Company History
A Solid Founding - 1985 to 1990
The Meridian Resource Corporation began on November 25th 1985 when Joe Reeves and Mike Mayell founded Texas Meridian Resources, Ltd. (TMR), a master limited partnership operating under Walker Energy Partners (WEP), to develop and produce oil and natural gas. In 1987, Texas Meridian combined its properties and management with Walker Energy Partners in hopes of increasing operating efficiencies and providing a base for property and company acquisitions in the future. TMR brought with it varied working interests in 116 wells. In return, WEP assumed the debt of TMR.
TMR’s growth began in 1989 with the addition of Hughes Oil and Gas, and oil and gas interests from U.S. Exploration Company. The two acquisitions added 950,000 Bls of oil and 9.8 Bcf of gas to TMR’s proven developed reserves. The same year, Manufacturers Hanover Trust Company extended a $30 million credit agreement to TMR.
In August of 1990 TMR converted from a master limited partnership to a corporation within the state of Texas. Common shares began trading on the American Stock Exchange in December. Amidst the transitions, the Company began replacing its Appalachian Basin assets with production from the Gulf Coast and Mid-Continent regions. TMR involved itself in mid-stream operations through a subsidiary, Keystone Trading and Transportation, which held natural gas processing assets in Pennsylvania. The Company engaged in numerous exploration and production projects that eventually expanded into 10 states, over 1400 wells and controlled over 170,000 acres.
Transition and Growth - 1991 to 1996
Strategic adjustments were made to the business plan in 1991 when focus was shifted from acquiring existing producing properties to the exploration of large, primarily natural gas reserves using 3-D seismic technology. At the time, TMR owned working interest in over 1,400 wells in 13 states and operated about 80% of those wells. In December, the Company sold its producing properties for $43 million to Transfuel, Inc., paid off debts, and then used the remaining $4.4 million for new exploration projects.
In March of 1992 TMR entered an agreement to mitigate its exposure to fluctuations in the natural gas market by acquiring an approximate 11% interest in Jefferson Gas Systems, Inc. for just over $1 million. In turn, Meridian could participate directly in downstream natural gas services and independent power generation projects.
In June of 1992 TMR’s plan was jumpstarted with a 2,000 acre farm out from Phillips Petroleum in Chocolate Bayou Field in Brazoria County, Texas. The first well, I.P. Farms No.1-X, logged more than 100 feet of potentially productive sands and resulted in a 100 Bcfe discovery. Financially, TMR appeared to be struggling, recording a net loss of just under $1 million for 1992. However, the Chocolate Bayou Field went online in January of 1993 solidifying shareholders expectations of a successful transition from an acquisition to an exploration company.
Wall Street responded with record highs in TMR’s stock price, hitting $13 in the second quarter of 1993. Operations in 1993 were primarily funded through borrowings, resulting in an increase in interest expense for the year. In August, TMR issued 4.6 million shares of common stock on the American Stock Exchange, raising $29.3 million in capital which was used to repay outstanding debts, finance its exploratory drilling program, and fund development within the Chocolate Bayou Field. The Company repaid debt related to the dissolvement of various partnerships and adjust the value of TMR’s interest in Jefferson Gas System. As a result, the Company had a $3.4 million net loss for the year.
In 1994, the Company made a 19.2 Bcfe discovery in the Bayou Lafourche Field in Lafourche Parish, Louisiana. With this discovery, production increased 81% from 1993 and revenues grew by 57%. Meridian’s stock price climbed to $16.13 and the Company reported a $1.4 million or $.12 / share net income for the year.
In 1995 Meridian continued to increase its reserves and improve production. Meridian’s 3-D seismic library started to grow with the acquisition of 340 square miles of surveys in south Louisiana. TMR also implemented turn-key drilling contract terms from day-work terms. Meridian realized a net income of $2.2 million or $.16 per share for the year.
With the discovery of the Backridge Field which contained 56 Bcfe in reserves, the Company’s stock traded as high as $ 18.50 per share during 1996. With low lease operating costs of $.12 per Mcfe and finding costs of $.86 per Mcfe kept Meridian was able to keep true to its low debt philosophy. In turn, the Company realized its year-end earnings of $7.1 million.
In June on 1996, Meridian and Louisiana Land and Exploration Company formed an exploration joint venture covering the coastal south Louisiana region and pursued new prospects utilizing 3-D seismic technology. The company then made an agreement with GECO-Prakla, a division of Schlumberger, which provided TMR with some 2,000 square miles of seismic data in south Louisiana.
A Step Change in Growth - 1997 to 2000
In 1997 Texas Meridian Resource Corporation changed its name to “The Meridian Resource Corporation” and moved to the New York Stock Exchange. In November, Meridian added to its reserved and volumes by merging with Cairn Energy USA, Inc.
In 1998 the Company acquired all Shell Oil’s onshore properties. The $303.5 million transaction included proven reserves of 158 Bcfe, 9,800 net undeveloped acres, 1,400 square miles of 3-D seismic, 12 producing fields and new, ready-to-drill prospects. Production increased 73% and increase in proved reserves was up 80% over ’97. However, the commodity market worked against the Company and TMR was forced to record $245 million in non cash write-downs. Due to these circumstances, TMR recorded a net loss of $231 million or $5.80 per share.
The C.M. Thibodaux No.1 well in Iberia Parish, Louisiana, completed in April of 1999, was the Company’s largest discovery to date. In June, the well logged 238 feet of pay at approximately 17,200 feet. After the C.M. Thibodoaux No. 2 caught fire that same month, insurance paid for the replacement, C.M Thibodaux No. 3. At the end of 1999, Meridian’s six largest fields accounted for 77 % of the Company’s total reserves.
In 2000, Meridian touted strong reserves, growth in production, earnings, and 78% drilling success during the year. A joint venture agreement with Schlumberger’s GeoQuest gave Meridian’s geoscientists a full suite of software applications to better evaluate prospects.
The Company’s financial restructuring was completed in January of 2001. The company sold high cost, non-core properties, reduced senior debt by $65 million, and reduced its fully diluted share count by 25%, or 18 million shares. The Company also performed a buyback of Shell’s stock in the Company which were acquired in 1998 through the LOPI transaction. In July, production began on Lakeside #1 in the Lakeside Field which would produce 16.5 Bcfe. In December, Meridian acquired 200,000 acres in Biloxi Marshland.
A Disciplined Path - 2002 to 2005
The year 2002 was a trying one. Experiencing a $52 million net loss generated mostly by falling operating revenues coupled with a low average sale price for the year, Meridian shifted its focus toward low-risk, shallow and less expensive wells. Meridian pledges to continue to develop deep, higher potential/risk wells, however with reduced exposure. Much of the Company’s activity was taking place in the Biloxi Marshland area. The Company acquired more land, completed the Biloxi Marshlands 6-1, laid pipeline, constructed a barge-based production facility and conducted seismic programs in the area.
In 2003 commodity prices soared beyond their pre-2002 levels. With a net income of $7.2 million, TMR was in the black financially. In August, Meridian issued approximately 8.8 million shares of stock in return for $33.7 million in net proceeds. Proceeds were used to cure the borrowing base deficiency of $24.2 million by payment to the Company's senior creditors.
In August 2004, Meridian made a stock offering issuing 13,800,000 shares at $7.25 per share. Approximately $46.8 million of the net proceeds was used to repay borrowings under its senior secured credit agreement. Approximately $49.3 million was used to repurchase all of the 7.1 million shares of common stock owned by Shell Oil Corporation.
Strong Winds of Change
During the fall of 2005, Hurricanes Dennis, Katrina and Rita caused extensive damage to the Biloxi Marshland field, forcing the shut-in of 50% of its daily production. Repairs were made within six weeks and the field’s production was fully restored by the end of the year. Meridian realized earnings of $27.8 million, while reserves were down at year-end. The Company pledged to internalize more responsibilities to ensure a successful drilling program. At year-end in 2005, the Company had produced over 850 Bcfe since 1991 at an average finding and development cost of 2.83 per Mcf. At this juncture, management began to look beyond the Gulf Coast towards resource basins known as shale-gas plays. In July, the Company acquired 50% interest in East Texas Woodbine / Austin Chalk Play.
Reaching Out for Growth - 2006
In 2006, the Company continued the move toward developing emerging conventional and unconventional plays. The management saw both short and long term benefits and decided to realign its portfolio to balance the low risk, multiple well projects with high potential exploration prospects. The months following brought the acquisition of 50-75% interest in the Palo Duro Basin, 100% interest in the 24,000 acres of the Illinois Basin, a 50% interest in 75,000 acres in the Delaware Basin in West Texas, and 17,000 acres in Central Oklahoma. The Company also initiated drilling and logging on four Austin Chalk wells, and in May, opened a field office in Tulsa, Oklahoma to provide placement for employees in that region.
In September, TMR acquired offshore producing and exploration properties from Vintage Petroleum for $21 million in cash and stock, including Nueces Bay, High Island, Panther Reef, Umbrella Point and Trinity Bay. October also saw the beginning of production for the BSM #1 discovery well in the Austin Chalk Play. Due to its success, the Company acquired 30,000 more acres in the East Texas Austin Chalk Play for continued development. In November, the Company completed two wells in Nueces Bay, Texas marking the opportunity of exploration revenue from the Vintage offshore acquisition.
Great Expectations
The Meridian Resource Corporation’s 22 year history is a pursuit for progress amidst adversity. The Company is run by management who has seen the commodity market change and commodity prices ebb and flow in response. Like in the Appalachian Basin in the late 1980’s, consistent reserves from the Gulf Coast are becoming more difficult to expect. The Company’s search for diversified footing in conventional and unconventional plays of varying risk is on. Land acquisition in several plays has transpired and drilling operations are set to commence. Financially, the Company’s endeavor to maintain strong cash flows, low debt to capitalization and liquidity is manageable with a correct balance between high risk/return and low cost/long reserves projects.
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