Roger Parker, chairman and chief executive officer stated, Delta Petroleum’s financial results for the first quarter continued to reflect depressed commodity prices. However, numerous steps have been taken to reposition the Company for the current industry environment. During the first quarter we laid down our last operating drilling rig on our Piceance basin properties in order to significantly reduce 2009 drilling capital expenditures. Additional cost control initiatives implemented at the end of the quarter include a more than one-third reduction in personnel and a 20% salary reduction for executive officers, directors and certain members of senior management. Other general and administrative expenses have been reduced and should continue to decline during the balance of the year. Benefits from our cost-cutting efforts should be evident in the Company’s second quarter financial results.
Lease Operating Expenses (LOE) was temporarily higher than normal during the first quarter as we wound down drilling activity in the Piceance basin, but a significant portion of these costs have since been eliminated. Substantial reductions in LOE were apparent in the month of April, when compared with the first quarter monthly average. As an example, storage tank rentals have decreased from 240 to 120 tanks, and most of the produced water held in those tanks has been hauled and disposed. Third party service contractor charges have also declined over 20% in the past few months, and the availability of company-owned disposal wells and a new water distillation facility will further reduce LOE as the year progresses.
We are taking necessary actions to improve our liquidity position, which has been assisted by the positive outcome of a portion of our Offshore California litigation. The United States government has acknowledged that about $56.6 million of the $60 million judgment is being processed for payment, and we expect to receive these funds in the near future, continued Parker. Ultimately, the Company will receive $48.7 million after payment of certain contractual obligations and overriding royalty payables, and $27.9 million of this amount will be paid to Tracinda Corporation in accordance with a previously disclosed Contingent Payment Rights Purchase Agreement.
The Company has a $91.4 million additional judgment against the government, and we are reviewing our options related to this litigation as well. Meanwhile, we have continued to operate under the terms of our Forbearance Agreement with the support of our lending group and have been granted extensions to allow for the review and consideration of various strategic and capital formation alternatives that should alleviate our current liquidity constraints.
Operationally, numerous wells that have been drilled and cased in the Piceance basin will be completed in coming months, and this should allow for consistent production when compared with prior-year levels. Drilling and completion costs have declined significantly, and these cost savings should enhance the economics of development in the area. Earlier this decade, when drilling and completion costs were lower, very economic rates of return were achieved in predictable development areas like the Piceance basin at commodity prices near current levels. We remain confident in the long-term value of our proven assets in the Piceance.
In the Columbia River basin, added Parker, we are approaching total depth on our Gray well and believe the potential for the well and the project could have a significant impact on the Company’s shareholder value.
Results For The First Quarter:
For the quarter ended March 31, 2009, Delta Petroleum reported production of 6.32 billion cubic feet equivalents (Bcfe), up 18%, compared with the year-ago quarter. Total revenue declined 9% to $58.7 million in the quarter, including a gain of $31.3 million from our offshore litigation, against revenue of $64.5 million in the quarter ended March 31, 2008. Revenue from oil and gas sales decreased 59% to $22.1 million, compared with $53.8 million in the year-ago quarter. The decrease was mainly due to a 61% reduction in average realized gas prices and a 65% decrease in average realized oil prices, partly counterbalanced by an 18% raise in total production. Revenue from contract drilling and trucking fees decreased 51% to $5.2 million in the most recent quarter, against $10.7 million in the first quarter of 2008, due to lower rig utilization. As a result of the drop in commodity prices when compared with the prior-year quarter, EBITDAX decreased to ($415,000).
Lease operating expense. Lease operating expense for the quarter ended March 31, 2009 raised to $9.8 million from $8.1 million in the year-ago quarter. Lease operating expense from continuing operations for the three months ended March 31, 2009 raised to $1.56 per Mcfe from $1.51 per Mcfe for the comparable period in 2008. The increase was mainly because of increased water disposal in the Piceance basin during a period of reduced drilling and completion activity. Delta Petroleum has traditionally utilized most of the water produced by wells in its completion activities. However with the decrease in completion activity, the stored water was hauled away and disposed. Delta Petroleum anticipates lease operating expense to decline with the availability of newly drilled water disposal wells and the future implementation of a water distillation facility. Lease operating expenses should decline over 25% in the Vega Area of the Piceance basin once these facilities have been approved and installed.
Depreciation, depletion and amortization expense: Oil and gas depreciation, depletion and amortization expense raised 16% to $26.8 million in the three months ended March 31, 2009, compared with $23 million in the comparable year-ago quarter. Depletion expense totaled $26.1 million in the most recent quarter, compared with $22.5 million in the three months ended March 31, 2008. The raise in depletion expense was because of higher production from continuing operations, slightly counterbalanced by lower depletion rates. The depletion rate decreased from $4.19 per Mcfe in last year’s first quarter to $4.13 per Mcfe in the current-year period, primarily due to the effect of impairments recorded in the fourth quarter of 2008, partly counterbalanced by the effect of low spot commodity prices at March 31, 2009 on the depletion computation. Delta Petroleum anticipates future depletion rates to decline if commodity prices increase.
General and administrative expense: General and administrative expense declined 6% to $12.6 million in the three months ended March 31, 2009, compared with $13.4 million in the year-ago quarter. The decline in general and administrative expense was mainly attributed to a reduction in non-cash stock compensation expense resulting from lower executive performance share costs, and from forfeitures and modifications associated to a decrease in force in early March 2009 that affected about one-third of Delta Petroleum’s personnel.
Further reductions in cash general and administrative costs should result from the decrease in force, along with a 20% salary reduction for executive officers, directors and much of the company’s senior management team that was implemented at the end of the first quarter. Based upon initial results for the month of April 2009, Delta Petroleum anticipates second quarter cash general and administrative expenses to decline by 20%-25% from first quarter levels with further reductions anticipated throughout 2009.
