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Warren Resources Announces Third Quarter 2007 Results

  • Quarterly oil and gas revenue surges 99%
  • Quarterly earnings increase 27% to $3.0 million
  • Quarterly production grows 85%
  • Nine months cash flow from operations increases 130% to $17.7 million

NEW YORK, Nov. 2, 2007 (PRIME NEWSWIRE) -- Warren Resources, Inc. (Nasdaq:WRES) today announced 2007 third quarter financial and operating results. The Company reported that net earnings increased 27% to $3.0 million or $0.05 per diluted common share for the third quarter ended September 30, 2007. This compares to net earnings of $2.4 million or $0.04 per diluted common share for the third quarter of 2006.

Warren's oil and gas revenues increased 99% to $16.8 million for the third quarter of 2007 compared to $8.4 million in the same period last year. This increase resulted from an 85% increase in oil and gas production in the third quarter of 2007 compared to the third quarter of 2006. The third quarter production increase was primarily due to a 111% increase in oil production from one of the Company's core assets, the Wilmington Townlot Unit ("WTU") in California. This growth was achieved despite WTU production being temporarily reduced by Warren during September and October as discussed in more detail below.

Third Quarter 2007 Financial Highlights

Total revenues increased 81% to $17.2 million for the third quarter of 2007 as compared to the same period of last year. The Company reported the highest quarterly production in its history. Production for the third quarter of 2007 increased to a record 1.8 billion cubic feet equivalent ("Bcfe") from 0.9 Bcfe in the third quarter of 2006.

Production volumes for the comparative quarters are as follows:



                                       Three months ended
                             September 30, 2007   September 30, 2006
                             ------------------   ------------------
 Oil (Mbbls)                        226.1                117.2
 Gas (Mmcf)                         396.0                245.6
 Total Production (Mmcfe)         1,752.6                948.5

The average realized price per barrel of oil was $66.75 for the third quarter of 2007 compared to $60.82 for the same period of last year. Additionally, the average realized price per Mcf of gas was $4.22 for the third quarter of 2007 compared to $5.28 for the third quarter of 2006.

Total expenses increased 100% to $14.1 million during the third quarter of 2007 compared to the same period in 2006. Production and exploration expense and DD&A expense increased 118% and 104%, respectively, primarily due to increased production and increases in the costs of goods and services. As the Company used more borrowings under its secured credit facility to fund capital expenditures, interest expense increased to $630 thousand in the third quarter of 2007 compared to $98 thousand in 2006.

Cash flow from operations increased 130% to $17.7 million for the first nine months of 2007 compared to $7.7 million for the first nine months of 2006.

"We are extremely pleased that we were able to continue our strong organic growth in production, revenues, earnings and cash flow during the third quarter. Additionally, we are very excited about the commencement of full-scale drilling activities in our Sun Dog Unit in the Atlantic Rim coalbed methane project with Anadarko Petroleum Corporation," stated Norman F. Swanton, Warren's Chairman and CEO.

OPERATIONAL UPDATE

Wilmington Townlot Unit, California

Since taking over operations of the WTU in March 2005, Warren has increased gross oil production in the Unit from 375 barrels of oil per day ("BOPD") to the current approximately 3,000 BOPD, representing an increase of 700%. This significant increase results from additional production from new wells drilled and completed in the Upper Terminal, Ranger and Tar formations. Warren owns a 98.6% working interest in the WTU.

Natural gas produced in association with the oil has continued to grow along with the oil production at WTU. Because the gas volume was historically too low to justify gas sales equipment, the gas has been flared for many years under a permit from the South Coast Air Quality Management District ("SCAQMD"). In October 2006, Warren anticipated that the growth in natural gas would exceed the flare permit in 2007 and therefore entered into an agreement to purchase and install six microturbines to generate electrical power from the otherwise flared gas. Due to governmental permitting delays related to the microturbines, the Company temporarily reduced oil production at the WTU by approximately 500 BOPD from September 19th through October 28th because of the greater amounts of gas being produced with increased oil production. Warren has entered into an agreement with the SCAQMD which allowed Warren to commission the microturbines and resume full production on October 28, 2007.

Warren invested $21.9 million in capital in the WTU during the third quarter of 2007. The Company drilled 12 gross (11.9 net) wells and completed cellar # 2 and the northern half of cellar #1 in our central facility construction project. During the quarter, drilling costs totaled $18.6 million and cellar construction, gathering and equipment costs totaled $3.3 million. Warren has two drilling rigs operating in the WTU central facility and plans to keep two drilling rigs for the balance of 2007. We anticipate drilling a total of 48 gross (47.5 net) WTU wells during 2007. Warren has budgeted $14.8 million for drilling costs and $4.2 million for completion of the cellar construction and infrastructure improvements in the fourth quarter of 2007. Warren anticipates that all construction activities related to the cellar project, including a crude oil pipeline to a local refinery, should be completed by the end of 2007 and virtually all remaining electrical work and site paving of the WTU should be finished by the end of March 2008.

The Company has drilled a total of 16 horizontal wells in the D-1A sand of the Tar formation with one of these wells currently waiting completion. These wells are currently producing a total of approximately 100 barrels of oil per day ("BOPD") of 14 gravity crude oil with a water/oil ratio of 2 and without any reservoir pressure assistance from water injection. We have identified 6 additional drilling locations in this formation for 2007. As we are drilling these wells, we will evaluate additional potential horizontal drilling targets in several prospective sands within the Tar formation. Additionally, the Company plans to test the highly prospective sands in the deeper Ranger C and UP/Ford formations.

The Upper Terminal is beginning to benefit from the effects of increased water injection support in the areas where injection has existed for more than one year. Earlier in 2007, we began using different completion techniques, including gravel packed open hole completions and post completion acid/xylene washes, which appear promising for increasing oil production rates in the Upper Terminal waterflood project. As the cellar construction activity comes to a close, Warren plans to increase stimulation and workover activities on underperforming wells. During construction, access to these wells has been restricted.

In the third quarter, the Company drilled and completed 6 Ranger formation wells (5 new Ranger producers and 1 Ranger water injector). Unfortunately, as a result of the large footprint of the drilling rig, completion of four of these wells has been delayed until the drilling rig moves far enough away to enable access. Due to the channelized deposition of the Ranger reservoir sands, we are initiating a detailed sequence stratigraphic geological study to help high-grade future well placement. Warren plans to drill 4 to 5 additional Ranger producing wells during the balance of 2007.

As previously reported, Warren entered into a cost reimbursement agreement with Cardinal Pipeline Company, LLC whereby Cardinal will install and operate a 0.9 mile long lateral pipeline connecting to their existing pipeline flowing to ConocoPhillips' Carson, CA refinery. Warren has negotiated and will be entering into an agreement to sell 100% of its WTU production to ConocoPhillips when the pipeline connection is completed. All permits for the pipeline have been issued and construction began in mid-October. The Company is confident that pipeline sales of WTU crude oil will begin by the end of the year.

North Wilmington Unit, California

The North Wilmington Unit ("NWU") is adjacent to the WTU in the Los Angeles Basin in California. Current production from the NWU is 425 gross BOPD. Warren is planning on reworking or returning to production 4 wells at a total cost of approximately $750,000 during the balance of 2007. Also, the Company has budgeted $600,000 for facilities and infrastructure upgrades in the fourth quarter of 2007 in anticipation of our future drilling campaign in 2008. Warren has also signed an agreement to tie its NWU production into a nearby crude oil pipeline to transfer NWU oil directly to a local refinery. The Company owns a 100% working interest in the NWU.

Atlantic Rim Coalbed Methane Project in the eastern Washakie Basin, Wyoming

The Warren/Anadarko Atlantic Rim Joint Venture commenced full-scale drilling in the Sun Dog Unit of the Atlantic Rim in the Washakie Basin in September 2007. This was the first drilling activity since the U.S. Bureau of Land Management ("BLM") issued its Record of Decision in May 2007 approving the Final Environmental Impact Statement ("EIS") for development of the Atlantic Rim coalbed methane ("CBM") project. Since September 18th, Warren has drilled 10 gross (4.2 net) wells in the Sun Dog unit. The Company anticipates investing $11 million for Atlantic Rim capital expenditures during the fourth quarter of 2007. The majority of the Atlantic Rim drilling budget represents drilling 41 gross (17.2 net) wells in the Sun Dog unit which management believes has shown the best results to date in the play. The Company will have an approximate working interest of 42%. Also, the budget includes $3.5 million for drilling additional wells in the Blue Sky and Catalina units and for other various development activities and pipeline construction.

As previously reported, in June 2007 four separate groups of environmental activists filed administrative appeals of the BLM's decision approving the EIS to the Interior Board of Land Appeals (IBLA). Two of these filings were accompanied by requests for stay of development until the IBLA ruled on the appeals. These appeals contained claims ranging from the EIS not considering enough alternatives to it not providing adequate protection for hunting activities in the Atlantic Rim. Additionally, two environmental groups have filed similar suits against the BLM in the federal court in the District of Columbia seeking an injunctive stay of drilling while their new suit is pending. These two filings are similar to the stay requests that were denied in September 2007 by the IBLA. On October 18, 2007 a hearing was held on the requests for injunctive stay and Warren expects a ruling by the court in the near future.

2007 Guidance

Warren affirms the forecasted capital expenditures and production based upon the information available at the time of this release. Please see the forward-looking statement at the end of this release for more discussion of the inherent limitations of this information.



                           Fourth Quarter ending     Year ending
                             December 31, 2007    December 31, 2007
                             -----------------    -----------------
 Production:
 Oil (MBbl)                      231 - 241             830 - 840
 Gas (MMcf)                      339 - 389           1,200 - 1,250
 Gas Equivalent (MMcfe)        1,725 - 1,835         6,180 - 6,290
 Capex Budget (in millions)         $34                   $112

"We had a great start to what we expect to be a year of record earnings for our Company, with excellent rates of return and significant production growth for the first nine months of 2007," said Norman F. Swanton, Warren's Chairman and CEO. "We achieved record production, all organic, particularly in the Wilmington oil field in California. We are optimistic that by maintaining our operational momentum we can deliver excellent growth, both in terms of reserves and production, for the balance of 2007 and into 2008."

Financial and Statistical Data Tables

Following are financial highlights for the comparative third quarters ended September 30, 2007 and 2006.



 Warren Resources, Inc.
 Consolidated Statements Of Operations (Unaudited)

                                                Three Months Ended
                                                  September 30,
                                           --------------------------
                                               2007          2006
                                           ------------  ------------
                                                          (restated)
 Revenues

  Oil and gas sales                        $ 16,765,358  $  8,424,271
  Interest and other income                     460,903     1,019,482
  Net gain (loss) on investments                (12,536)       60,362
                                           ------------  ------------
                                             17,213,725     9,504,115
                                           ------------  ------------

 Expenses

  Production & exploration                    7,281,518     3,347,393
  Depreciation, depletion and
   amortization                               3,179,084     1,561,648
  General and administrative                  3,042,822     2,061,946
  Interest                                      630,252        98,378
                                           ------------  ------------
                                             14,133,676     7,069,365
                                           ------------  ------------

 Income before provision for income taxes     3,080,049     2,434,750

  Deferred income tax benefit                   (25,000)      (30,000)
                                           ------------  ------------

 Income before dividends and accretion on
  preferred shares                            3,105,049     2,464,750

  Less dividends and accretion on
    preferred shares                             66,787        73,304
                                           ------------  ------------

 Net income applicable to common
  stockholders                             $  3,038,262  $  2,391,446
                                           ============  ============

 Earnings per share - Basic                $       0.05  $       0.04
 Earnings per share - Diluted              $       0.05  $       0.04

 Weighted average common shares outstanding
  - Basic                                    57,586,698    53,317,367
 Weighted average common shares outstanding
  - Diluted                                  58,557,994    54,890,425

 Production:
  Gas - MMcf                                      396.0         245.6
  Oil - MBbls                                     226.1         117.2
  Total Equivalents (MMcfe)                     1,752.6         948.5

 Realized Prices:
  Gas - Mcf                                $       4.22  $       5.28
  Oil - Bbl                                       66.75         60.82
  Total Equivalents (Mcfe)                         9.56          8.88

                                               Nine Months Ended
                                                 September 30,
                                           --------------------------
                                               2007          2006
                                           ------------  ------------
 Net cash flow provided by operating
  activities:

  Cash flow from operations                $ 17,687,340  $  7,701,831

  Changes in working capital accounts        (1,570,307)    3,184,201
  Cash flow from operations before
   working capital changes                   16,117,033    10,886,032

Conference Call

The public is invited to listen to the Company's conference call set for today, November 2, 2007, at 10:00 a.m. Eastern Time. The call will be webcast and can be accessed from the Company's website at: www.warrenresources.com. If you are unable to participate during the live broadcast, the webcast will be archived on Warren's website. A telephonic replay will also be available one week beginning at approximately 12:00 p.m. on November 2, 2007. To access the replay, dial 888-286-8010 or if international dial 617-801-6888 and provide the passcode code, 55876272.

About Warren Resources

Warren Resources, Inc. is a growing independent energy company engaged in the exploration and development of domestic oil and natural gas reserves. Warren is primarily focused on water flood oil recovery programs in its Wilmington Units located in the Los Angeles Basin of California and the exploration and development of coalbed methane properties located in the Rocky Mountain region. The Company is headquartered in New York, New York, and its exploration and development subsidiary, Warren E&P, Inc., has offices in Casper, Wyoming and Long Beach, California.

Forward-Looking Statements

This press release contains 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. Statements regarding projections of revenues or income or reserves or similar items, such as statements pertaining to future revenues, future capital expenditures, future cash flows, future operations or results, and other statements that are not historical facts, are examples of forward looking statements. These forward-looking statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. No assurance can be given, however, that these events will occur. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including without limitation risks of declining oil and gas prices, competition for prospects, accuracy of reserve estimates, estimated rates of production, increases in drilling and lifting costs, increases in equipment and supply costs and other factors detailed in the Company's filings with the Securities and Exchange Commission (www.sec.gov).

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: Warren Resources, Inc.

Warren Resources, Inc.
Media Contact:
David Fleming
(212) 697-9660