Endeavour Announces Third Quarter 2011 Financial and Operational Results

By Endeavour International Corporation, PRNE
Tuesday, 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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