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Warren Resources Announces Fourth Quarter and Year-End 2005 Results

NEW YORK, Feb. 28 /PRNewswire-FirstCall/ -- Warren Resources, Inc. (Nasdaq: WRES) ("Warren" or the "Company") today announced its 2005 fourth quarter and full-year financial and operating results. Total revenues increased 75% to $13.8 million for the fourth quarter of 2005 as compared to revenues of $7.9 million for the fourth quarter of 2004. The increase in revenues resulted from a 162% increase in oil and gas revenue, primarily from our Wilmington Townlot Unit in California ("WTU") and an increase in realized oil and natural gas sales prices.

The Company reported a net loss applicable to common stockholders (after preferred stock dividends of $0.1 million) for the fourth quarter of 2005 of $1.1 million or $0.02 per share based on 44.7 million weighted average common shares outstanding, compared to a net loss of $7.4 million (after preferred stock dividends of $1.7 million) or $0.33 per share for the fourth quarter of 2004.

The Company reported that oil and gas production increased 81% to 579 MMcfe for the fourth quarter of 2005 compared to 319 MMcfe for the same quarter in 2004. Average natural gas equivalent realized sales prices were $8.69 per Mcfe for the quarter ended December 31, 2005 as compared to $6.01 per Mcfe for the same period in 2004. Warren's 2005 production replacement rate was 11,200%.

Production and exploration expense increased to $2.4 million for the fourth quarter 2005 from $0.8 million for 2004. The increase in production and exploration expense results from additional costs associated additional drilling operations, renovation of the Wilmington Townlot Unit and an increase in oil and gas production for the fourth quarter of 2005 compared to 2004. The Company reported that the net loss for the fourth quarter 2005 included a turnkey contract loss of $1.1 million, compared to a turnkey contract loss of $1.2 million for the fourth quarter 2004. Turnkey expenses have been higher for 2005 principally due to higher costs for rigs, steel and well services to complete prior years' turnkey contracts with drilling programs.

For 2005, total revenues increased 51% to $39.9 million as compared to revenues of $26.4 million for 2004. The increase in revenues for 2005 resulted from a 116% increase in oil and gas revenue, primarily from the WTU and an increase in realized oil and natural gas sales prices.

The Company reported a net loss applicable to common stockholders (after preferred stock dividends of $3.8 million) for 2005 of $8.9 million or $0.23 per share based on 39.2 million weighted average common shares outstanding. This compares to a net loss (after preferred stock dividends of $6.6 million) of $16.6 million or $0.84 per share for 2004. At December 31, 2005, the Company had 52.7 million shares of common stock outstanding, which includes the completion of a follow-on public offering of 6.9 million shares of our Common Stock in December 2005.

During 2005, Warren produced 1,074 MMcf of natural gas and 148 thousand barrels of oil, or 1.96 Bcfe, a 60% increase over 2004 production. Primarily, this production increase resulted from growth through the drillbit as well as the 2005 acquisition of substantially all of the remaining working interests in the WTU.

The Company reported that the net loss for 2005 included a turnkey contract loss of $1.5 million, compared to a turnkey contract loss of $2.4 million for 2004. Production and exploration expense increased to $7.3 million for 2005 compared to $3.9 million for 2004. This increase resulted from increased production for the year plus increased costs associated with the resumption of drilling operations and renovation of the WTU central facility. Additionally, production and exploration expenses have been higher for 2005 principally due to higher costs for workover rigs, steel and well services.

"From both an operational and financial standpoint we are very pleased with Warren's performance in the fourth quarter and full year 2005," said Norman F. Swanton, Chairman and Chief Executive Officer. "Operationally, we were able to increase oil and gas production 81% year over year in the fourth quarter while on the financial side we reduced our debt by 94% to $2.6 million from $46.5 million year-over-year. Our balance sheet was further strengthened during the year as we reduced our preferred stock balance from $77.3 million to $7.6 million through the voluntary conversion of 5.9 million shares of preferred stock into 5.9 million shares of common stock.

Based upon the reserve estimates prepared by our independent petroleum consultants, our year-end 2005 net proved reserves increased to a record 326.8 billion cubic feet equivalent (Bcfe), a 215% increase over year-end 2004 reserves of 103.6 Bcfe. This substantial increase in reserves resulted primarily from drilling the Ranger and Upper Terminal oil zones in the WTU and the acquiring a 100% working interest in the North Wilmington Unit in the Wilmington field in California. Despite our year end 2005 increases, our net proved reserves account for less than 10% of our total net acreage."

Mr. Swanton added, "In 2005 we laid the foundation for strong growth for the years ahead. We see potential for production growth in every one of our four core drilling areas and anticipate 2006 production will grow by over 150% from 2005 levels."

Updated 2006 Guidance

Warren provides the following forecast for production and capital expenditures 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.


                                                 First Quarter     Year
                                                    ending        ending
                                                   March 31,    December 31,
                                                     2006          2006
    Production:

    Oil (MBbl)                                      91 - 97      700 - 800
    Gas (MMcf)                                     305 - 315    1150 - 1250
    Gas Equivalent (MMcfe)                         852 - 897    5350 - 6050
    Capex Budget (in thousands)                     $23,400       $108,100

    Financial and Statistical Data Tables

Following are financial highlights for the comparative fourth quarters and annual periods ended Dec. 31, 2005 and Dec. 31, 2004. All production volumes and dollars are expressed on a net revenue interest basis.

    Warren Resources, Inc.
    Consolidated Statements Of Operations

                            Three Months Ended            Year Ended
                                December 31,             December 31,
                               (unaudited)          (unaudited)    (audited)
                            2005          2004          2005         2004
    Revenues
      Oil and gas
       sales           $ 5,035,103  $ 1,921,650    $13,959,097   $ 6,454,334
      Turnkey contracts
       with affiliated
       partnerships      3,471,632    3,421,041      9,756,209    10,529,883
      Oil and gas sales
       from marketing
       activities        3,269,794    1,599,366     10,210,681     6,171,338
      Well services        355,318      270,799      1,554,760     1,070,004
      Net gain (loss)
       on investments      543,107       (3,792)       960,995       (42,916)
      Interest and other
       income            1,058,024      682,448      3,302,034     2,088,994
      Gain on sale of
       oil and gas
       properties          114,046            -        203,487       120,193
                        13,847,025    7,891,512     39,947,263    26,391,830

    Expenses
      Production &
       exploration       2,387,190      767,557      7,295,520     3,935,137
      Turnkey contracts  4,588,407    4,630,270     11,275,348    12,932,124
      Cost of marketed
       oil and gas
       purchased from
       affiliated
       partnerships      3,234,579    1,563,687     10,078,848     6,028,727
      Well services        304,932      262,701      1,146,590       672,933
      Depreciation,
       depletion,
       amortization and
       impairment          837,962    1,360,391      3,552,839     4,022,725
      General and
       administrative    2,751,273    4,823,683      7,475,919     8,116,164
      Interest              59,325      120,328      1,761,465       493,977
      Retirement of debt   337,894            -      1,862,164             -
                        14,501,563   13,528,617     44,448,693    36,201,787

    Loss before provision
     for income taxes
     and minority
     interest             (654,538)  (5,637,105)    (4,501,430)   (9,809,957)

       Deferred income
        tax expense
        (benefit)          248,000       33,000        391,000      (59,000)

    Loss before
     minority interest    (902,538)  (5,670,105)    (4,892,430)   (9,750,957)

    Minority interest      (60,087)     (98,244)      (279,314)     (209,341)

    Net loss              (962,625)  (5,768,349)    (5,171,744)   (9,960,298)

    Less dividends and
     accretion on
     preferred shares      127,731    1,650,645      3,774,395     6,590,886

    Net loss applicable
     to common
     stockholders      $(1,090,356) $(7,418,994)   $(8,946,139) $(16,551,184)

       Basic and diluted
        loss per
        common share        $(0.02)      $(0.33)        $(0.23)       $(0.84)

    Weighted average
     common shares
     outstanding        44,673,236   22,620,496     39,177,816    19,739,048

    Production:
      Gas - MMcf             284.3        227.8        1,073.5         817.2
      Oil - MBbls             49.1         15.2          147.6          68.2
      Total Equivalents
       (MMcfe)               579.1        319.2        1,958.9       1,226.3

    Realized Prices:
      Gas - Mcf              $9.03        $5.85          $6.71         $5.03
      Oil - Bbl              50.17        38.44          45.75         34.38
      Total Equivalents
       (Mcfe)                 8.69         6.01           7.13          5.26

    Net cash flow used in
     operating activities:
      Cash flow from
       operations      $ 1,505,719  $ 1,055,048   $(10,348,161)  $(4,506,539)
      Changes in
       working capital
       accounts         (2,236,180)  (5,556,809)     8,283,482    (1,889,871)
      Cash flow used in
       operations before
       working capital
       changes            (730,461)  (4,501,761)    (2,064,678)   (6,396,410)


    Conference Call

The public is invited to listen to the Company's conference call set for today, February 28, 2006, at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet at our Web site: http://www.warrenresources.com. If you are unable to listen during the live broadcast, the call will be archived on Warren's website for approximately 30 days. A telephonic replay will also be available through midnight, March 27, 2006 by dialing 888-286-8010, pass code 97325400.

About Warren Resources

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

CONTACT: Kathleen Heaney, Investor Relations, +1-203-803-3585