Houston Exploration Reports 2004 Results; Updates 2005 Capital Program

HOUSTON, Feb. 17 /PRNewswire-FirstCall/ -- The Houston Exploration Company today reported full-year 2004 net income of $162.8 million, or $5.44 per fully diluted share, an increase of 30 percent per share over the $131.0 million of net income, or $4.20 per fully diluted share, reported in 2003. Revenues for the year totaled $650.4 million, 32 percent higher than the $492.7 million reported during 2003. Cash from operations before changes in operating assets and liabilities totaled $500.5 million, 25 percent higher than 2003's $399.3 million. (Cash from operations is a non-GAAP measure that is defined and reconciled in the table below.)

Record production was reported during 2004, with the daily average 15 percent higher than 2003 at 339 million cubic feet of natural gas equivalent per day (MMcfe/d). Year-end proved reserves totaled a record 793 billion cubic feet of natural gas equivalent (Bcfe), up 5 percent from 2003. Excluding divestitures, the year-over-year increase in reserves would have been 13 percent.

The company's 2004 capital program totaled a record $516.9 million, including $149.6 million used for acquisitions. Exploration expense accounted for $63.6 million, development for $246.0 million, leasehold and acquisition costs were $57.7 million, and the company had asset sales of $72.7 million.

The company's average natural gas sales price for 2004 was $5.78 per thousand cubic feet (Mcf), yielding an average realization of $5.17 per Mcf after hedging. This compares to a natural gas sales price of $5.23 per Mcf, and a net price after hedging of $4.55 per Mcf for 2003. Crude oil prices averaged $36.85 per barrel for the year, 31 percent higher than the $28.15 per barrel reported during 2003.

Lifting costs, which are comprised of lease operating, transportation and severance tax expenses, were $0.65 per Mcfe versus the $0.69 per Mcfe reported during 2003. Depreciation, depletion and amortization and asset retirement accretion expenses for the year were $2.18 per Mcfe compared to $1.86 per Mcfe in 2003. Net general and administrative expenses for the year were $0.27 per Mcfe in 2004 compared to $0.18 per Mcfe in 2003.

2004 Snapshot: * The company recognized record reserves and production, up 5 percent and 15 percent, respectively, compared with 2003. * The company drilled 12 development wells in the Gulf of Mexico, of which 100 percent were successful. * The company drilled seven exploration wells in the Gulf of Mexico, of which 43 percent were successful. * Onshore, the company drilled 192 wells at an overall success rate of 84 percent. * The company's Rocky Mountain operations continued to grow. During the year 26 wells were drilled in Utah's Uinta Basin, and in Colorado, more than 300,000 net acres were acquired in the Eastern DJ Basin. At the present time, nearly all of the wells are producing in the Uinta Basin. The four wells drilled in Colorado during the last part of 2004 should be placed on production during the first quarter of 2005, along with other wells recently drilled in the area. * In Arkansas, the net production rate was 65 percent greater than 2003, and the company continued to break monthly production records throughout the year. Down-spacing approvals to 40-acres were received during 2004, which increased the region's reserves by 18 percent year- over-year. * The company successfully improved its drilling portfolio after purchasing 81 Bcfe of reserves and divesting of 63 Bcfe. * The company improved the liquidity of Houston Exploration stock after successfully completing two transactions with KeySpan Corporation whereby KeySpan sold its entire position in Houston Exploration stock. * The company continued to conservatively manage its balance sheet, closing the year with a debt-to-capitalization ratio of 32 percent.

"I am very pleased that during 2004 the company was able to execute its long-term plan, which included a mix of drilling and third-party transactions in order to achieve yet another year of record reserves and production," stated William G. Hargett, chairman, president and chief executive officer. "In addition, after closing the transactions with KeySpan, I hope that additional growth opportunities will be available to the company, as our balance sheet is in excellent condition and our borrowing base has been expanded."

Fourth Quarter 2004 Summary:

On January 20, 2005, the company announced preliminary results for several key metrics for the fourth quarter of 2004, which included explanations for any variances from previous quarters or guidance that had been provided. Actual numbers and statements recapping the results are explained in the following paragraphs.

During the fourth quarter of 2004 the company reported net income of $34.8 million, or $1.21 per fully diluted share. This compares with $25.7 million, or $0.82 per fully diluted share in the fourth quarter of 2003. Cash from operations before changes in operating assets and liabilities (a non-GAAP measure) totaled $125.9 million for the fourth quarter of 2004 versus $92.7 million during the similar period of 2003.

Fourth quarter 2004 production averaged 329 MMcfe/d, up 5 percent over 2003's fourth quarter average rate of 312 MMcfe/d. Production was down from what was anticipated primarily due to mechanical problems at the High Island 115 field, where the company lost 9 MMcfe/d for the quarter, and due to delays in receiving the right-of-way approvals necessary to begin producing wells in the Uinta Basin.

The company's fourth quarter 2004 depreciation, depletion and amortization, including asset retirement accretion, was $2.35 per Mcfe, which was $0.16 per Mcfe higher than anticipated, mainly due to higher future development costs related to Gulf of Mexico assets purchased during the fourth quarter of 2004, and the number of undeveloped reserves booked in the Rocky Mountain region during 2004.

Net general and administrative expenses for the quarter were $0.38 per Mcfe, approximately $0.19 per Mcfe higher than the company's prior guidance. Substantially all of this increase related to senior executive organizational changes made within the company during the fourth quarter that resulted in severance expenses totaling $5.1 million for the three executives whose reporting structures were affected.

As with past quarters, Houston Exploration has prepared the following table to assist with understanding the company's estimated financial results and near-term performance based on current expectations. Certain factors affecting these forward-looking statements are listed below in this news release.

2005 Guidance: First Quarter 2005 Costs ($/Mcfe) Estimate - Lease operating expense $0.53 +/- - Severance tax $0.15 +/- - General and administrative, net* $0.43 +/- - Transportation $0.10 +/- - Depreciation, depletion and amortization and asset retirement accretion $2.40 +/- - Interest, net $0.14 +/- 2005 Capital (million $) Estimate - E&D expenditures (excludes acquisition capital) $418 +/- - G&A and interest $28 +/- - Total $446 +/- 2005 Operations Estimate - Production growth from 2004 6% +/- - Percent natural gas 93% +/- - Percent hedged 70% +/- * Includes additional general and administrative expenses of $5.1 million related to entering into new employment agreements with executive officers.

The company will hold its year-end 2004 earnings conference call on Thursday, February 17, at 9:00 a.m. Central Time to further review financial and operational results. To access the call dial (800) 374-0699 prior to the start.

To listen to the live webcast log on to http://www.houstonexploration.com/ and follow the webcast links. A replay of the call will be available for one week beginning at 1:00 p.m. Central Time on February 17. Dial (706) 645-9291 and provide the confirmation code 3521129 for this service. In addition, the call will be broadcast live over the Internet and can be accessed at http://www.houstonexploration.com/ .

The Houston Exploration Company is an independent natural gas and crude oil producer engaged in the development, exploitation, exploration and acquisition of natural gas and crude oil properties. The company's operations are focused in South Texas, the Rocky Mountains, the Arkoma Basin, and offshore in the shallow waters of the Gulf of Mexico. Additional production is located in East Texas. For more information, visit the company's web site at http://www.houstonexploration.com/ .

Forward-looking statements:

This news release and oral statements regarding the subjects of this release, including the conference call announced herein, contain forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act. All statements other than statements of historical fact included in this press release are forward-looking statements and reflect the company's current expectations and are based on current available information. Important factors that could cause actual results to materially differ from the company's current expectations include price volatility, the risk of future writedowns, the accuracy of estimates regarding spending requirements, the inability to meet substantial capital requirements, the constraints imposed by current indebtedness, reserve replacement risks, drilling risks and results, the risks associated with the recent acquisitions, the successful negotiation and consummation of acquisitions, the integration of acquired assets and other factors inherent in the exploration for and production of natural gas and crude oil discussed in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2003. The company assumes no responsibility to update any of the information referenced in this news release.

Contact: The Houston Exploration Company Melissa Reynolds 713-830-6887 mreynolds@houstonexp.com The Houston Exploration Company Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Unaudited Income (in thousands, except (in thousands, except Statement Data: per share data) per share data) Revenues Natural gas and oil revenues $162,403 $124,195 $649,087 $491,440 Other 618 35 1,352 1,312 Total revenues 163,021 124,230 650,439 492,752 Operating expenses Lease operating 16,419 13,536 55,925 47,072 Severance tax 1,629 4,963 11,933 15,958 Transportation 2,908 2,623 11,819 10,387 Asset retirement accretion 1,326 1,189 4,902 3,668 Depreciation, depletion and amortization 70,066 56,825 265,148 197,530 General and administrative, net 11,371 6,017 32,899 19,542 Total operating expenses 103,719 85,153 382,626 294,157 Income from operations 59,302 39,077 267,813 198,595 Other (income) and expense 798 (2,546) (1,058) (15,746) Interest expense 5,042 4,156 17,813 15,642 Capitalized interest (2,180) (2,082) (8,358) (7,300) Interest expense, net 2,862 2,074 9,455 8,342 Income before taxes 55,642 39,549 259,416 205,999 Provision for income tax Current 13,470 11,999 46,092 13,913 Deferred 7,386 1,849 50,500 58,274 20,856 13,848 96,592 72,187 Income before change in accounting principle 34,786 25,701 162,824 133,812 Cumulative effect of change in accounting principle --- --- --- (2,772) Net income $ 34,786 $ 25,701 $162,824 $131,040 Earnings per share Basic Income before change in accounting principle $ 1.23 $ .82 $ 5.50 $ 4.30 Cumulative effect of change in accounting principle --- --- --- (0.09) Net income $ 1.23 $ .82 $ 5.50 $ 4.21 Fully diluted Income before change in accounting principle $ 1.21 $ .82 $ 5.44 $ 4.29 Cumulative effect of change in accounting principle --- --- --- (0.09) Net income $ 1.21 $ .82 $ 5.44 $ 4.20 Weighted average shares 28,269 31,319 29,616 31,097 Weighted average shares - fully diluted 28,746 31,447 29,932 31,213 Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Operating Data: Production Natural gas (MMcf) 28,120 26,392 115,855 99,965 Oil (MBbls) 360 391 1,355 1,307 Total (MMcfe) 30,280 28,738 123,985 107,807 Average daily production (MMcfe/d) 329 312 339 295 Average sales price Natural gas realized ($/Mcf) $ 5.24 $ 4.29 $ 5.17 $ 4.55 Natural gas unhedged ($/Mcf) 6.37 4.60 5.78 5.23 Oil realized ($/Bbl) 42.05 27.95 36.85 28.15 Oil unhedged ($/Bbl) 42.05 27.95 36.85 28.46 December 31, December 31, 2004 2003 Unaudited Balance Sheet Data: (in thousands) Working capital (deficit) (A) $ (31,884) $ (36) Property, plant and equipment, net 1,548,256 1,371,129 Total assets 1,722,577 1,509,065 Long-term debt and notes 355,000 302,000 Total stockholders' equity 768,120 735,534 (A) Working capital deficit primarily caused by negative fair value of derivative instruments, which are marked to market at the end of the current period. Unaudited Non-GAAP Financial Measures:

Cash from operations represents net cash provided by operating activities before changes in operating assets and liabilities. Cash from operations is presented because management believes it is a useful adjunct to net cash provided by operating activities under accounting principles generally accepted in the United States (GAAP). Cash from operations is widely accepted as a financial indicator of an oil and gas company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. Cash from operations is not a measure of financial performance under GAAP and should not be considered an alternative to net income. The table below reconciles cash from operations to net cash provided by operating activities as disclosed on the company's statement of cash flows. Further, the "Shareholder/Financial" section of the company's web site includes a disclosure and reconciliation of non-GAAP financial measures that are used in this release and that may be used periodically by management when discussing the company's financial results with investors and analysts.

Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Reconciliation of Non-GAAP Measures: (in thousands) (in thousands) Cash from operations before changes in operating assets and liabilities $ 121,443 $ 89,408 $ 500,540 $ 399,268 Plus changes in operating assets and liabilities 4,413 3,333 21,896 (8,436) Net cash provided by operating activities $ 125,856 $ 92,741 $ 522,436 $ 390,832 2004 Reserve Reconciliation: Natural Gas (Bcf) Offshore Onshore Total 12/31/03 Balance 205.4 504.5 709.9 Production (48.4) (67.5) (115.9) Additions 33.5 129.2 162.7 Sales --- (62.2) (62.2) Purchases 59.8 8.0 67.8 Revisions .1 (13.3) (13.2) 12/31/04 Balance 250.4 498.7 749.1 Oil & NGLs (MMbbls) 12/31/03 Balance 6.9 .6 7.5 Production (1.3) (.1) (1.4) Additions .2 .1 .3 Sales --- (.2) (.2) Purchases 2.1 .1 2.2 Revisions (1.1) (.0) (1.1) 12/31/04 Balance 6.8 .5 7.3 Natural Gas Equivalent (Bcfe) 12/31/03 Balance 246.7 508.1 754.8 Production (56.1) (67.9) (124.0) Additions 34.7 129.6 164.2 Sales --- (63.3) (63.3) Purchases 72.5 8.8 81.3 Revisions (6.3) (13.6) (19.9) 12/31/04 Balance 291.5 501.6 793.1 Reserve Statistics Reserve Growth 18% (1%) 5% Reserves, Percent Gas 86% 99% 94% Production, Percent Gas 86% 99% 93% Reserve Life (Years) 5.2 7.4 6.4 Note: All reserves are fully engineered by third-party consultants.