretionary cash flow and the sale of non-core assets. The discretionary cash flow projections are based on anticipated commodity prices and is subject to change if market conditions shift or new opportunities are identified.
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