To Our Shareholders:
Progress in the midst of adversity. During 2005, beginning in July, our production and field operations were hit
“directly by three separate catastrophic hurricanes—Dennis, Katrina and Rita—each of which individually and
cumulatively damaged our producing facilities and drilling rigs, delaying our production, cash flows, drilling
operations and reserve replacement. We lost two full months of production from our largest field and experienced
four-to-six months of significant reduction in our production (approximately 2 Bcfe) and drilling program as a
result of the loss of two rigs for that same period. The impact to infrastructure and production was like no
other in the history of our industry or of our Company. Our field personnel and staff were removed from harm’s
way only to have almost all of their homes destroyed or rendered uninhabitable. Yet, they returned to the field
and re-established production to 100% of pre-hurricane levels without affecting our balance sheet or our liquidity.
This was a direct result of the tremendous and timely response from our Houston operations and field staff and
personnel, as well as the service companies who likewise stepped up to the challenge on our behalf in a difficult
time and in difficult circumstances. Because they handled this without a misstep, we were able to focus on the
simultaneous expansion of our exploration and business plan without distraction.
Operations for 2005 generated approximately 26 Bcfe of production or an average of 71 Mmcfe per day. Despite the
loss of production, as our 2002 hedges rolled off and our net prices increased, we recognized earnings of $27.8 million,
net cash provided by operating activities of $134.1 million, and ended the year with a continued significantly
low debt position (debt to total capitalization ratio of 17%) and high liquidity in our bank line with which to
take advantage of new opportunities as they present themselves. Reserves at year end were 111 Bcfe, down primarily
as a result of mechanical issues on two major wells in the Company’s Ramos and North Turtle Bayou fields and the
hurricanes that prevented the Company’s exploration program from being fully implemented to replace produced or
adjusted volumes.
We had high expectations for our exploration program last year. We were sorely disappointed in the results of several
of our major wells, and thus have shifted responsibilities internally to ensure the return of our drilling program
to the success levels historically enjoyed in prior years. It is telling, however, of what we and others in the
industry have experienced in our area of focus; that is, that the Gulf Coast region is a very mature producing
basin, with fewer large reserve opportunities available despite the use of the best technology and conventional
methods to generate projects for new reserves. We at Meridian still regard the Gulf Coast regions of south Louisiana
and Texas as an integral part of our planned growth as it remains an area where we control more acreage, own rights
to proportionately more 3-D seismic data, and where we possess unique knowledge, expertise, and relationships that
give us a competitive advantage over our peers. To Meridian, with the shifts in responsibilities internally now in
place, the Gulf Coast region of south Louisiana and south Texas will remain an area of primary importance because
of our unique asset positions and cash flows that enable the Company to pursue a more balanced portfolio that offers
opportunities for reserve replacement and additions while at the same time staying on offense with an aggressive,
high potential exploration program.
Our 2006 capital spending will approximate $132 million on our entire exploration program including land, seismic,
geological and geophysical, drilling and completion cost associated with our exploration program. It will be divided
between multiple new conventional and unconventional/resource plays ranging from the shallow waters of the Gulf of
Mexico to south Louisiana, east Texas, the Palo Duro and Delaware Basins of west Texas, and the Illinois Basin, all
areas where the Company has developed prospects and acquired acreage positions in excess of 60,000 acres net to the
Company to date. With a primary focus on exploration, management has built a broad based exploration portfolio that
can be funded from available projected cash flows and that has the potential for exposure to new reserves in excess
of 230 Bcfe on an unrisked basis depending on the availability of rigs, equipment, crews and leases.
In short, we have moved the ball substantially down the fi eld with the addition of experienced professionals,
management and technical teams, new project areas that add a renewed, higher level of prospectivity to our inventory
and potential reserve additions. As a part of our overall plan, in addition to the early capture of key positions
in the new areas, we are applying the same historical, disciplined approach utilizing the latest technology to every
aspect of our presence and our operations. With proper planning, analysis, drilling and completion techniques and
a constant vigil on the control of costs, we believe that all of our projects will yield new longer-lived reserves
and profi ts over the long term. Our strengths and advantages—strong cash fl ows to fund further lease acquisitions,
operational capability, equipment under contract, technical support, qualifi ed staff slotted in key positions, and
technology—all add up to a promising program for growth. Th e results of these renewed eff orts will not occur
overnight. However, we expect to see many of the new areas tested during 2006. Because the industry is climbing a
steep learning curve in many of the new and extended unconventional or resource basins, there will be many preliminary
steps to test the concepts, including methods of drilling, completing and producing wells, before results will be
known and fully understood. Just as we were at the forefront of applying 3-D seismic to the exploration of deeper,
large reserves in south Louisiana and south east Texas in the early to mid-1990’s, we have captured and are applying
the best technology and intellectual capital available to the industry in this new arena of plays.
We suggest that the challenges facing our Company and our industry are refl ected in the price of our products today
and require a level of innovative thinking, risk-taking and leadership. U. S. independents, like Meridian, contribute
directly, incrementally and substantially to the U. S. energy supply critical to the development of our natural resource
base and thus our economic growth. We at Meridian, along with others in the domestic oil and natural gas industry, have
taken the risk and made the investments to replace reserves year after year. Overall, your Company has generated and
participated in the discovery of approximately 850 Bcfe during the past 14 years, doing so at an average fi nding and
development cost of $2.83 per Mcf. We must be willing to continue to make the necessary investment to fi nd new ways to
supply our domestic needs for energy and add value to our shareholder asset base. Considered in this light, we
individually are meeting the challenge to be a part of that strategic objective by expanding our search and using every
advance in technology to develop the natural resources for today’s energy supply. Meridian has proven its ability to
contribute to this undertaking, its ability to stay the course during downturns and diffi cult times, and its willingness
to adopt and use new technologies, retain the best of human capital and utilize its fi nancial capital to achieve the
correct end results over time. Meridian’s management is committed to meeting that challenge while adding value to our
shareholders.
We want to thank you for your continued support through your investment in Meridian and the privilege you give to us to
serve you as its management.
With regards, we remain,
Sincerely yours,
Joseph A. Reeves, Jr
Chairman and Chief Executive Officer
Michael J Mayell
President and Chief Operating Officer
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