Zapata Energy Corporation
TSX VENTURE : ZCO

Zapata Energy Corporation

August 23, 2005 09:15 ET

Zapata Earnings Increase 162% in Q2 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 23, 2005) - Zapata Energy Corporation (TSX VENTURE:ZCO) is pleased to report its second quarter results for 2005. A 28 percent increase in production and strong commodity prices allowed Zapata to achieve its strongest second quarter ever, earning $2.0 million ($0.24 per share) in the second quarter of 2005 compared with $754,690 ($0.09 per share) in the second quarter of 2004.



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OPERATIONAL & FINANCIAL HIGHLIGHTS
($ thousands except per unit and operational amounts)
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Three months ended Six months ended
June 30 June 30
2005 2004(1) % Change 2005 2004(1) % Change
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FINANCIAL
Gross revenue $14,099 8,954 57% 26,983 17,928 51%
Cash flow from
operations 6,821 4,745 44% 12,940 8,301 56%
Per share (basic) 0.84 0.59 42% 1.60 1.04 54%
Per share (diluted) 0.80 0.57 42% 1.53 1.00 53%
Net income 1,973 754 162% 4,058 1,881 116%
Per share (basic) 0.24 0.09 159% 0.50 0.24 113%
Per share (diluted) 0.23 0.09 159% 0.48 0.23 112%
Capital expenditures 4,893 7,819 (37%) 8,903 12,092 (26%)
Bank debt 23,940 22,300 7% 23,940 22,300 7%
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OPERATIONS
Production Sales
Natural Gas (mcf/d) 8,635 7,192 20% 8,977 7,778 15%
Oil (bbls/d) 1,385 1,036 34% 1,437 1,017 41%
NGL (bbls/d) 163 108 51% 167 129 29%
Combined
(boe/d @ 6 mcf:
1 bbl) 2,988 2,343 28% 3,101 2,442 27%
Average Pricing
Natural Gas ($/mcf) 8.09 7.20 12% 7.47 6.92 8%
Oil ($/bbl) 55.34 43.70 27% 51.47 41.80 23%
NGL ($/bbl) 52.13 41.50 26% 48.25 38.02 27%
Combined ($/boe) 51.85 43.33 20% 48.07 41.45 16%
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(1) Restated - see note 2 to the consolidated financial statements.


Zapata delivered year-over-year increases in production, revenue and cash flow for the interim period ended June 30, 2005.

Gross revenue in the second quarter of 2005 jumped 57 percent to $14.1 million from the $9.0 million gross revenue realized in the second quarter of 2004. For the first six months of 2005, gross revenue was up 51 percent to $27 million from $17.9 million in 2004. Cash flow from operations jumped 44 percent to $6.8 million ($0.84 per share) compared to $4.7 million ($0.59 per share) in the comparable quarter of the preceding year. In the first half of 2005, cash flow was up 56 percent at $12.9 million ($1.60 per share) from the $8.3 million ($1.04 per share) recorded in 2004. Second quarter net income more than doubled to $2.0 million ($0.24 per share) in 2005 compared to $753,690 million ($0.09 per share) in the second quarter of the prior year. Six-month net income also doubled to $4.1 million ($0.50 per share) in 2005 compared to $1.9 million ($0.24 per share) in the same period of 2004.

Production sales in the second quarter and first half of 2005 averaged 2,988 and 3,101 barrels of oil equivalent per day (boe/d) respectively, improving 28 and 27 percent over 2,343 and 2,442 boe/d from the same periods in the previous year. The Corporation is capable of producing higher daily volumes, but production during the second quarter was limited by plant turnarounds, restrictions at third party plants, allowables and wet weather. However, Zapata was able to continue to show improvements in production sales on a year-over-year basis. Additional wells are presently being tied in. Production is expected to improve during the third quarter as allowables are removed and weather conditions allow us to tie-in additional wells.

In addition, Zapata significantly reduced its bank debt during the second quarter to $23.9 million as at June 30, 2005 from $25.6 million at December 31, 2004. This represents a debt to cash flow ratio of 0.9:1 based on annualized second quarter 2005 cash flow from operations.

Zapata participated in drilling four (3.5 net) wells in the second quarter resulting in three (2.5 net) gas wells and one net oil well. Zapata's three core producing areas allow the Corporation to concentrate its drilling program between June and November in order to take advantage of lower costs and greater availability of manpower and equipment. Weather, however, has delayed the drilling and seismic programs until the third quarter. The Corporation has numerous prospects with 18 locations planned for each of the third and fourth quarters this year. The seismic programs should result in additional drilling locations in the latter part of 2005. Zapata expects third quarter drilling success to be reflected in fourth quarter and early 2006 production increases.

Strong commodity prices are anticipated to continue for the balance of the year. With higher production anticipated and with pricing essentially unhedged, Zapata is positioned for continuing strong financial performance.

Zapata is pleased to announce that it has completed a formal evaluation launched in January 2005 to explore strategic alternatives. The Corporation faced a critical juncture last fall as it approached 3,000 boe/d with limited staff. The range of options facing Zapata included a possible sale of the Corporation, a business combination, reorganization or a revised growth model. After a broad-based effort, Zapata decided that the best way to maximize shareholder value was to move forward with plans to strengthen its team and to continue to monetize its strong land base and prospect inventory. Zapata has now turned its attention to exploiting more than 100 drilling locations on its extensive undeveloped land base and increasing its production base.

Zapata's complete second quarter 2005 report, which includes management's discussion and analysis and financial statements, is available on the company's website and at www.sedar.com. Zapata is a junior oil and gas production company operating in western Canada and trades on the TSX Venture Exchange under the symbol "ZCO".

This press release may include forward-looking statements which are statements other than of historical fact, such as information regarding drilling potential and production forecasts. Factors that could cause actual results to differ materially from our expectations include exploration and development risks, commodity prices and operating hazards. A barrel of oil equivalent (boe), derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil, may be misleading, particularly if used in isolation. A boe conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange has neither approved nor disapproved of the information contained herein.

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