Venoco, Inc. Announces 3rd Quarter 2015 Financial and Operational Results

DENVER, CO--(Marketwired - November 13, 2015) - Venoco, Inc. ("Venoco" or the "company") today reported financial and operational results for the third quarter of 2015. The company reported net loss of $203.3 million for the quarter, which included the recognition of an impairment of oil and gas properties of $191.8 million. The impairment was primarily due to continued low commodity prices, which resulted in a reduction of the discounted present value of the company's proved oil and natural gas reserves. The company reported total revenues of $11.2 million, and also reported realized commodity derivative gains of $16.8 million.

The company experienced reduced income from operations for the first nine months of 2015 compared to the first nine months of 2014, due primarily to the sale of the West Montalvo field in October of 2014, decreased production as a result of suspension of production on Platform Holly at the South Ellwood field following the May 19th, 2015 rupture of the Plains All American Pipeline, L.P., the common carrier pipeline that transports oil from the field and commodity price declines.

Adjusted Earnings, which adjusts for unrealized derivative gains and losses, impairments of oil and gas properties and certain other items, were a loss of $17.0 million for the quarter, compared to a $5.3 million loss in the second quarter of 2015. Adjusted EBITDA was $9.5 million in the third quarter of 2015, compared to $27.0 million in the second quarter. Please see the end of this release for definitions of Adjusted Earnings and Adjusted EBITDA and a reconciliation of those measures to net income/loss.

Highlights include the following:

• Lease operating expenses were $13.0 million for the quarter, compared to $13.2 million during the second quarter of 2015 and $15.0 million during the third quarter of 2014, the last of which is pro forma for the West Montalvo sale.

• Initiated drilling efforts during the third quarter for two development infill wells at Platform Gail in the Sockeye Field, targeting the Monterey zone (M2). Both wells were successfully drilled and completed in the third and fourth quarters respectively.

"We drilled these wells given the quality of our development inventory and economics particularly given the relatively low marginal operating costs they reflect on our platform," said Mark DePuy, Venoco's CEO. "Both wells exhibited good oil shows while drilling and excellent gross rates when initially placed on production. The first well (E-4) came in at over 200 barrels of oil per day in late August, but has subsequently dropped to 60 barrels of oil per day. We suspect we're experiencing a wellbore problem and our technical staff is developing a remedial plan," Mr. DePuy continued.

"The second well (E-7) was placed on production in late October and is still cleaning up. We expect to learn more about the wells' productive capabilities in the coming months. Although the initial rates are not as robust as we would like, neither well has given us pause on the quality of our remaining inventory," Mr. DePuy said.

Third Quarter 2015 Production

Production in the third quarter of 2015 was 2,849 BOE/d compared to 4,554 BOE/d in the second quarter of 2015 and 7,344 BOE/d in the third quarter of 2014.

"Year over year production has been significantly impacted by the West Montalvo sale and the continued shut down at Platform Holly. However, production from our other assets -- particularly at the Sockeye field -- is above the original forecast for 2015," commented Mr. DePuy.

The following table details the company's daily production by region (BOE⁽¹⁾/d):

Third Quarter 2015 Costs

Venoco's third quarter 2015 lease operating expenses (LOE) were $49.45 per BOE compared to $31.75 per BOE in the second quarter of 2015 and $26.96 per BOE in the third quarter of 2014. The increase in third quarter 2015 LOE per BOE compared to prior periods is primarily due to the continued suspension of production from Platform Holly. On an absolute basis, our third quarter 2015 LOE was $13.0 million compared to $15.0 million during the third quarter 2014, pro forma for the West Montalvo sale. The company also accelerated a number of projects at Platform Holly which were scheduled to be performed in 2016 in an effort to minimize downtime as much as possible when the pipeline returns to operation. The acceleration of these projects offset some of the effect of the cost reduction measures enacted during third quarter 2015.

Venoco's third quarter G&A costs, excluding one-time general and administrative costs and non-cash share-based compensation, were $22.17 per BOE compared to $18.05 per BOE in the second quarter of 2015 and $7.29 per BOE in the third quarter of 2014. When further adjusted to also exclude restructuring costs and production contributions from the West Montalvo field, third quarter 2015 G&A costs were $18.72 per BOE, compared to $14.24 per BOE in the second quarter of 2015, and $8.91 per BOE in the third quarter of 2014. The increase in third quarter 2015 G&A per BOE compared prior periods is primarily due to the continued suspension of production from Platform Holly. On an absolute basis, G&A costs, excluding one-time general and administrative costs, non-cash share-based compensation, and costs relating to restructuring efforts, were down $3.4 million for the first nine months of 2015 compared to the same period in 2014, from $18.9 million in 2014 to $15.5 million in 2015.

The following table details the company's operating costs on a per BOE basis (BOE/d):

Third Quarter 2015 Capital Investment

Venoco's third quarter 2015 capital expenditures for exploration, development and other spending were $13.8 million, including $9.8 million for drilling and rework activities, and the remaining $4.0 million for facilities, land, seismic, and capitalized G&A.

The majority of the company's capital expenditures were incurred at the Sockeye field. During the quarter, the company continued drilling and completion activities off Platform Gail on two wells targeting the M2 zone. The first well was completed in September and the second well was completed in October. The Company is continuing to perform downhole engineering operations to maximize the productive capabilities of each well. The company expects to have further details regarding the drilling program in conjunction with its end of year 2015 SEC filings.

About the Company

Venoco is an independent energy company primarily engaged in the acquisition, exploitation and development of oil and natural gas properties primarily in California. Venoco operates three offshore platforms in the Santa Barbara Channel, has non-operated interests in three other platforms and operates several onshore properties in Southern California.

Forward-looking Statements

Statements made in this news release relating to Venoco's future capital expenditures and development projects, anticipated results from new wells and all other statements except statements of historical fact, are forward-looking statements. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the company's future performance are both subject to a wide range of business risks and uncertainties and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the timing and extent of changes in oil and gas prices, the timing and results of drilling and other development activities, the availability and cost of obtaining drilling equipment and technical personnel, risks associated with the availability of acceptable transportation arrangements and the possibility of unanticipated operational problems, delays in completing production, treatment and transportation facilities, higher than expected production costs and other expenses, pipeline curtailments by third parties, and a potential inability to complete transactions as anticipated. The company's projects are subject to numerous operating, geological and other risks and may not be successful. All forward-looking statements are made only as of the date hereof and the company undertakes no obligation to update any such statement. Further information on risks and uncertainties that may affect the company's operations and financial performance, and the forward-looking statements made herein, is available in the company's filings with the Securities and Exchange Commission, which are incorporated by this reference as though fully set forth herein.

GAAP RECONCILIATIONS

Adjusted Earnings and Adjusted EBITDA

In addition to net income (loss) determined in accordance with GAAP, we have provided in this release our Adjusted Earnings and Adjusted EBITDA for recent periods. Both Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures that we use as supplemental measures of our performance.

We define Adjusted Earnings as net income (loss) before the effects of the items listed in the table below. We calculate the tax effect of reconciling items by re-performing our period-end tax calculation excluding the reconciling items from earnings. The difference between this calculation and the tax expense/benefit recorded for the period results in the tax effect disclosed below. We believe that Adjusted Earnings facilitates comparisons to earnings forecasts prepared by stock analysts and other third parties. Such forecasts generally exclude the effects of items that are difficult to predict or to measure in advance and are not directly related to our ongoing operations.

We define Adjusted EBITDA as net income (loss) before the effects of the items listed in the table below. Because the use of Adjusted EBITDA facilitates comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning and analysis purposes, in assessing acquisition opportunities and in determining how potential external financing sources are likely to evaluate our business.

We present Adjusted Earnings and Adjusted EBITDA because we consider them to be important supplemental measures of our performance. Neither Adjusted Earnings nor Adjusted EBITDA is a measurement of our financial performance under GAAP and neither should be considered as an alternative to net income (loss), operating income or any other performance measure derived in accordance with GAAP, as an alternative to cash flow from operating activities or as a measure of our liquidity. You should not assume that the Adjusted Earnings or Adjusted EBITDA amounts shown are comparable to similarly named measures disclosed by other companies.

We also provide per BOE G&A expenses excluding the items set forth in the table below. We believe that these non-GAAP measures are useful in that the items excluded do not represent cash expenses directly related to our ongoing operations. These non-GAAP measures should not be viewed as an alternative to per BOE G&A expenses as determined in accordance with GAAP.