Venoco, Inc. Announces Third Quarter 2005 Results

CARPINTERIA, Calif., Nov. 17  /PRNewswire/ -- Venoco, Inc. (Bloomberg ticker: 552338Z US) (Thomson ticker: **VEN) today reported a net loss of $1.8 million for the third quarter of 2005 compared to net income of $6.9 million for the third quarter of 2004.  The net loss for the third quarter of 2005 includes the effect of a $16.2 million (pre-tax) unrealized loss on certain commodity derivative contracts that do not qualify for hedge accounting in accordance with SFAS 133.   Excluding this charge, Venoco had net income of $8.0 million for the third quarter of 2005.  This compares to net income of $7.5 million in the third quarter of 2004 excluding the effects of the $0.9 million (pre-tax) unrealized commodity derivative loss for that quarter.  Please see the end of this release for a reconciliation of net income (loss) to net income before unrealized commodity derivative loss (a non-GAAP measure).

Venoco's earnings before interest, taxes, depletion, depreciation and amortization (EBITDA) for the third quarter of 2005 was $6.4 million, as compared with $16.6 million of EBITDA in third quarter 2004.  These EBITDA figures include the pre-tax impact of third quarter realized commodity derivative losses of $8.3 million in 2005 and $5.0 million in 2004.  They also include the impact of the above mentioned third quarter unrealized commodity derivative losses of $16.2 million in 2005 and $0.9 million in 2004. Excluding the impact of the realized and unrealized commodity derivative losses, Venoco's third quarter 2005 EBITDA was $30.9 million, up 38% from third quarter 2004 EBITDA of $22.4 million.  Please see the end of this release for a reconciliation of EBITDA and EBITDA before the pre-tax impact of realized and unrealized commodity derivative losses to net income.

The unrealized commodity derivative losses described above result from mark-to-market adjustments applicable to certain commodity derivative contracts not currently eligible for hedge accounting treatment.  Changing oil and natural gas prices affect the market value of Venoco's fixed price commodity derivative contracts, and as a result the Company expects that there will continue to be significant volatility in its reported earnings.

For the nine months ended September 30, 2005 Venoco reported net income of $0.1 million as compared with $18.3 million in the first nine months of 2004. Net income for the first nine months of 2005 includes the effects of $44.2 million (pre-tax) in unrealized losses on certain commodity derivative contracts that do not qualify for hedge accounting under SFAS 133.   Excluding this charge, Venoco had net income of $26.8 million for the first nine months of 2005.  This compares to net income of $19.3 million in the first nine months of 2004 excluding the effects of  a $1.7 million (pre-tax) unrealized commodity derivative loss for first nine months of 2004.  Please see the reconciliation of net income to net income before unrealized commodity derivative losses (a non-GAAP measure) at the end of this release.

Venoco's EBITDA for the nine months ended September 30, 2005 was $27.4 million as compared with $44.9 million of EBITDA in the first nine months of 2004. These figures include the pre-tax impact of realized commodity derivative losses of $15.4 million in the first nine months of 2005 and $11.1 million in the same period in 2004.  They also include the impact of unrealized commodity derivative losses of $44.2 million in the first nine months of 2005 and $1.7 million in the same period in 2004.  Excluding the impact of the realized and unrealized commodity derivative losses, Venoco's EBITDA in the first nine months of 2005 was $87.1 million, up 51% from $57.6 million in the first nine months of 2004.

Venoco's average net production for the first nine months of 2005 was 11,565 barrels of oil equivalent per day ("BOE/d"), up 6% from 10,898 BOE/d in the same period in 2004.  Due to delays in implementing several projects, mechanical problems encountered at a well in the South Ellwood field and some periods of limited production capacity due to well and platform maintenance, average net production in the third quarter of 2005 declined 7% to 10,444 BOE/d compared to 11,201 BOE/d in the third quarter of 2004. These operational issues have been resolved and the trend of increasing production has resumed. Venoco expects production for both the fourth quarter and 2005 as a whole to average 11,000 to 12,000 BOE/d, and anticipates an exit rate for the year in the 12,000 to 13,000 BOE/d range.

In the third quarter of 2005 Venoco drilled six new wells to total depth and reworked or recompleted eight additional wells.  In the fourth quarter the Company expects to drill twelve additional wells and to rework or recomplete eighteen wells.  The majority of the drilling activity in 2005 has been in the Sacramento Basin area. The Company's well activity in that area has resulted in net production there increasing by approximately 50%, or 651 BOE/d, in the first nine months of 2005 compared to the same period in 2004, not including production attributable to the acquisition of Marquez Energy in March.  In terms of dollars invested, most of the Company's 2005 capital expenditures have related to offshore projects, mainly the implementation and expansion of two waterfloods that are expected to lead to future production increases. Capital expenditures in the third quarter included $18.9 million on drilling and rework activity, $6.4 million on facilities and $2.5 million on exploration projects.  The Company also spent a total of $10.7 million to complete three acquisitions  that closed in the third quarter of 2005.

In the first nine months of 2005 Venoco spent $41.6 million on drilling and rework activities, $12.9 million on facilities and $4.0 million on exploration projects. During the period, the Company drilled sixteen new onshore wells to total depth and recompleted thirty-five additional onshore wells.  Offshore, it drilled four wells to total depth and recompleted three wells.  In addition, it spent a total of $25.3 on acquisitions during the period.  The Company expects that its exploration, exploitation and development-related capital expenditures for 2005 as a whole will be between $70 and $80 million.

About the Company

Venoco is an independent energy company primarily engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties in California.  It has regional headquarters in Carpinteria, California and corporate headquarters in Denver, Colorado.  Venoco operates three offshore platforms in the Santa Barbara Channel, has nonworking interests in three others, and also operates two onshore properties in Southern California and over 100 natural gas wells in Northern California.

Conference Call & Webcast

Venoco's third quarter 2005 earnings and operational review conference call will begin at 4:00 p.m. Eastern (2:00 p.m. Mountain, 1:00 p.m. Pacific) on Thursday, November 17, 2005.  Information on accessing the recorded call will be available on the Investor Information page of the Company's website http://www.venocoinc.com/.

Statements made in this news release, including those relating to future growth and performance, capital expenditures, drilling inventory, economic returns, development opportunities, production growth targets, cash flow, reserve base, and future results of operation and financial condition are 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 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, ability to acquire properties that meet the Company's objectives, the timing and extent of changes in oil and gas prices, changes in underlying demand for oil and gas, the timing and results of drilling activity, the availability of and cost of obtaining drilling equipment and technical personnel, delays in completing production, treatment and transportation facilities, higher than expected production costs and other expenses, pipeline curtailments by third-parties and mechanical failures and other problems affecting production. Further information on risks and uncertainties 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.

      Oil and Gas Production and Prices

                          Three Months Ended          Nine Months Ended
                           September 30,(1)            September 30,(1)
                    2005      2004    Increase    2005      2004   Increase
                                     (Decrease)                   (Decrease)
  Production
   Volume
  Natural Gas
   (Mcf/d)       1,920,544  1,507,948   27%    5,652,442  4,080,963   38%
  Oil (Bbls/d)     640,711    779,243  (18)%   2,215,192  2,305,960   (4)%
  BOE              960,802  1,030,567   (7)%   3,157,266  2,986,121    6%
  Daily Average
   Production
   Volume
  Natural Gas
   (Mcf/d)          20,875     16,391   27%       20,705     14,894   39%
  Oil (Bbls/d)       6,964      8,470  (18)%       8,114      8,416   (4)%
  BOE/d             10,444     11,201   (7)%      11,565     10,898    6%
  Oil Price per
   Barrel Produced
   (in dollars)
  Realized price
   before hedging
   loss             $52.50     $36.78   43%      $44.09     $33.32    32%
  Realized hedging
   loss             (13.13)     (6.27) 109%       (6.85)     (4.53)   51%
  Net realized      $39.37     $30.51   29%      $37.24     $28.79    29%
  Natural Gas
   Price per Mcf
   (in dollars)
  Realized price
   before hedging
   gain (loss)       $7.27      $5.52   32%       $6.58      $5.56    18%
  Realized hedging
   gain (loss)         .07       (.06) 217%        (.04)      (.16)  (75)%

  Net realized       $7.20      $5.46   32%       $6.54      $5.40    21%
  Average Sales
   Price per BOE    $40.42     $30.49   33%      $37.34     $29.83    27%




      Third Quarter 2005 and 2004 Financial Information

                               VENOCO, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                         ($ thousands, unaudited)

                                                September 30,   December 31,
                                                    2005 (1)       2004 (1)
  ASSETS:
  CURRENT ASSETS:
     Cash and cash equivalents                     $13,023        $54,715
     Accounts receivable                            26,449         17,755
     Inventories                                     1,784          1,079
     Income tax receivable                              --          3,906
     Commodity derivatives 3,680                     5,300
     Notes receivable - officer                         --          1,420
     Prepaid expenses and other current assets       7,025          3,640
        Total current assets                        51,961         87,815
  PROPERTY AND EQUIPMENT, net                      209,251        198,563
  OTHER ASSETS                                       7,995         12,504

        TOTAL ASSETS                              $269,207       $298,882

  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
  CURRENT LIABILITIES:
     Accounts payable and accrued liabilities      $33,164        $19,385
     Undistributed revenue payable                   4,492          4,774
     Income tax payable                              4,853             --
     Current maturities of long term debt              124            127
     Commodity derivatives                          39,603          1,520
     Repurchase of common stock                         --          5,316
        Total current liabilities                   82,236         31,122
  LONG-TERM DEBT                                   158,942        163,542
  DEFERRED INCOME TAXES                              1,000         32,208
  ASSET RETIREMENT OBLIGATIONS                      24,540         23,184
  COMMODITY DERIVATIVES                             21,874             --
        Total liabilities                          288,592        250,056
  COMMITMENTS AND CONTINGENCIES
  MINORITY INTEREST                                     --            387
  STOCKHOLDERS' EQUITY (DEFICIT):
     Common stock and additional paid in capital    21,384         31,412
     Retained earnings (accumulated deficit)       (19,766)        15,104
     Accumulated other comprehensive income
      (loss)                                       (21,003)         1,923
        Total stockholders' equity (deficit)       (19,385)        48,439

        TOTAL LIABILITIES AND STOCKHOLDERS'
         EQUITY (DEFICIT)                         $269,207       $298,882

  (1)  On March 21, 2005 the Company completed the acquisition of Marquez
       Energy, majority-owned and controlled by Timothy Marquez, the
       Company's CEO and beneficial owner of 100% of its shares.  Due to the
       common control aspects of the transaction, the financial statements
       of Marquez Energy have been combined with the consolidated financial
       statements of the Company and its subsidiaries in a manner similar to
       a pooling-of-interests from the date common control was achieved.
       Therefore, the Company's financial statements since July 12, 2004
       were restated to include Marquez Energy's financial results.



                               VENOCO, INC
              CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                         ($ thousands, unaudited)

                                    Three Months Ended   Nine Months Ended
                                       September 30,        September 30,
                                     2005        2004     2005        2004

  REVENUES:
     Oil and natural gas sales      $47,278   $36,844   $134,668   $99,761
     Commodity derivative losses
      (realized)                     (8,287)   (4,968)   (15,442)  (11,076)
     Commodity derivative losses
      (unrealized) (1)              (16,242)     (851)   (44,241)   (1,692)
     Other                              776     1,953      2,867     4.134
        Total revenues               23,525    32,978     77,852    91,127

  EXPENSES:
     Oil and natural gas
      production                     13,748    12,583     38,030    35,298
     Transportation expense             464       783      1,680     2,222
     Depletion, depreciation,
      amortization and impairment     5,634     3,611     15,127    10,992
     Accretion of abandonment
      liability                         293       373      1,311     1,093
     General and administrative,
      net of amounts capitalized      2,955     2,957     10,654     8,697
     Amortization of deferred loan
      costs                             320       103      1,341       233
     Interest, net                    3,361       443     10,181     1,076
        Total expenses               26,775    20,853     78,324    59,611
     Income (loss) before income
      taxes                          (3,250)   12,125       (472)   31,516
     Income tax provision
      (benefit)                      (1,417)    5,143       (643)   13,227
     Income (loss) before
      minority interest              (1,833)    6,982        171    18,289
     Minority interest                   --        36         42        36
        Net income (loss)            (1,833)    6,946        129    18,253
     Preferred stock dividends           --    (2,116)        --    (6,348)
     Net income (loss) applicable
      to common equity              $(1,833)   $4,830       $129   $11,905

  (1)  Unrealized commodity derivative losses reflect the change in fair
       value of financial instruments not qualifying for hedge accounting
       under SFAS No. 133



  GAAP Reconciliations


The Company discloses net income before unrealized commodity derivative losses, a non-GAAP financial measure, because management believes net income before unrealized commodity derivative gains and losses (i) provides a better comparison of operating trends and performance related results,  (ii) is comparable to certain performance analysis methods of securities analysts and (iii) eliminates the impact of fluctuations in mark-to-market values from unrealized commodity derivatives for which the Company cannot estimate the timing or amount.  The following reconciles net income to net income before unrealized commodity derivative losses for the three and nine months ended September 30:

                                    Three Months Ended    Nine Months Ended
                                       September 30,        September 30,
                                      2005      2004       2005      2004

  Net Income (loss)                 $(1,833)   $6,946       $129    $18,253
     Plus: Unrealized commodity
      derivative losses              16,242       851     44,241      1,692
     Less: Income tax benefit on
      unrealized commodity
      derivative losses               6,438       337     17,538        671
     Net income before unrealized
      commodity derivative losses    $7,971    $7,463    $26,832    $19,274





EBITDA, a non-GAAP financial measure, excludes certain items that management believes affect the Company's comparison of operating results.  The Company discloses EBITDA because (i) the Company uses EBITDA to evaluate operating trends and performance related results (ii) the Company uses EBITDA to compare its performance to other oil and gas producing companies, and (iii) EBITDA is comparable to certain performance analysis methods of securities analysts.  The Company's measures of EBITDA and EBITDA before pre-tax hedging losses is not comparable to the Company's other financial measures.  The following reconciles net income (loss) to EBITDA and EBITDA before the pre-tax effects of realized and unrealized commodity derivative losses for the three and nine  months ended September 30:

                                   Three Months Ended    Nine Months Ended
                                      September 30,         September 30,
                                     2005      2004        2005      2004

  Net Income                       $(1,833)   $6,946        $129   $18,253
  Plus: Interest, net                3,361       443      10,181     1,076
        Income taxes (benefit)      (1,417)    5,143        (643)   13,227
        D.D.&A                       5,634     3,611      15,127    10,992
        Accretion of abandonment
         liability                     293       373       1,311     1,093
        Amortization of deferred
         loan costs                    320       103       1,341       233
  EBITDA                             6,358    16,619      27,446    44,874
  Plus: Pre-tax realized
   commodity derivative losses       8,287     4,968      15,442    11,076
        Pre-tax unrealized
         commodity derivative
         losses                     16,242       851      44,241     1,692
  EBITDA before pre-tax commodity
   derivative losses               $30,887   $22,438     $87,129   $57,642



  Open Derivative Positions as of November 11, 2005


Crude Oil Agreements -- The Company has entered into option, swap and collar agreements to receive average minimum and maximum New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) prices as summarized below. Location and quality differentials attributable to the Company's properties are not included in the following prices.  The agreements provide for monthly settlement based on the differential between the agreement price and the actual NYMEX crude oil price.

                                       Minimum                 Maximum
                                Barrels/day    Avg.     Barrels/day    Avg.
                                              Prices                  Prices
  Crude oil hedges at
   November 11, 2005
   for production:
  October 1 - December 31, 2005    9,471     $37.73        5,471      $47.17
  January 1 - December 31, 2006    8,500     $45.34        5,000      $53.56
  January 1 - December 31, 2007    4,313     $43.96        4,313      $68.99
  January 1 - December 31, 2008    2,946     $52.00        2,946      $75.00
  January 1 - June 30, 2009        2,170     $50.00        2,170      $75.00





Natural Gas Agreements -- The Company has entered into option, swap and collar agreements to receive average minimum and maximum PG&E Citygate prices as follows:

                                           Minimum             Maximum
                                    MMBtu/Day     Avg.    MMBtu/Day   Avg.
                                                 Prices              Prices
  Natural gas hedges at
   November 11, 2005 for
   production:
  October 1 - December 31, 2005       14,000     $6.09      4,000     $6.77
  January 1 - December 31, 2006       21,000     $7.06     15,000    $11.04
  January 1 - December 31, 2007        6,000     $6.00      6,000     $8.40



  This release can be found at http://www.venocoinc.com/

DATASOURCE: Venoco, Inc.



CONTACT:  Mike Edwards, VP of Venoco, Inc., [phone], or cell,

[phone]



Web site:  http://www.venocoinc.com/ 

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