SECURITIES AND EXCHANGE

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) February 18, 2004

 

Tom Brown, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

Tom Brown, Inc. press release dated February 18, 2004, entitled

“TOM BROWN, INC.  REPORTS RECORD PRODUCTION AND EARNINGS FOR THE FOURTH QUARTER AND FULL YEAR 2003; FOURTH QUARTER PRODUCTION INCREASES BY 37%, EARNINGS INCREASE BY 245%”

 

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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 hereunto duly authorized.

 

 

Date:  February 19, 2004	Tom Brown, Inc.
	By: /s/ Daniel G. Blanchard
	Daniel G. Blanchard
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)
	By: /s/ Richard L. Satre
	Richard L.Satre
	Controller
	(Principal Accounting Officer)

 

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ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

The Company issued the following press release:

 

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TOM BROWN, INC. REPORTS RECORD PRODUCTION AND EARNINGS FOR
THE FOURTH QUARTER AND FULL YEAR 2003;
FOURTH QUARTER PRODUCTION INCREASES BY 37%, EARNINGS
INCREASE BY 245%

 

DENVER, February 18, 2004 – Tom Brown, Inc. (NYSE:  TBI) today reported results from operations for the fourth quarter and year ended December 31, 2003.  For the three months ended December 31, 2003, the Company reported net income of $25.5 million or $0.54 per share (all per share amounts are on a diluted basis) compared to $7.4 million or $0.18 per share for the fourth quarter of 2002.  The increase in this quarter’s earnings compared to last year’s fourth quarter is due primarily to a 37% increase in production and a 52% increase in the Company’s realized natural gas price.

 

The Company reported income before the cumulative effect of the changes in accounting principles for 2003 of $83.7 million or $1.97 per share as compared to income of $9.9 million or $0.25 per share for 2002.  The Company reported net income for 2003 of $82.7 million or $1.95 per share compared to a net loss of $8.2 million or $0.20 per share for 2002.  The increase in 2003 earnings primarily relates to higher production and commodity prices.

 

Discretionary cash flow for the fourth quarter of 2003 totaled $82.1 million (see reconciliation below to net cash provided by operating activities of $77.6 million) an increase of 90% from the $43.1 million in the corresponding period of 2002.  For the full year 2003, discretionary cash flow from operations totaled $275.3 million (see reconciliation below to net cash provided by operating activity of $237.3 million) a 113% increase from the $129.4 million in 2002.

 

“We are very proud of what was accomplished this year and excited by our potential to continue to create shareholder value well out into the future,” stated Jim Lightner, Tom Brown, Inc.’s Chairman, CEO and President.  “We had tremendous success in our acquisition, exploitation and exploration efforts in 2003 which resulted in record production, earnings, discretionary cash flow and reserve additions.  TBI’s dominant positions in multiple prolific natural gas provinces and our consistent strategy of low cost exploitation, quality acquisitions and “unconventional gas” exploration have allowed us to establish a diverse and extensive North American onshore project inventory that affords multiple opportunities for continuing the Company’s growth.”

 

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The following table summarizes the Company’s net production and commodity price realizations for the 2003 and 2002 periods ended December 31:

 

		Three Months Ended								Year Ended
		12/31/03			12/31/02			Change		12/31/03			12/31/02			Change
Production
Natural gas (Bcf)		24.4			17.6			39	%	81.3			72.2			13	%
Oil (MBbls)		337			200			69	%	1,058			843			26	%
NGLs (MBbls)		343			301			14	%	1,445			1,382			5	%
Equivalent (Bcfe)		28.4			20.7			37	%	96.3			85.5			13	%
Realized Prices
Natural gas ($/Mcf)(1)		$	4.16		$	2.73		52	%	$	4.07		$	2.19		86	%
Oil ($Bbl)		29.11			25.22			15	%	29.05			23.41			24	%
NGLs ($/Bbl)		19.08			17.86			7	%	18.38			12.05			53	%

 

(1) Includes the effects of hedging

 

Fourth quarter 2003 production averaged 309.2 million cubic feet equivalent per day (Mmcfepd), as compared to 224.5 Mmcfepd for the same quarter in 2002.  The significant increase in production is attributable to the acquisition of Matador Petroleum which closed June 27, 2003 and successful drilling results.  For the full year of 2003, the Company’s production volumes averaged 263.8 Mmcfepd, a 13% increase over the 234.3 Mmcfepd in 2002.

 

Natural gas, oil and natural gas liquids sales for the fourth quarter of 2003 totaled $117.8 million, an increase of $59.2 million, or 101% higher than the prior year’s comparable period.  The increase in sales is a result of higher production and commodity prices.  For the full year 2003 natural gas, oil and natural gas liquids sales totaled $387.7 million, an increase of $193.4 million, or 100% higher than 2002.

 

Production expense on a unit of production basis (the expense divided by equivalent production for the period) for the fourth quarter of 2003 and 2002 averaged $0.42 per Mcfe and $0.38 per Mcfe, respectively.  Production taxes in the fourth quarter of 2003 averaged $0.35 per Mcfe, $0.12 per Mcfe greater than the fourth quarter of 2002 due to higher commodity prices.  The sum of production expense, production taxes, general and administrative, interest expense and other totaled $1.36 per Mcfe in the fourth quarter of 2003, $0.30 per Mcfe higher than the prior year’s comparable period.  Gas, oil and natural

 

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gas liquids sales of $4.14 per Mcfe less the sum of the expenses referred to in the previous sentence equals $2.78 per Mcfe in the most recently completed quarter and was $1.00 per Mcfe higher than the comparable period of 2002 due to higher commodity prices, partially offset by higher costs.

 

Marketing and trading margin for the fourth quarter of 2003 was a loss of $0.6 million as compared to profit of $1.9 million in the prior year’s fourth quarter.  The margin was lower primarily because the spread between Rockies and Mid-Continent natural gas basis differentials was tighter in the current period resulting in a reduced margin on the natural gas moved by the Company on its firm transportation into the Mid-Continent market.  Gathering and processing margin was $2.9 million for the fourth quarter of 2003 compared to $3.7 million for the previous year’s fourth quarter. The decline in margin was due to lower volumes in the Company’s Wind River gathering system.  In total the Company’s marketing, trading, gathering and processing margins were $2.3 million for the fourth quarter of 2003 and $5.6 million for the corresponding period of the previous year.

 

Other Items

 

Tom Brown’s fourth quarter 2003 financial results include a charge of $7.8 million ($4.9 million after tax) for the impairment of certain oil and gas properties at the Company’s James Lime play in East Texas.  The impairment represents the excess of the Company’s carrying cost of the fields over the estimated fair value of the related proved oil and natural gas reserves as of December 31, 2003.

 

Full-year and fourth quarter 2003 income tax expense included a $6.5 million deferred tax benefit attributable to the effect on our deferred tax liabilities of a reduction in Canadian tax rates enacted in 2003.

 

Outlook for 2004

 

The following statements provide a summary of certain estimates for the first quarter and full year of 2004 based on current expectations.  Tom Brown’s exploration and development capital expenditures (excluding acquisitions) for the full-year 2004 are expected to be in the range of $275 - $325 million, which include approximately 75%-80% for development activities and the remainder for leasing and exploration activities.  Tom Brown anticipates that its planned capital spending will be less than its discretionary cash flow.

 

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Cash flow in excess of the estimated capital spending program will be utilized to acquire properties, fund additional drilling activity or reduce debt.

 

Based upon the anticipated range of capital spending, Tom Brown’s full-year 2004 production is expected to total approximately 114-117 Bcfe (89% natural gas).  The mid-point estimate for the first quarter 2004 production is 28.4 Bcfe as summarized in the following table.

 

		First Quarter 2004
		U.S.		Canada		Total
Natural gas (Mcfpd)		255,000		17,500		272,500
Natural gas liquids (Bnglpd)		2,850		550		3,400
Oil (Bopd)		2,750		450		3,200
Total equivalent (Mcfepd)		288,600		23,500		312,100
Total production (Mmcfe)		26,300		2,100		28,400

 

 

The Company owns and operates certain mid-stream gathering and processing assets and periodically markets third party natural gas in areas of its operations.  The Company expects the gathering, processing and marketing margins to average $2.5-$3.0 million per quarter in 2004.

 

Estimates for exploration expense are $9-$11 million for the first quarter of 2004 and $30-$35 million for the entire year, including estimated dry hole expense. Actual dry hole expense will likely differ based on the timing and results of the exploratory wells drilled.  Based on our estimated production, other operating expenses for 2004 are expected to fall within the ranges summarized below:

 

OPERATING COSTS/Mcfe:
Lease operating expense		$ 0.43	-	$ 0.46
General and administrative expense		0.24	-	0.26
Interest expense and other		0.20	-	0.22
Depreciation, depletion and amortization		1.20		1.23
Production taxes (% of oil and gas revenues)		8.5%	-	9.5%

 

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Tom Brown has natural gas hedges in the form of costless collars and swaps in place at various pipeline delivery points (i.e., includes location differentials) that are summarized below:

 

		Natural Gas Collars				Natural Gas Swaps
Location/Period		Volume in Mmbtu/d		Weighted Average Floor/Ceiling ($/Mmbtu)		Volume in Mmbtu/d		Weighted Average Price ($/Mmbtu)
Full-year 2004:
Canada		3,600		4.69/5.76		5,000		4.51
Rockies (Colorado/Wyoming)		53,600		4.07/5.74		20,000		4.77
Southern Region (Texas)		42,300		4.51/7.12		13,100		5.08
Total 2004		99,500		4.28/6.32		38,100		4.84

 

The Company’s management will host a conference call tomorrow,  Thursday,  February 19, 2004 at 1:00 p.m. Mountain Time to review the fourth quarter and 2003 results.  The dial-in number to participate in the call is 800-399-0117 (U.S.) or 706-679-3393 (International), or the call can be accessed live in a listen-only mode by following the link from the Company’s website www.tombrown.com.

 

Tom Brown, Inc. is a Denver, Colorado based independent energy company engaged in the exploration for, and the acquisition, development, production and marketing of natural gas, natural gas liquids and crude oil in North America.  The Company’s common stock is traded on the NYSE under the symbol TBI.

 

 

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These statements are based on certain assumptions and analyses made by the Company in light of its experience, on general economic and business conditions and expected future developments, many of which are beyond the control of the Company.  Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, environmental risks, operating risks, risks related to exploration and development, effective integration of acquired operations and properties, the ability of the Company to meet its stated business goals and other risk factors as described in the Company’s 2002 Annual Report and Form 10-K as filed with the Securities and Exchange Commission.  As a result of those factors, the Company’s actual results may differ materially from those indicated in or implied by such forward-looking statements.

 

# # # # #

 

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TOM BROWN, INC. AND SUBSIDIARIES

Consolidated Summary Income Statement (Unaudited)

Three and Twelve Months Ended December 31, 2003 and 2002

 

		Three months ended December 31,						Twelve months ended December 31,
		2003			2002			2003			2002
		(in thousands, except per share amounts)
Revenues:
Gas, oil and natural gas liquids sales		$	117,810		$	58,597		$	387,672		$	194,276
Gathering and processing		4,911			6,019			19,912			20,467
Marketing and trading		9,188			11,860			37,022			58,899
Drilling		7,103			4,730			19,857			14,347
Gain on sale of properties		—			110			—			4,114
Interest income and other		415			(186		)	3,144			(2,835		)
Total revenues		139,427			81,130			467,607			289,268
Costs and expenses:
Gas and oil production		11,965			7,834			41,901			32,151
Taxes on gas and oil production		10,006			4,792			33,133			16,621
Gathering and processing costs		1,993			2,338			7,303			6,918
Trading		9,830			9,919			37,232			53,623
Drilling operations		5,922			4,470			16,890			13,763
Exploration costs		8,106			7,489			29,459			22,824
Impairment of leasehold costs		3,008			1,391			7,824			5,564
Impairment of gas and oil properties		7,791			—			7,791			—
General and administrative		9,682			5,236			27,294			18,413
Depreciation, depletion and amortization		34,647			22,461			111,513			91,307
Accretion expense		415			—			1,420			—
Bad debts (recovery)		408			(1,256		)	762			5,222
Interest expense and other		6,942			3,989			26,402			9,726
Total costs and expenses		110,715			68,663			348,924			276,132
Income before income taxes and cumulative effect of changes in accounting principles		28,712			12,467			118,683			13,136
Income tax benefit (provision):
Current		(423		)	115			35			(229		)
Deferred		(2,788		)	(5,209		)	(35,052		)	(2,981		)
Income before cumulative effect of changes in accounting principles		25,501			7,373			83,666			9,926
Cumulative effect of changes in accounting principles		—			—			(929		)	(18,103		)
Net income (loss)		$	25,501		$	7,373		$	82,737		$	(8,177	)
Weighted average number of common shares outstanding:
Basic		45,693			39,285			41,260			39,217
Diluted		47,019			40,258			42,365			40,327
Income per common share before cumulative effect of changes in accounting principles
Basic		$	0.56		$	0.19		$	2.03		$	0.25
Diluted		$	0.54		$	0.18		$	1.97		$	0.25
Net income (loss) per common share
Basic		$	0.56		$	0.19		$	2.01		$	(0.21	)
Diluted		$	0.54		$	0.18		$	1.95		$	(0.20	)

 

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TOM BROWN, INC. AND SUBSIDIARIES

Supplemental Financial Information (Unaudited)

Three and Twelve Months Ended December 31, 2003 and 2002

 

		Three months ended December 31,						Twelve months ended December 31,
		2003			2002			2003			2002
					(in thousands)
Reconciliation to net cash provided by operating activities:
Discretionary cash flow (1)		$	82,102		$	43,117		$	275,344		$	129,433
Exploration costs		(8,106		)	(7,489		)	(29,459		)	(22,824		)
Add back only dry hole cost		1,630			4,781			10,343			7,791
Changes in current assets and liabilities, net		1,945			1,845			(18,924		)	7,162
Net cash provided by operating activities		$	77,571		$	42,254		$	237,304		$	121,562

 

(1)          Discretionary cash flow is presented herein because of its wide acceptance as a financial indicator of a company’s ability to internally fund exploration and development activities and to service or incur debt. Discretionary cash flow should not be considered as an alternative to net cash provided by operating activities, net income (loss) or income (loss) from continuing operations, as defined by generally accepted accounting principles. Discretionary cash flow should also not be considered as an indicator of the Company’s financial performance, as an alternative to cash flow, as a measure of liquidity or as being comparable to other similarly titled measures of other companies.

 

 

 

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TOM BROWN, INC. AND SUBSIDIARIES

Supplemental Operational Data (Unaudited)

Three and Twelve Months Ended December 31, 2003 and 2002

 

		Three months ended December 31,				Twelve months ended December 31,
		2003		2002		2003		2002
Production (net of royalties)
Natural Gas (Bcf)
United States		22.8		16.1		74.9		65.8
Canada		1.6		1.5		6.4		6.4
		24.4		17.6		81.3		72.2
Oil (MBbls)
United States		286.0		140.6		850.0		623.3
Canada		50.9		59.8		207.5		219.5
		336.9		200.4		1,057.5		842.8
NGLs (MBbls)
United States		291.4		252.9		1,243.0		1,189.2
Canada		51.3		48.4		201.9		193.0
		342.7		301.3		1,444.9		1,382.2
Average daily production (net of royalties)
Natural Gas (Mmcf)
United States		247.6		200.8		205.3		180.2
Canada		17.3		16.6		17.3		17.5
		264.9		217.4		222.6		197.7
Oil (Bbls)
United States		3,109		1,528		2,329		1,708
Canada		553		650		569		601
		3,662		2,178		2,898		2,309
NGLs (Bbls)
United States		3,168		2,749		3,406		3,258
Canada		558		526		553		529
		3,726		3,275		3,959		3,787
Average realized price (including effects of hedging):
Natural Gas ($/Mcf)
United States		4.11		2.59		4.01		2.10
Canada		4.96		4.15		4.78		3.04
Combined		4.16		2.73		4.07		2.19
Oil ($/Bbl)
United States		29.16		25.39		28.90		23.20
Canada		28.87		24.79		29.66		23.86
Combined		29.11		25.22		29.05		23.41
NGLs ($/Bbl)
United States		18.08		17.50		17.37		11.39
Canada		24.73		19.72		24.63		16.17
Combined		19.08		17.86		18.38		12.05

 

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