Key Posts Record Earnings, Cash Flow, Production and Reserves

Key Posts Record Earnings, Cash Flow, Production and Reserves

DENVER–(BUSINESS WIRE)–Feb. 26, 1998–Key Production Company, Inc. (NYSE: KP) today announced record net income of $9.7 million in 1997, up 22 percent from $8.0 million in the prior year. Diluted earnings per share rose to $.80, a 16 percent increase from the previous year’s $.69 per share.

Cash provided by operating activities reached an all-time high of $34.1 million on an 11 percent rise in revenues to $42.2 million.

Natural gas production during the year increased 19 percent to 11 billion cubic feet (Bcf), while crude oil production was down slightly to 839,000 barrels. On an energy equivalent basis, overall production rose 12 percent to 16 equivalent billion cubic feet (EBcf) of gas.

An 11 percent rise in Key’s gas-price realization more than offset the impact of lower crude oil prices in 1997. The company’s average gas price came to $2.38 per thousand cubic feet (Mcf), up from the 1996 average of $2.15 per Mcf. Key’s crude oil price averaged $18.04 per barrel in 1997, down 11 percent from the prior-year level of $20.30 per barrel.

Key’s exploration program generated 78 new producers of 95 wells drilled during the year. Oil and gas reserve additions from wells drilled in 1997 replaced 141 percent of the year’s record production. Total oil and gas reserves at year-end increased to 106.8 EBcf, up five percent from 101.3 EBcf at the end of 1996. Natural gas comprised 65 percent of the company’s year-end 1997 reserve total.

Chairman, President and Chief Executive Officer, F. H. “Mick” Merelli, commented, “While 1998 is off to a rocky start in terms of product prices, we expect our strong inventory of drilling opportunities to bring further production and reserve growth in the months ahead.”

Key is an independent natural gas and crude oil exploration and production company with operations in the Anadarko Basin of Oklahoma, the Rocky Mountains, the Sacramento Basin of northern California, the Hardeman Basin of north-central Texas and the Gulf Coast of Texas, Louisiana and Mississippi. The company’s shares are traded on the New York Stock Exchange. -0-

KEY PRODUCTION COMPANY, INC.

SUMMARY FINANCIAL INFORMATION

(Unaudited)

For the Quarter For the Year

Ended December 31, Ended December 31,

1997 1996 1997 1996

SUMMARY OF OPERATIONS

(In thousands, except per

share data)

Revenues $11,912 $12,008 $42,151 $37,886

Depreciation, depletion

and amortization (4,024) (3,682) (13,245) (12,688)

Operating, administrative

and other expenses (3,399) (3,505) (13,267) (12,327)

Income tax provision (1,706) (1,832) (5,943) (4,891)

Net income $ 2,783 $ 2,989 $ 9,696 $ 7,980

Basic earnings per share $ .24 $ .26 $ .84 $ .73

Diluted earnings per

share $ .23 $ .24 $ .80 $ .69

PRODUCTION AND PRICING DATA

Natural gas production

(million cubic feet) 2,889 2,442 10,958 9,198

Oil production

(thousand barrels) 228 237 839 853

Average price of natural

gas per

thousand cubic feet $ 2.75 $ 2.66 $ 2.38 $ 2.15

Average price of oil per

barrel $16.85 $ 22.48 $ 18.04 $ 20.30

As of December 31,

1997 1996

OIL AND GAS RESERVE INFORMATION

(Unaudited)

Natural gas (million cubic feet) 69,543 64,094

Oil (thousand barrels) 6,213 6,207

Present value of estimated future

net cash flows, before income taxes,

discounted at 10 percent $121,718 $172,58

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