UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-16179
--------------------------------
ENERGY PARTNERS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 72-1409562
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
201 St. Charles Avenue, Suite 3400
New Orleans, Louisiana 70170
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (504) 569-1875
----------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 8, 2002, there were 27,518,731 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
================================================================================
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001..........................................................................3
Consolidated Statements of Operations for the three and nine months ended
September 30, 2002 and 2001................................................................4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001................................................................5
Notes to Consolidated Financial Statements ..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................................17
Item 4. Controls and Procedures.........................................................................18
PART II OTHER INFORMATION
Item 4. Submission of Matters to the Vote of Security Holders...........................................19
Item 6. Exhibits and Reports on Form 8-K................................................................19
</Table>
-2-
ITEM 1. FINANCIAL STATEMENTS
ENERGY PARTNERS, LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
September 30, December 31,
2002 2001
-------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,849 $ --
Trade accounts receivable 20,637 13,753
Fair value of commodity derivative instruments -- 2,047
Prepaid expenses 2,679 1,459
-------------- --------------
Total current assets 28,165 17,259
Property and equipment, at cost under the successful efforts
method of accounting for oil and gas properties 437,115 287,192
Less accumulated depreciation, depletion and amortization (108,487) (63,330)
-------------- --------------
Net property and equipment 328,628 223,862
Other assets 3,400 363
Deferred financing costs - net of accumulated amortization
of $2,253 in 2002 and $1,995 in 2001 1,035 1,293
-------------- --------------
$ 361,228 $ 242,777
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,032 $ 10,404
Accrued expenses 26,833 10,985
Fair value of commodity derivative instruments 4,829 --
Current maturities of long-term debt 552 85
-------------- --------------
Total current liabilities 39,246 21,474
Long-term debt 98,711 25,408
Deferred revenue 628 --
Deferred income taxes 7,678 16,782
Other 21,922 14,246
-------------- --------------
168,185 77,910
-------------- --------------
Stockholders' equity:
Preferred stock, par value $1 per share, authorized 550,000 shares; 383,707
issued and outstanding; aggregate liquidation preference
$38.4 million 35,305 --
Common stock, par value $0.01 per share. Authorized 50,000,000 shares; issued
and outstanding:
2002 - 27,520,981 shares; 2001 - 26,870,757 shares 276 269
Additional paid-in capital 187,642 180,995
Accumulated other comprehensive income (loss) (3,090) 981
Accumulated deficit (27,090) (17,378)
-------------- --------------
Total stockholders' equity 193,043 164,867
-------------- --------------
$ 361,228 $ 242,777
============== ==============
</Table>
See accompanying notes to consolidated financial statements.
-3-
ENERGY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenues:
Oil and gas $ 33,581 $ 33,528 $ 99,781 $ 116,986
Other 82 152 (196) 3,843
---------- ---------- ---------- ----------
33,663 33,680 99,585 120,829
---------- ---------- ---------- ----------
Costs and expenses:
Lease operating 8,708 8,581 25,986 27,397
Taxes, other than on earnings 1,676 1,944 4,841 5,752
Exploration expenditures 4,509 7,888 7,949 12,311
Depreciation, depletion and amortization 16,059 12,916 50,317 35,213
General and administrative:
Stock-based compensation 123 293 327 1,358
Severance costs -- -- 1,211 --
Other general and administrative 4,739 4,641 16,000 13,467
---------- ---------- ---------- ----------
Total costs and expenses 35,814 36,263 106,631 95,498
---------- ---------- ---------- ----------
Income (loss) from operations (2,151) (2,583) (7,046) 25,331
Other income (expense):
Interest income 17 72 89 298
Interest expense (1,799) (515) (5,237) (1,379)
Gain on sale of oil and gas assets -- 33 -- 74
---------- ---------- ---------- ----------
(1,782) (410) (5,148) (1,007)
---------- ---------- ---------- ----------
Income (loss) before income taxes (3,933) (2,993) (12,194) 24,324
Income taxes 1,377 924 4,270 (8,932)
---------- ---------- ---------- ----------
Net income (loss) $ (2,556) $ (2,069) $ (7,924) $ 15,392
Less dividends earned on preferred stock
and accretion of discount (876) -- (2,467) --
---------- ---------- ---------- ----------
Net income (loss) available to
common stockholders $ (3,432) $ (2,069) $ (10,391) $ 15,392
========== ========== ========== ==========
Basic income (loss) per share $ (0.12) $ (0.08) $ (0.38) $ 0.57
========== ========== ========== ==========
Diluted income (loss) per share $ (0.12) $ (0.08) $ (0.38) $ 0.57
========== ========== ========== ==========
Weighted average common shares used
in computing income (loss) per share:
Basic 27,509 26,871 27,446 26,863
Incremental common shares -- -- -- 96
---------- ---------- ---------- ----------
Diluted 27,509 26,871 27,446 26,959
========== ========== ========== ==========
</Table>
See accompanying notes to consolidated financial statements.
-4-
ENERGY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
Nine Months Ended
September 30,
--------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (7,924) $ 15,392
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 50,317 35,213
Gain on sale of oil and gas assets -- (74)
Amortization of deferred revenue (2,792) --
Stock-based compensation 327 1,358
Deferred income taxes (4,270) 8,833
Exploration expenditures 3,982 10,909
Non-cash effect of derivative instruments 514 --
Amortization of deferred financing costs 258 711
---------- ----------
40,412 72,342
Changes in operating assets and liabilities, net of acquisition:
Trade accounts receivable 58 11,985
Prepaid expenses 699 (675)
Other assets (2,097) 1,354
Accounts payable and accrued expenses (25,326) (6,679)
Other liabilities (1,579) 164
---------- ----------
Net cash provided by operating activities 12,167 78,491
---------- ----------
Cash flows used in investing activities:
Acquisition of business, net of cash acquired (10,661) --
Property acquisitions (1,142) (2,649)
Exploration and development expenditures (21,778) (93,731)
Other property and equipment additions (250) (660)
Proceeds from sale of oil and gas assets 1,069 127
---------- ----------
Net cash used in investing activities (32,762) (96,913)
---------- ----------
Cash flows from financing activities:
Decrease in bank overdraft (808) --
Proceeds from long-term debt 43,000 30,565
Repayment of long-term debt and notes payable (15,519) (5,152)
Dividends paid (1,229) --
Other -- (351)
---------- ----------
Net cash provided by financing activities 25,444 25,062
---------- ----------
Net increase in cash and cash equivalents 4,849 6,640
Cash and cash equivalents at beginning of period -- 3,349
---------- ----------
Cash and cash equivalents at end of period $ 4,849 $ 9,989
========== ==========
</Table>
See accompanying notes to consolidated financial statements.
-5-
ENERGY PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission; however, management believes the disclosures
which are made are adequate to make the information presented not misleading.
These financial statements and footnotes should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001 and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The financial information as of September 30, 2002 and for the three and
nine month periods ended September 30, 2002 and 2001 has not been audited.
However, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the results of
operations for the periods presented have been included therein. The results of
operations for the first nine months of the year are not necessarily indicative
of the results of operations, which might be expected for the entire year.
(2) BUSINESS COMBINATION
On January 15, 2002, the Company closed the acquisition of Hall-Houston Oil
Company ("HHOC"). The results of HHOC's operations have been included in the
Company's consolidated financial statements since that date. HHOC was an oil and
gas exploration and production company with operations focused in the shallow
waters of the Gulf of Mexico. As a result of the acquisition, the Company has a
strengthened management team, expanded exploration opportunities as well as a
reserve portfolio and production that are more balanced between oil and natural
gas.
The acquisition was completed for consideration consisting of $38.4 million
liquidation preference of newly authorized and issued Series D Exchangeable
Convertible Preferred Stock (the "Series D Preferred Stock"), with a fair value
of $34.7 million discounted to effect the increasing dividend rate, $38.4
million of 11% Senior Subordinated Notes due 2009 (the "Notes"), 574,931 shares
of common stock with a fair value of $3.3 million determined based on the
average market price of the Company's common stock over the period of two days
before and after the terms of the acquisition were agreed to and announced, $9.0
million of cash, including $3.9 million of accrued interest and prepayment fees
paid to former debt holders, and warrants to purchase four million shares of the
Company's common stock. Of the warrants, one million have a strike price of
$9.00 and three million have a strike price of $11.00 per share. The warrants
had a fair value of $2.9 million based on a third party valuation. In addition,
the Company incurred approximately $3.6 million of expenses in connection with
the acquisition and assumed HHOC's working capital deficit.
-6-
ENERGY PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Former preferred stockholders of HHOC also have the right to receive
contingent consideration based upon a percentage of the amount by which the
before tax net present value of proved reserves related, in general, to
exploratory prospect acreage held by HHOC as of the closing date exceeds a net
present value discounted at 30%. The contingent consideration may be paid in the
Company's common stock or cash at the Company's option (with a minimum of 20% in
cash) and in no event will exceed a value of $50 million. Due to the uncertainty
inherent in estimating the value of contingent consideration, total final
consideration will not be determined until March 1, 2007. The contingent
consideration, if any, will be capitalized as additional purchase price.
The following table summarizes the fair value of the assets acquired and
liabilities assumed at the date of acquisition.
<Table>
<Caption>
At January 15, 2002
-------------------
(In thousands)
Current assets .................... $ 12,064
Property and equipment ............ 122,608
Deferred taxes .................... 2,544
Other assets ...................... 909
-------------------
Total assets acquired ........... 138,125
Current liabilities ............... 37,860
Other non-current liabilities ..... 8,335
-------------------
Total liabilities assumed ....... 46,195
-------------------
Net assets acquired ............. $ 91,930
-------------------
</Table>
Concurrent with the closing of the acquisition, the Company amended its
revolving line of credit with a group of banks (the "bank facility"). The new
terms provide for a $100 million borrowing base that is subject to
redetermination based on the proved reserves of the oil and gas properties that
serve as collateral for the bank facility as set out in the reserve report
delivered to the bank each April 1 and October 1. The bank facility as amended
is available through March 30, 2005 with interest permitted at both prime rate
based borrowings and London interbank offered rate ("LIBOR") based borrowings
plus a floating spread. The spread will float up or down based on the Company's
utilization of the bank facility. The spread can range from 1.50% to 2.25% above
LIBOR and 0% to 0.75% above prime. Indebtedness under the bank facility is
secured by substantially all of the assets of the Company.
The following unaudited pro forma information for the three and nine month
periods ended September 30, 2001 presents a summary of the consolidated results
of operations as if the acquisition occurred on January 1, 2001 with pro forma
adjustments to give effect to depreciation, depletion and amortization, interest
expense and related income tax effects:
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
(In thousands, except per share amounts)
Pro forma:
Revenue ................................... $ 40,758 $ 146,109
Income (loss) from operations ............. (4,836) 13,506
Net income (loss) ......................... (4,075) 6,063
Basic income (loss) per common share ...... $ (0.18) $ 0.13
Diluted income (loss) per common share .... $ (0.18) $ 0.13
</Table>
-7-
ENERGY PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The unaudited pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
acquisition taken place at the beginning of the period presented or future
results of operations.
Following the completion of the acquisition, management of the Company
assessed the technical and administrative needs of the combined organization. As
a result, 14 redundant positions were eliminated including finance,
administrative, geophysical and engineering positions in New Orleans and
Houston. All terminated employees were informed of their termination date and
severance benefits prior to March 31, 2002. Total severance costs under the plan
were $1.2 million, all of which was included in accrued expenses in the March
31, 2002 consolidated balance sheet and has been paid without any changes from
the amount expensed in the first quarter.
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if the Company's dilutive stock options and warrants were exercised
(calculated using the treasury stock method) and if the Company's convertible
preferred stock were converted to common stock.
The following table reconciles the net earnings and common shares
outstanding used in the calculations of basic and diluted earnings per share for
the nine months ended September 30, 2001. The diluted loss per share calculation
for the three and nine month periods ended September 30, 2002 and the three
months ended September 30, 2001 produces results that are anti-dilutive,
therefore, the diluted loss per share amounts as reported for those periods in
the accompanying consolidated statements of operations are the same as the basic
loss per share amounts.
<Table>
<Caption>
Weighted
Net Income Average Common
Available to Common Shares Earnings
Stockholders Outstanding Per Share
------------------- -------------- ---------
(In thousands, except per share amounts)
Nine months ended September 30, 2001:
Basic ................................... $ 15,392 26,863 $ 0.57
Effect of dilutive securities:
Stock options ....................... -- 96
----------- ------
Diluted ................................. $ 15,392 26,959 $ 0.57
</Table>
-8-
ENERGY PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(4) HEDGING ACTIVITIES
The Company enters into hedging transactions with major financial
institutions to reduce exposure to fluctuations in the price of oil and natural
gas. Crude oil hedges are settled based on the average of the reported
settlement prices for West Texas Intermediate crude on the New York Mercantile
Exchange ("NYMEX") for each month. Natural gas hedges are settled based on the
average of the last three days of trading of the NYMEX Henry Hub natural gas
contract for each month. The Company uses financially-settled crude oil and
natural gas swaps and zero-cost collars to hedge price fluctuations. The
Company's current derivative instruments qualify as cash-flow hedges. Accounting
and reporting standards require that derivative instruments, including certain
derivative instruments embedded in other contracts, be recorded at fair market
value and included as either assets or liabilities in the balance sheet. The
accounting for changes in fair value depends on the intended use of the
derivative and the resulting designation, which is established at the inception
of the derivative. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of operations. For derivative instruments designated as cash-flow
hedges, changes in fair value, to the extent the hedge is effective, will be
recognized in other comprehensive income (a component of stockholders' equity)
until settled, when the resulting gains and losses will be recorded in earnings.
Hedge ineffectiveness is measured at least quarterly based on the relative
changes in fair value between the derivative contract and the hedged item over
time. Any change in fair value resulting from ineffectiveness will be charged
currently to earnings. The following tables summarize the Company's hedging
portfolio as of September 30, 2002:
<Table>
<Caption>
Natural Gas Positions
- ----------------------------------------------------------------------------------------------
Volume (MMbtu)
---------------------
Remaining Contract Term Contract Type Strike Price ($/MMbtu) Daily Total
- ----------------------- ------------- ---------------------- ----- -----
10/02 - 01/03 Swap $2.95 30,000 3,690,000
02/03 - 01/04 Collar $3.50/$5.40 10,000 3,650,000
</Table>
<Table>
<Caption>
Crude Oil Positions
- ----------------------------------------------------------------------------------------------
Volume (Bbls)
---------------------
Remaining Contract Term Contract Type Strike Price ($/Bbl) Daily Total
- ----------------------- ------------- ------------------- ----- -----
10/02 - 12/02 Swap $24.06 2,000 184,000
10/02 - 12/02 Swap $29.64 2,000 184,000
01/03 - 12/03 Swap $26.36 2,000 730,000
</Table>
Hedging activities reduced natural gas and crude oil revenues by $1.6
million and $1.7 million in the three and nine month periods ended September 30,
2002, respectively, increased natural gas and crude oil revenues by $0.2 million
in the three months ended September 30, 2001 and reduced natural gas and crude
oil revenue by $5.0 million in the nine months ended September 30, 2001.
During the first nine months of 2002, losses of $1.1 million, net of tax,
were transferred from accumulated other comprehensive income (loss), and the
fair value of outstanding derivative instruments decreased by $8.1 million ($5.2
million net of tax) to a liability of $4.8 million ($3.1 million net of tax)
resulting in an ending balance of $3.1 million related to hedging activities in
accumulated other comprehensive income (loss) at September 30, 2002. Based upon
current prices, the Company expects to transfer approximately $4.1 million of
net deferred losses in accumulated other comprehensive income (loss) as of
September 30, 2002 to earnings during the remainder of 2002 when the forecasted
transactions actually occur.
(5) CONTINGENCIES
In the ordinary course of business, the Company is a defendant in various
legal proceedings. The Company does not expect its exposure in these
proceedings, individually or in the aggregate, to have a material adverse effect
on the financial position, results of operations or liquidity of the Company.
-9-
ENERGY PARTNERS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(6) ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued Statement
143, Accounting for Asset Retirement Obligations ("Statement 143"). Statement
143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset and is effective
for fiscal years beginning after June 15, 2002. The Company will adopt Statement
143 effective January 1, 2003, using the cumulative effect approach to recognize
transition amounts for asset retirement obligations, asset retirement costs and
accumulated depreciation. The Company currently records estimated costs of
dismantlement, removal, site restoration and similar activities as part of its
depreciation, depletion and amortization for oil and gas properties and records
a separate liability for such amounts in other liabilities. The Company has not
yet completed its assessment of the impact of Statement 143 on its financial
condition and results of operations; however, it does expect that adoption of
the statement will result in an increase in the capitalized costs of oil and gas
properties.
During the second quarter of 2002, the FASB issued Statement 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13 and Technical Corrections ("Statement 145"). This statement rescinds
Statement 4, Reporting Gains and Losses from Extinguishments of Debt, and
requires that all gains and losses from extinguishments of debt should be
classified as extraordinary items only if they meet the criteria of APB No. 30.
Applying APB No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual or infrequent or that meet the
criteria for classification as to an extraordinary item. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB No. 30 for
classification as an extraordinary item must be reclassified. The Company will
adopt the provisions related to the rescission of Statement 4 as of January 1,
2003. The adoption of Statement 145 is not expected to have an impact on the
results of operations or financial position of the Company.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities ("Statement 146"). Statement 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires that liabilities associated with these costs be
recorded at their fair value in the period in which the liability is incurred.
Statement 146 will be effective for disposal activities initiated after December
31, 2002. The Company will adopt the provisions related to Statement 146 as of
January 1, 2003; however, the adoption is not expected to have an impact on the
results of operations or financial position of the Company.
(7) RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements in order to conform to the classification adopted for reporting in
fiscal 2002.
-10-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are an independent oil and natural gas exploration and production
company concentrated in the shallow to moderate depth waters of the central
region of the Gulf of Mexico Shelf. We were incorporated in January 1998.
We use the successful efforts method of accounting for our investment in
oil and natural gas properties. Under this method, we capitalize lease
acquisition costs, costs to drill and complete exploration wells in which proven
reserves are discovered and costs to drill and complete development wells.
Seismic, geological and geophysical and delay rental expenditures are expensed
as incurred. We conduct many of our exploration and development activities
jointly with others and, accordingly, recorded amounts for our oil and natural
gas properties reflect only our proportionate interest in such activities. Our
annual report on Form 10-K includes a discussion of our critical accounting
policies, which have not significantly changed.
On January 15, 2002, we acquired HHOC for consideration of $91.9 million
and the assumption of HHOC's working capital deficit. The acquisition moved our
operations to a more balanced natural gas and oil production profile and reduced
our production exposure to any particular field. Through the acquisition we
added approximately 59.0 Bcfe of proved reserves, 97% of which are natural gas.
The acquisition included 10 producing properties and 12 offshore exploratory
blocks. As the closing did not occur until January 2002, the impact of the
acquisition is not reflected in our financial statements for fiscal 2001.
Financing related to the HHOC acquisition increased our debt level. At the
closing of the acquisition, we issued the Notes for $38.4 million and borrowed
$9.0 million cash paid from our bank facility. Additional bank borrowings have
been for operational needs and to reduce the HHOC working capital deficit we
assumed in the acquisition. As of September 30, 2002, we had $60.0 million
outstanding under our bank facility. We also issued Series D Preferred Stock
with a fair value at the issue date of $34.7 million ($38.4 million face amount)
with an effective dividend rate of 10%.
We have included the results of operations from the HHOC acquisition with
ours from the closing date of January 15, 2002. For the foregoing reason, the
acquisition will affect the comparability of our historical results of
operations with results of operations in the current period.
Our revenue, profitability and future growth rate depend substantially on
factors beyond our control, such as economic, weather, political and regulatory
developments and competition from other sources of energy. Oil and natural gas
prices historically have been volatile and may fluctuate widely in the future.
Sustained periods of low prices for oil and natural gas could materially and
adversely affect our financial position, our results of operations, the
quantities of oil and natural gas reserves that we can economically produce and
our access to capital.
-11-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
The following table presents information about our oil and natural gas
operations.
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
NET PRODUCTION (per day):
Oil (Bbls) 7,736 10,566 8,555 10,575
Natural gas (Mcf) 55,166 35,289 55,027 34,499
Total (Boe) 16,930 16,448 17,726 16,325
OIL & NATURAL GAS REVENUES (in thousands)
Oil $ 17,927 $ 24,300 $ 53,845 $ 70,218
Natural Gas 15,654 9,228 45,936 46,768
Total 33,581 33,528 99,781 116,986
AVERAGE SALES PRICES(1):
Oil (per Bbl) $ 25.19 $ 25.00 $ 23.05 $ 24.32
Natural gas (per Mcf) 3.08 2.84 3.06 4.97
Total (per Boe) 21.56 22.16 20.62 26.25
AVERAGE COSTS (per Boe):
Lease operating expense $ 5.59 $ 5.67 $ 5.37 $ 6.15
Taxes, other than on earnings 1.08 1.28 1.00 1.29
Depreciation, depletion, and amortization 10.31 8.54 10.40 7.90
General and administrative expense
(exclusive of stock-based compensation and
severance) 3.04 3.07 3.31 3.02
</Table>
(1) Net of the effect of hedging transactions
PRODUCTION
CRUDE OIL AND CONDENSATE. Our net oil production for the third quarter of
2002 decreased to 7,736 Bbls per day from 10,566 Bbls per day in the third
quarter of 2001. Our net oil production for the first nine months of 2002
decreased to 8,555 Bbls per day from 10,575 Bbls per day in the same period
2001. The decrease is the result of fewer workovers/recompletions on oil wells
in the current year combined with the impact of Tropical Storm Isidore in
September and natural reservoir declines.
NATURAL GAS. Our net natural gas production for the third quarter of 2002
increased to 55,166 Mcf per day from 35,289 Mcf per day in the third quarter of
2001. Our net natural gas production for the first nine months of 2002 increased
to 55,027 Mcf per day from 34,499 Mcf per day in the same period of 2001. The
increases for the quarter and nine months were the result of natural gas volumes
added in the acquisition of HHOC combined with new production from our East
Cameron 9 well and were partially offset by the impact of Tropical Storm Isidore
and natural reservoir declines.
These results were strong as compared to 2001; however we did not achieve
the growth in volumes that we anticipated from the second quarter of 2002 due to
weather related downtime from Tropical Storm Isidore in late September 2002. As
a result of the storm, production was shut in or reduced for several days in
September for estimated lost production of 1,088 Boe per day for the quarter.
-12-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
REALIZED PRICES
CRUDE OIL AND CONDENSATE. Our average realized oil price in the third
quarter of 2002 was $25.19 per Bbl, an increase from an average realized price
of $25.00 per Bbl in the third quarter of 2001. Hedging activities reduced oil
price realizations by $1.01 per Bbl from the $26.20 per Bbl that otherwise would
have been received in the third quarter of 2002. As a result of our collar
positions, hedging activities did not impact realized prices in the third
quarter of 2001.
Our average realized oil price in the first nine months of 2002 was $23.05
per Bbl, a decrease of 5% from an average realized price of $24.32 per Bbl in
the first nine months of 2001. Hedging activities reduced oil price realizations
by $0.44 per Bbl from the $23.49 per Bbl that otherwise would have been received
in the first nine months of 2002. In the first nine months of 2001, hedging
activities reduced oil price realizations by $1.77 per Bbl or 7% from the $26.09
per Bbl that otherwise would have been received.
NATURAL GAS. Our average realized natural gas price in the third quarter of
2002 was $3.08 per Mcf, an increase from an average realized price of $2.84 per
Mcf in the third quarter of 2001. Hedging activities reduced natural gas price
realizations by $0.17 per Mcf or 5% from the $3.25 per Mcf that otherwise would
have been received in the third quarter of 2002. In the third quarter of 2001,
hedging activities increased natural gas price realizations by $0.05 per Mcf or
2% from the $2.79 per Mcf that otherwise would have been received.
Our average realized natural gas price in the first nine months of 2002 was
$3.06 per Mcf, a decrease of 38% from an average realized price of $4.97 per Mcf
in the first nine months of 2001. In the first nine months of 2002, hedging
activities decreased natural gas price realizations by $0.04 per Mcf from the
$3.10 per Mcf that otherwise would have been received. In the first nine months
of 2001, hedging activities increased natural gas price realizations by $0.02
per Mcf from the $4.95 per Mcf that otherwise would have been received.
NET INCOME AND REVENUES
Our oil and natural gas revenues remained consistent at $33.6 million in
the third quarter of 2002 from $33.5 million in the third quarter of 2001.
Although production volumes increased 3% on a barrel of oil equivalent basis,
the combination of the change in our production mix from 36% natural gas in 2001
to 54% natural gas in 2002 and the blended prices received resulted in
relatively flat revenues.
Our oil and natural gas revenues decreased to $99.8 million in the first
nine months of 2002 from $117.0 million in the first nine months of 2001. While
production volumes increased 9% on a barrel of oil equivalent basis, the
increase was more than offset by a sharp decrease in natural gas prices and a
slight decrease in crude oil prices, resulting in lower revenues.
We recognized a net loss of $2.6 million in the third quarter of 2002
compared to a net loss of $2.1 million in the third quarter of 2001. We
recognized a net loss of $7.9 million in the first nine months of 2002 compared
to net income of $15.4 million in the first nine months of 2001. The decrease in
net income was primarily due to the decrease in oil and natural gas revenues
previously discussed, combined with higher depletion, depreciation and
amortization expense incurred primarily as a result of the HHOC acquisition. In
addition, there were two non-recurring items that had an impact on our net
income or loss in the first nine months of 2002 and 2001:
-13-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
o We recorded business interruption income of $3.5 million ($2.2 million on
an after tax basis or $0.08 per diluted share) in the first quarter of 2001
as a result of the rupture of a high-pressure natural gas transfer line at
our East Bay field. The rupture occurred in November 2000 and the transfer
line was restored to service in February 2001.
o In March 2002, in connection with management's plan to reduce costs and
effectively combine the operations of HHOC with ours, we executed a
severance plan and recorded an expense of $1.2 million ($0.8 million on an
after tax basis or $0.03 per diluted share).
OPERATING EXPENSES
Operating expenses during the three and nine month periods ended September 30,
2002 and 2001 were impacted by the following:
o Lease operating expense remained consistent at $8.7 million in the third
quarter of 2002 from $8.6 million in the third quarter of 2001. We
continued to experience cost efficiencies due to the concerted effort
to reduce operating costs at our East Bay field and the increase in natural
gas production as a percentage of total production; however these
reductions were offset by $0.5 million incurred for repairs from Tropical
Storm Isidore.
Lease operating expense decreased to $26.0 million in the first nine months
of 2002 from $27.4 million in the first nine months of 2001. The decrease
is attributable to the concerted effort to reduce operating costs at our
East Bay field and the increase in natural gas production as a percentage
of total production. The impact from costs incurred due to Tropical Storm
Isidore were neutral in the year to date period due to similar costs
related to Tropical Storm Allison in the second quarter of 2001.
o Taxes, other than on earnings decreased to $1.7 million in the third
quarter of 2002 from $1.9 million in the third quarter of 2001. Taxes,
other than on earnings decreased to $4.8 million in the first nine months
of 2002 from $5.8 million in the first nine months of 2001. Both reductions
were due to the decrease in the production volumes and prices received for
our oil production on state leases subject to Louisiana severance taxes.
o Depreciation, depletion and amortization increased to $16.1 million in the
third quarter of 2002 from $12.9 million in the third quarter of 2001.
Depreciation, depletion and amortization increased to $50.3 million in the
first nine months of 2002 from $35.2 million in the first nine months of
2001. The increases were due to the increased depreciable asset base
resulting from the acquisition of HHOC and drilling activities subsequent
to September 30, 2001, increased production volumes, amortization of
unproved leases awarded at the March lease sale and downward reserve
revisions due to prices at December 31, 2001.
o Other general and administrative expenses remained consistent at $4.7
million in the third quarter of 2002 compared to $4.6 million in the third
quarter of 2001.
Other general and administrative expenses increased to $16.0 million in the
first nine months of 2002 from $13.5 million in the first nine months of
2001. The increase was primarily due to additional personnel costs ($0.7
million), increased insurance costs ($0.9 million), increased office costs
($0.8 million) and other costs associated with the combination of HHOC's
operations with ours primarily in the first quarter of 2002 as we
assimilated HHOC.
-14-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
o Non-cash stock-based compensation expense of $0.1 million was recognized in
the third quarter of 2002 compared to $0.3 million in the third quarter of
2001. Non-cash stock-based compensation expense of $0.3 million was
recognized in the first nine months of 2002 compared to $1.4 million
recognized in the first nine months of 2001. The expenses relate to
restricted stock grants made to employees.
OTHER INCOME AND EXPENSE
INTEREST. Interest expense increased to $1.8 million in the third quarter
of 2002 from $0.5 million in the third quarter of 2001. Interest expense also
increased for the year to date period to $5.2 million in 2002 from $1.4 million
in 2001. The increases for both periods were a result of increased borrowings
under our bank facility and the issuance of the Notes on January 15, 2002.
LIQUIDITY AND CAPITAL RESOURCES
We intend to use cash flows from operations before changes in working
capital to fund our future development, exploration and acquisition activities.
Our acquisition in 2002 of HHOC significantly impacted our cash flows from
operations. Our future cash flow from operations before changes in working
capital will depend on our ability to maintain and increase production through
our development and exploration drilling program, as well as the prices of oil
and natural gas. We may, from time to time, use the availability of our
bank facility for working capital needs.
Our bank facility, as amended on January 15, 2002, consists of a revolving
line of credit with a group of banks available through March 30, 2005. The bank
facility currently has a borrowing base of $100 million that is subject to
redetermination based on the proved reserves of the oil and gas properties that
serve as collateral for the bank facility as set out in the reserve report
delivered to the banks each April 1 and October 1. The bank facility permits
both prime rate based borrowings and LIBOR based borrowings plus a floating
spread. The spread will float up or down based on our utilization of the bank
facility. The spread can range from 1.50% to 2.25% above LIBOR and 0% to 0.75%
above prime. The borrowing base under the bank facility is secured by
substantially all of our assets including those of HHOC acquired in January
2002. The bank facility contains customary events of default and requires that
we satisfy various financial covenants. At September 30, 2002, we had $60
million outstanding and $40 million of credit capacity available under the bank
facility. Also included in long-term debt in the consolidated balance sheet is
$38.4 of the Notes, which are due in January 2009.
Net cash of $32.8 million used in investing activities in the first nine
months of 2002 included primarily the $10.7 million of cash paid in conjunction
with the acquisition of HHOC, which is net of $1.9 million in cash received,
lease acquisitions of $1.1 million and oil and gas property capital and
exploration expenditures of $21.8 million. Exploration expenditures incurred are
excluded from operating cash flows and included in investing activities. During
the first nine months of 2002, we completed five drilling projects, four of
which were successful, and 21 recompletion/workover projects, 16 of which were
successful. During the first nine months of 2001, we completed 22 drilling
projects, 17 of which were successful, and 58 recompletion/workover projects, 51
of which were successful.
Our 2002 capital expenditure budget is focused on moderate risk exploratory
activities on undeveloped leases, combined with exploitation and exploration
activities on our proved properties. We currently expect that up to 10 percent
of our budget will be spent on higher risk, higher potential exploration
activities. Our capital expenditure plans for 2002 are currently estimated to be
approximately $60 million with approximately $29 million remaining to be spent
in the fourth quarter of this year. Actual levels of capital expenditures may
vary significantly due to many factors, including results of our drilling
program, oil and natural gas prices, industry conditions, participation by other
working interest owners and the costs of drilling rigs and other oilfield goods
and services.
We have experienced and expect to continue to experience substantial
working capital requirements, primarily due to our active capital expenditure
program. We believe that cash flows from operations
-15-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
before changes in working capital will be sufficient to meet our capital
requirements through the end of 2002 and have the capacity to increase
borrowings under our bank facility for changes in working capital. However,
additional financing may be required in the future to fund our growth and
capital expenditures.
Our annual report on Form 10-K for the year ended December 31, 2001
includes a discussion of our contractual obligations inclusive of the Notes
issued in the HHOC acquisition. As a result, the only change to that disclosure
is the increase in borrowings under our bank facility discussed herein.
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued Statement
143, Accounting for Asset Retirement Obligations ("Statement 143"). Statement
143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset and is effective
for fiscal years beginning after June 15, 2002. We will adopt Statement 143
effective January 1, 2003, using the cumulative effect approach to recognize
transition amounts for asset retirement obligations, asset retirement costs and
accumulated depreciation. We currently record estimated costs of dismantlement,
removal, site restoration and similar activities as part of its depreciation,
depletion and amortization for oil and gas properties and record a separate
liability for such amounts in other liabilities. We have not yet completed our
assessment of the impact of Statement 143 on our financial condition and results
of operations; however, we do expect that adoption of the statement will result
in an increase in the capitalized costs of oil and gas properties.
During the second quarter of 2002, the FASB issued Statement 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13 and Technical Corrections ("Statement 145"). This statement rescinds SFAS No.
4, Reporting Gains and Losses from Extinguishments of Debt, and requires that
all gains and losses from extinguishments of debt should be classified as
extraordinary items only if they meet the criteria of in APB No. 30. Applying
APB No. 30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual or infrequent or that meet the criteria
for classification as an extraordinary item. Any gain or loss on extinguishment
of debt that was classified as an extraordinary item in prior periods presented
that does not meet the criteria in APB No. 30 for classification as an
extraordinary item must be reclassified. We will adopt the provisions related to
the rescission of SFAS No. 4 as of January 1, 2003. The adoption of Statement
145 is not expected to have an impact on our results of operations or financial
position.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities ("Statement 146"). Statement 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires that liabilities associated with these costs be
recorded at their fair value in the period in which the liability is incurred.
Statement 146 will be effective for disposal activities initiated after December
31, 2002. We will adopt the provisions related to Statement 146 as of January 1,
2003; however, the adoption is not expected to have an impact on our results of
operations or financial position.
FORWARD LOOKING INFORMATION
All statements other than statements of historical fact contained in this
Report and other periodic reports filed by us under the Securities Exchange Act
of 1934 and other written or oral statements made by us or on our behalf, are
forward-looking statements. When used herein, the words "anticipates",
"expects", "believes", "goals", "intends", "plans", or "projects" and similar
expressions are intended to identify forward-looking statements. It is important
to note that forward-looking statements are based on a number of assumptions
about future events and are subject to various risks, uncertainties and other
factors that may cause our actual results to differ materially from the views,
beliefs and estimates expressed or implied in such forward-looking statements.
We refer you specifically to the section
-16-
ENERGY PARTNERS, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
"Additional Factors Affecting Business" in Items 1 and 2 of our Annual Report on
Form 10-K for the year ended December 31, 2001. Although we believe that the
assumptions on which any forward-looking statements in this Report and other
periodic reports filed by us are reasonable, no assurance can be given that such
assumptions will prove correct. All forward-looking statements in this document
are expressly qualified in their entirety by the cautionary statements in this
paragraph.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are exposed to changes in interest rates. Changes in interest rates
affect the interest earned on our cash and cash equivalents and the interest
rate paid on borrowings under our bank facility. Currently, we do not use
interest rate derivative instruments to manage exposure to interest rate
changes. At September 30, 2002, $60 million of our long-term debt had variable
interest rates and $38.4 million had a fixed rate of 11%.
COMMODITY PRICE RISK
Our revenues, profitability and future growth depend substantially on
prevailing prices for oil and natural gas. Prices also affect the amount of cash
flow available for capital expenditures and our ability to borrow and raise
additional capital. The amount we can borrow under the bank facility is subject
to periodic redetermination based in part on changing expectations of future
prices. Lower prices may also reduce the amount of oil and natural gas that we
can economically produce. We currently sell all of our oil and natural gas
production under price sensitive or market price contracts.
We use derivative commodity instruments to manage commodity price risks
associated with future oil and natural gas production. Our hedging program uses
financially-settled crude oil and natural gas swaps and zero-cost collars
benchmarked to the NYMEX West Texas Intermediate crude oil contracts and Henry
Hub natural gas contracts. We do not use them for speculative purposes.
We had the following hedging positions as of September 30, 2002:
<Table>
<Caption>
Natural Gas Positions
- -------------------------------------------------------------------------------------------
Volume (MMbtu)
--------------------
Remaining Contract Term Contract Type Strike Price ($/MMbtu) Daily Total
- ----------------------- ------------- ---------------------- ----- -----
10/02 - 01/03 Swap $2.95 30,000 3,690,000
02/03 - 01/04 Collar $3.50/$5.40 10,000 3,650,000
</Table>
<Table>
<Caption>
Crude Oil Positions
- --------------------------------------------------------------------------------------------
Volume (Bbls)
---------------------
Remaining Contract Term Contract Type Strike Price ($/Bbl) Daily Total
- ----------------------- ------------- -------------------- ----- -----
10/02 - 12/02 Swap $24.06 2,000 184,000
10/02 - 12/02 Swap $29.64 2,000 184,000
01/03 - 12/03 Swap $26.36 2,000 730,000
</Table>
We may in the future enter into these and other types of hedging
arrangements to reduce our exposure to fluctuations in the market prices of oil
and natural gas. Hedging transactions expose us to risk of financial loss in
some circumstances, including if production is less than expected, the other
party to the contract defaults on its obligations, or there is a change in the
expected differential between the underlying price in the hedging agreement and
actual prices received. Hedging transactions may limit the benefit we would have
otherwise received from increases in the prices for oil and natural gas.
-17-
ENERGY PARTNERS, LTD.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK - (CONTINUED)
Furthermore, if we do not engage in hedging transactions, we may be more
adversely affected by declines in oil and natural gas prices than our
competitors who engage in hedging transactions.
Our hedged volume as of September 30, 2002, approximated 32% of our
estimated production from proved reserves for the balance of the contract terms.
We use a sensitivity analysis technique to evaluate the hypothetical effect
that changes in the market value of crude oil and natural gas may have on fair
value of our derivative instruments. At September 30, 2002, the potential change
in the fair value of commodity derivative instruments assuming a 10% adverse
movement in the underlying commodity price would have been a $5.2 million
increase in the deferred liability.
For purposes of calculating the hypothetical change in fair value, the
relevant variables are the type of commodity (crude oil or natural gas), the
commodities futures prices and volatility of commodity prices. The hypothetical
fair value is calculated by multiplying the difference between the hypothetical
price and the contractual price by the contractual volumes.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer completed an evaluation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) and 15 d-14(c) of the
Securities and Exchange Act of 1934, as amended). Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer believe that as of the date
of the evaluation our disclosure controls and procedures are effective.
There were no significant changes (including corrective action with regard
to significant deficiencies or material weaknesses) in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the most recently completed evaluation.
-18-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Earnout Agreement between Energy Partners, Ltd. and
Participants effective July 1, 2002
(b) Reports on Form 8-K:
None
-19-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY PARTNERS, LTD.
Date: November 13, 2002 By: /s/ SUZANNE V. BAER
-------------------
Suzanne V. Baer
Executive Vice President and Chief
Financial Officer
(Authorized Officer and Principal
Financial Officer)
-20-
Certifications of the Executive Vice President and Chief Financial Officer and
Chairman, President, and Chief Executive Officer of Energy Partners, Ltd.
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Suzanne V. Baer, certify that:
1. I have reviewed the quarterly report on Form 10-Q of Energy Partners,
Ltd.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) for the
registrant and we have;
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluations as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the most recent Evaluation Date,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: November 13, 2002
/s/ Suzanne V, Baer
- ---------------------------------------
Suzanne V. Baer
Executive Vice President and Chief Financial Officer
-21-
I, Richard A. Bachmann, certify that:
1. I have reviewed the quarterly report on Form 10-Q of Energy Partners,
Ltd.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) for the
registrant and we have;
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluations as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the most recent Evaluation Date,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: November 13, 2002
/s/ Richard A. Bachmann
- ---------------------------------------
Richard A. Bachmann
Chairman, President and Chief Executive Officer
-22-
Certification Accompanying Form 10-Q Report of Energy Partners, Ltd.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 U.S.C. Section 1350(a) and (b))
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the
undersigned hereby certifies in his capacity as an officer of Energy Partners,
Ltd. (the "Company") that the Quarterly Report of the Company on Form 10-Q for
the period ended September 30, 2002 fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that the information
contained in such Report fairly presents, in all material respects, the
financial condition and the results of operations of the Company at the end of
and for the periods covered by such Report.
/s/ Richard A. Bachmann
-------------------------------
Dated: November 13, 2002 Richard A. Bachmann
Chairman, President and
Chief Executive Officer
/s/ Suzanne V, Baer
-------------------------------
Dated: November 13, 2002 Suzanne V. Baer
Executive Vice President and
Chief Financial Officer
-23-
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
10.1 First Amendment to Earnout Agreement between Energy
Partners, Ltd. and Participants effective July 1,
2002
</Table>