In addition to ranking among the top U.S. producing
wells, Calliope’s initial production rates are very competitive
with those for new onshore wells drilled in the U.S. and Canada. Calliope’s
270 Mcfge initial production rate compares
very favorably to the 330 Mcf average daily rate for new wells drilled
in Canada last year. And
our research suggests that new well production
rates in the U.S. are roughly comparable to Canada. Importantly, because
Calliope is applied
to mature, low-pressure reservoirs, we generally
expect its average eight percent production decline rate to be significantly
less than
decline rates for newly drilled wells.
Focusing on Financial Performance
The success of our science is measured by our
financial bottom line and by our overall financial
health. According to John S. Herold, Inc., “Efforts to
aggressively ramp-up spending are almost immediately followed by soaring finding
costs.” Our results clearly fly in the face of that paradigm.
In our business making a profit begins with reserve finding costs. CREDO’s
finding costs have historically ranked
in the best quartile of U.S. oil and gas companies. This year will be no exception.
Our 2003 finding cost was $.86 per Mcfge, or $5.15 per BOE, 22 percent lower
than last year and 10 percent under our three-year average. This was a major
accomplishment in a “hot” market for field services where costs are
rising.
Finding costs are, however, only part of the story. The rest of the story is
the cost to get the reserves out of the ground and to market. That gets to the
bottom line. CREDO’s profitability per unit of production has historically
been outstanding, ranking 14th among all U.S. oil and gas companies last year
and 8th in 2001. This year our net income per unit of production increased 125
percent to $1.89 per Mcfge, or $11.32 per BOE.
For 2003, earnings jumped 144 percent to $.78 per diluted share on higher gas
prices and record production.
This compares to earnings of $.32 last year. Revenue rose 58 percent and net
cash flow provided by operating activities jumped 131 percent.
This year’s 22 percent return on equity further buttressed our excellent
financial health. Although we have historically been debt adverse, we will not
hesitate to take on a manageable debt level if justified by good business opportunities.
Solid Growth Potential
I believe 2003 witnessed the “initial” results from a business strategy
that has been years in the making. We are a small company with two synergistic
core projects that would be very suitable for a much larger company. That translates
into the best growth potential in our history.
The price of natural gas is always key to our financial performance. The long-term
fundamentals supporting natural gas prices are the best I have ever seen. The
past few years have witnessed a shift in the supply-demand balance to tight supplies
that are likely to be around for awhile.
I would enjoy telling you to expect new performance records every year. Unfortunately,
that is not realistic. We focus on the fundamentals of our business, not on short-term
performance demands. Our commitment is to create viable projects supported by
good reasoning. We know
that commitment will yield superior long-term performance.
CREDO’s foundation is creative people, proven projects and financial horsepower
driven by strong fundamentals. We are empowered by the opportunity to do what
we enjoy, and what we do best. Ours is a strong and proven foundation—one
that supports significant growth potential.
James T. Huffman
President
December 31, 2003
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