Endeavour Announces Third Quarter 2011 Financial and Operational Results
By Endeavour International Corporation, PRNETuesday, November 1, 2011
HOUSTON, November 2, 2011 -
Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported adjusted EBITDA for the third quarter of 2011 was $2.4 million compared to $8.2 million in the third quarter of 2010 and $7.6 million in the second quarter of 2011. On a GAAP basis, net loss was $63.3 million for the third quarter of 2011 as compared to a net loss of $11.7 million for the same quarter in 2010. Approximately $42 million of the $63.3 million third quarter loss resulted from certain non-cash items outlined below.
Business Highlights:
- North Sea:
- Drilling at Bacchus is progressing on the three production wells
- Awarded a rig contract for the Greater Rochelle project and expect to commence drilling in the spring of 2012
- Appraisal drilling at Tudor Rose is scheduled to begin in November
- Production interruptions at the Bittern field during August and September resulted in fewer oil liftings; full production at the field recommenced in October
- U.S. Onshore:
- Six new Haynesville wells brought on production during the third quarter
- U.S. production exited the quarter at approximately 17.5 million cubic feet of gas per day (MMCF/D)
- Four vertical test wells have been drilled in Heath Shale oil play; core and log analyses are ongoing
- Exploration activities in Alabama operations have been discontinued
- Financial:
- Completed the sale of $135 million of 5.5% convertible notes due 2016
- Incurred a one-time impairment of $29 million related to the U.S. full cost pool
- Recorded a one-time charge of $26 million in deferred tax liability for the increase in the U.K. supplemental tax rate
- Incurred an unrealized gain of $13 million relating to the revaluation of embedded derivatives
“This was a challenging quarter for the industry, commodities and the capital markets. Likewise, Endeavour’s results were negatively impacted by production interruptions and non-cash items related to the tax changes in the U.K. and the discontinuation of our activities in Alabama,” said William L. Transier, chairman, chief executive officer and president. “We remain focused on turning on first production at our two key projects in the North Sea - Bacchus and Greater Rochelle. In the U.S., we are evaluating the results of four vertical pilot tests in the Heath shale oil play in Montana. Until production begins at Bacchus and we see better North American natural gas prices, the Company will conserve capital for the near-term projects yielding the highest rate of return.”
Operational Update
North Sea
The drilling of the three planned production wells is underway in the Bacchus field in Block 22/06a in the Central North Sea. Based on the rate of progress drilling the production wells, first production is expected to begin early next year.
For the Greater Rochelle development, the Company has contracted for a drilling rig which is expected to arrive in the spring of 2012 to commence drilling of the two planned production wells. Endeavour is operator and holds a 44% ownership interest in the Greater Rochelle development which is comprised of Blocks 15/26b, 15/26c and 15/27.
Drilling is scheduled to commence on the Tudor Rose appraisal well, a stranded oil discovery, in November. The Company plans to test the viscosity of the oil in place and the economics of the discovery. Endeavour has a 20% working interest in the well.
Due to production interruptions at Bittern during the quarter, certain oil liftings were not completed. As of October, full oil production at the field has resumed.
U.S. Onshore
During the quarter, Endeavour brought six new wells on production in its Haynesville area. The Company currently has two additional Haynesville wells in progress to conclude the Company’s 2011 planned drilling program. Due to this activity, U.S. net daily production averaged 14.6 MMCF/D for the quarter with the third quarter exit volumes at approximately 17.5 MMCF/D.
In the Heath shale oil play, the Company and its partners have completed the drilling of four vertical pilot test wells. Core and log data are currently being evaluated to define possible horizontal re-entry target zones for next year. In the Alabama Devonian shale gas play, test results at the horizontal test well indicated it was not economical to continue investing in the play. Endeavour has discontinued further operations in the area.
The due diligence is ongoing surrounding the proposed acquisition of the SM Energy and partners Pennsylvania Marcellus leasehold, which includes approximately 50,000 net acres, three producing wells, 10 miles of pipeline and related facilities.
Financial Update
In July, Endeavour closed on its private placement of $135 million aggregate principal amount of 5.5% Convertible Senior Notes due 2016, including the full exercise by the initial purchasers of their option to purchase an additional $15 million principal amount of the Convertible Senior Notes. The conversion price of the Convertible Senior Notes is $18.51 per share.
During the third quarter, the Company recorded three non-cash entries. The first, a one-time charge of $26.0 million was to deferred taxes, relating to the increase in the U.K. supplemental tax rate from 20% to 32%. Endeavour also recorded an impairment of $29 million primarily related to U.S. full cost pool including $18 million related to our decision to discontinue activities in Alabama. The last non-cash entry for the quarter was for an unrealized gain of $13.1 million relating primarily to the revaluation of embedded derivatives in the 11 1/2 % Convertible Bonds due 2016. As a result of these three items, an additional net loss of $42.0 million was incurred for the quarter.
Earnings Conference Call, Wednesday, November 2, 2011 at 9:00 a.m., Central Daylight Time, 2:00 p.m. British Time
Endeavour International will host a conference call and web cast to discuss its 2011 third quarter financial and operating results on Wednesday, November 2, 2011 at 9 a.m. Central Daylight Time, 2 p.m. British Time. To participate and ask questions during the conference call, dial the local country telephone number and the confirmation code 8137527. The toll-free numbers are 888-211-0226 in the United States and 0-808-101-1402 in the United Kingdom. Other international callers should dial +1-913-312-1269 (tolls apply). To listen only to the live audio web cast access Endeavour’s home page at www.endeavourcorp.com. A replay will be available beginning at 12:20 p.m. Central Daylight Time on November 2nd through 12:20 p.m. on November 9th by dialing toll free 888-203-1112 (U.S.) or +1-719-457-0820 (international), confirmation code 8137527.
Endeavour International Corporation is an oil and gas exploration and production company focused on the acquisition, exploration and development of energy reserves in the North Sea and the United States. For more information, visit www.endeavourcorp.com.
Additional information for investors:
Certain statements in this news release should be regarded as “forward-looking” statements within the meaning of the securities laws. These statements speak only as of the date made. Such statements are subject to assumptions, risk and uncertainty. Actual results or events may vary materially.
As of January 1, 2010, the Securities and Exchange Commission (SEC) changed its rules to permit oil and gas companies, in their filings with the SEC, to disclose not only proved reserves, but also probable reserves and possible reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible - from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations - prior to the time at which contracts providing the right to operate expire. Probable reserves include those additional reserves that a company believes are as likely as not to be recovered and possible reserves include those additional reserves that are less certain to be recovered than probable reserves. We use may use certain terms in our news releases, such as “reserve potential,” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. In addition, we do not represent that the probable or possible reserves described herein meet the recoverability thresholds established by the SEC in its new definitions. Investors are urged to also consider closely the disclosure in our filings with the SEC, available from our website at www.endeavourcorp.com. Endeavour is also subject to the requirements of the London Stock Exchange and considers the disclosures in this release to be appropriate and/or required under the guidelines of that exchange.
Endeavour International Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
September 30, December 31,
2011 2010
Assets
Current Assets:
Cash and cash equivalents $ 185,030 $ 99,267
Restricted cash - 31,776
Accounts receivable 6,502 8,068
Prepaid expenses and other current
assets 12,210 8,718
Total Current Assets 203,742 147,829
Property and Equipment, Net 527,149 364,677
Goodwill 211,886 211,886
Other Assets 27,326 25,895
Total Assets $ 970,103 $ 750,287
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 71,408 $ 32,442
Current maturities of debt 14,850 21,600
Accrued expenses and other 26,617 22,642
Total Current Liabilities 112,875 76,684
Long-Term Debt 454,286 323,706
Deferred Taxes 117,839 77,200
Other Liabilities 43,278 64,927
Total Liabilities 728,278 542,517
Commitments and Contingencies
Series C Convertible Preferred Stock 43,703 53,152
Stockholders' Equity 198,122 154,618
Total Liabilities and Stockholders' Equity $ 970,103 $ 750,287
Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenues $ 10,302 $ 19,849 $ 43,459 $ 55,102
Cost of Operations:
Operating expenses 3,496 4,595 14,888 10,881
Depreciation,
depletion and
amortization 5,372 7,697 18,698 21,290
Impairment of oil
and gas properties 28,793 - 28,793 7,692
General and
administrative 4,863 4,237 14,525 12,873
Total Expenses 42,524 16,529 76,904 52,736
Income (Loss) From
Operations (32,222) 3,320 (33,445) 2,366
Other Income
(Expense):
Derivatives:
Realized
losses - (452) - (1,552)
Realized
loss on
early
termination - (10,201) - (10,201)
Unrealized
gains 13,081 6,441 11,098 11,477
Interest expense (12,253) (10,474) (32,607) (21,733)
Interest income
and other 611 (2,327) 424 1,281
Total Other Income
(Expense) 1,439 (17,013) (21,085) (20,728)
Loss Before Income
Taxes (30,783) (13,693) (54,530) (18,362)
Deferred Tax Expense
Related to U.K. Tax
Rate Change 25,387 - 25,387 -
Other Income Tax
Expense (Benefit) 7,120 (2,001) 6,433 7,916
Income Tax Expense
(Benefit) 32,507 (2,001) 31,820 7,916
Net Loss (63,290) (11,692) (86,350) (26,278)
Preferred Stock
Dividends 466 546 1,518 1,682
Net Loss to Common
Stockholders $ (63,756) $ (12,238) $ (87,868) $ (27,960)
Net Loss per Common Share:
Basic and Diluted $ (1.63) $ (0.51) $ (2.52) $ (1.22)
Weighted Average Number of
Common Shares
Outstanding:
Basic and Diluted 39,064 23,949 34,854 22,829
Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in thousands)
Nine Months Ended
September 30,
2011 2010
Cash Flows from Operating Activities:
Net loss $ (86,350) $ (26,278)
Adjustments to reconcile net loss
to net cash
provided by (used in)
operating activities:
Depreciation, depletion and
amortization 18,698 21,290
Impairment of oil and gas
properties 28,793 7,692
Deferred tax expense 23,052 6,195
Unrealized gains on
derivatives (11,098) (11,477)
Amortization of non-cash
compensation 2,733 2,786
Amortization of loan costs
and discount 9,553 6,980
Non-cash interest expense 9,306 5,179
Other 1,839 (1,178)
Changes in operating assets
and liabilities (25,145) 20,113
Net Cash Provided by (Used in)
Operating Activities (28,619) 31,302
Cash Flows From Investing Activities:
Capital expenditures (113,137) (75,677)
Acquisitions (22,898) (39,279)
(Increase) decrease in restricted
cash 31,726 (29,645)
Net Cash Used in Investing Activities (104,309) (144,601)
Cash Flows From Financing Activities:
(Repayments) borrowings under debt
agreements 112,362 100,058
Proceeds from issuance of common
stock 118,444 30,181
Dividends paid (1,400) (1,563)
Other financing (10,715) (26,137)
Net Cash Provided by Financing
Activities 218,691 102,539
Net Increase (Decrease) in Cash and
Cash Equivalents 85,763 (10,760)
Cash and Cash Equivalents, Beginning
of Period 99,267 27,287
Cash and Cash Equivalents, End of
Period $ 185,030 $ 16,527
Endeavour International Corporation
Operating Statistics
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Sales volume (1)
Oil and
condensate sales
(Mbbls):
United Kingdom 49 127 274 429
United States 3 2 5 5
Total 52 129 279 434
Gas sales (MMcf):
United Kingdom - 869 78 2,614
United States 1,329 978 3,305 1,699
Total 1,329 1,847 3,383 4,313
Oil equivalent
sales (MBOE)
United Kingdom 49 272 287 864
United States 225 165 556 288
Total 274 437 843 1,152
Total BOE per day 2,972 4,755 3,089 4,222
Physical production volume
(BOE per day) (1):
United Kingdom 838 2,993 1,152 3,130
United States 2,436 1,995 2,036 1,117
Total 3,274 4,988 3,188 4,247
Realized Prices (2)
Oil and
condensate price
($ per Bbl):
Before
commodity
derivatives $ 106.57 $ 75.64 $ 108.57 $ 74.72
Effect of
commodity
derivatives - (3.11) - (7.12)
Including
commodity
derivatives $ 106.57 $ 72.53 $ 108.57 $ 67.60
Gas price ($ per
Mcf):
Before
commodity
derivatives $ 3.59 $ 5.44 $ 3.88 $ 5.26
Effect of
commodity
derivatives - (0.03) - 0.36
Including
commodity
derivatives $ 3.59 $ 5.41 $ 3.88 $ 5.62
Equivalent oil
price ($ per
BOE):
Before
commodity
derivatives $ 37.68 $ 45.37 $ 51.53 $ 47.81
Effect of
commodity
derivatives - (1.03) - (1.35)
Including
commodity
derivatives $ 37.68 $ 44.34 $ 51.53 $ 46.46
(1) We record oil revenues using the sales method, i.e. when delivery has
occurred. Actual production may differ based on the timing of tanker
liftings. We use the entitlements method to account for sales of gas
production.
(2) The average sales prices include gains and losses for derivative
contracts we utilize to manage price risk related to our future cash
flows.
Endeavour International Corporation
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(Amounts in thousands)
As required under Regulation G of the Securities Exchange Act of 1934,
provided below are reconciliations of net income (loss) to the following
non-GAAP financial measures: net income, as adjusted and Adjusted EBITDA.
We use these non-GAAP measures as key metrics for our management and to
demonstrate our ability to internally fund capital expenditures and
service debt. The non-GAAP measures are useful in comparisons of oil and
gas exploration and production companies as they exclude non-operating
fluctuations in assets and liabilities.
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Net loss $ (63,290) $ (11,692) $ (86,350) $ (26,278)
Impairment of oil
and gas properties
(net of tax) (1) 28,793 - 28,793 7,692
Unrealized (gain)
loss on
derivatives (net
of tax) (2) (13,034) (2,413) (12,245) (5,070)
Deferred tax expense
related to U.K. tax
rate change 25,387 - 25,387 -
Currency impact on
deferred taxes - 95 - (51)
Net Loss as
Adjusted $ (22,144) $ (14,010) $ (44,415) $ (23,707)
Net loss $ (63,290) $ (11,692) $ (86,350) $ (26,278)
Unrealized (gain)
loss on
derivatives (13,081) (6,441) (11,098) (11,477)
Realized loss on
early termination
of derivatives - 10,201 - 10,201
Net interest
expense 12,084 10,467 32,234 21,704
Depreciation,
depletion and
amortization 5,372 7,697 18,698 21,290
Impairment of oil
and gas properties 28,793 - 28,793 7,692
Income tax expense
(benefit) 32,507 (2,001) 31,820 7,916
Adjusted EBITDA $ 2,385 $ 8,231 $ 14,097 $ 31,048
(1) Since the impairments related to U.S. oil and gas properties, we
recognized no tax benefits as there was no assurance that we could
generate any U.S. taxable earnings.
(2) Net of tax (benefit) expense of $(47) and $(4,029) and $1,147 and
$(6,408), respectively.
Endeavour - Investor Relations, Mike Kirksey, +1-713-307-8788, or Darcey Matthews, +1-713-307-8711; or Pelham Public Relations - UK Media, Philip Dennis, +44 (0)207 861 3919, or Henry Lerwill, +44(0)207 861 3169
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