Endeavour Announces 2012 First Quarter Financial and Operational Results

HOUSTON, May 2, 2012 /PRNewswire/ -- Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported first quarter 2012 net loss, as adjusted of $15.4 million compared to $12.9 million for the same quarter of 2011.  On a GAAP basis, net loss for the first quarter of 2012 was $35.3 million as compared to net loss of $7.5 million for the same quarter in 2011. Volumes for the first quarter 2012 averaged approximately 4,200 barrels of oil equivalent per day ("boepd").

Business highlights include:

  • North Sea:
    • At Bacchus, production at the first well commenced with an initial flow rate of approximately 6,000 gross barrels of oil per day ("bopd")
    • The semisubmersible rig, the Diamond Ocean Nomad, is scheduled to arrive in May to begin drilling the first of two planned Rochelle development wells
  • North Sea Acquisition:
    • Discussions continue between ConocoPhillips and the Alba partners, along with Endeavour, concerning the closing requirements for the Alba Field transaction. Endeavour believes progress is being made and is hopeful a resolution will be forthcoming soon
  • U.S. Onshore:
    • One gross Haynesville well was brought on production during the quarter
    • U.S. net production averaged 18.5 million cubic feet of gas equivalent per day (MMCFe/D) for the first quarter
  • Finance:
    • Completed the sale of $500 million of Senior Notes due 2018 to fund the North Sea acquisition and retire the Senior Term Loan
    • On April 12, 2012, the Company entered into a new $100 million revolving credit agreement and borrowed $40 million under the facility to supplement operating funds primarily in replacement of the $32 million escrowed in March to secure a previously existing letter of credit

"We are focused on three priorities this year," said William L. Transier, chairman, chief executive officer and president.  "Those priorities are the completion of the development projects at Bacchus and Rochelle, as well as the finalization of the North Sea acquisition. We have already completed the high-yield debt offering to fund the acquisition and repay our first lien debt.  In the near-term, there is nothing more important than completing these priorities that we, as a management team, can do to impact shareholder value."

Operational Update

United Kingdom

At the Bacchus field in Block 22/06a in the Central North Sea, drilling at the first of three planned development wells is complete. The first well is on production with initial flow rates, for the first five days, of approximately 6,000 gross bopd.  Drilling of the second well began on April 20, 2012 and is expected to be on production early in the third quarter.  The top-hole sections of all three wells were drilled to approximately 1,000 feet in 2011.

At Rochelle the contracted drilling rig, the Diamond Ocean Nomad, is scheduled to arrive in May to drill the first of two planned development wells. Modifications to the Scott Platform, the off-take solution for the Rochelle development, are continuing as planned. The pipeline fabrication is completed and installation on the seabed floor is scheduled to commence in the third quarter. The Rochelle development continues on schedule for first production in the fourth quarter of 2012.  Endeavour is operator and holds a 44% ownership interest in the Rochelle development which is comprised of Blocks 15/26b, 15/26c and 15/27.

North Sea Acquisition

The Company is working to close the North Sea acquisition. Completion of the Alba field transfer has been delayed due to the efforts of certain of the co-venturers who seek an agreement on the handling of future decommissioning costs, which was neither under discussion by the co-venturers at the execution of the purchase and sale agreement, nor is it required as a condition of closing.  As a current owner in Alba field, Endeavour believes it is the best interest of all parties to deal with future decommissioning plans and associated costs prudently in time, but proceed to closing the Alba transaction immediately.  ConocoPhillips and Endeavour have proposed a solution to the Alba co-venturers who are considering the proposal.  At this time, the resolution of this process is not clear. We believe the failure to close under these circumstances would be detrimental to the U.K. North Sea oil and gas business generally, the Alba co-venturers and the Company.

If the Alba co-venturers do not reach a consensus and the transaction does not close or other alternatives arranged, the Company would be required to redeem the 2018 Notes, including penalties and interest, which is more than the net proceeds from the offering now in escrow.  In addition, the Company would be required to repay the $40 million of outstanding borrowings under its new revolving credit facility.  There can be no assurance that the Company will have the necessary cash or will be able to obtain the necessary financing to fund these repayments.

United States Onshore

During the first quarter, the Company brought one Haynesville well on production and drilled a second well. The completion of the second well was deferred and there is currently no drilling activity going on in the U.S. Net daily production averaged 18.5 MMCFe/D for the first quarter. 

In the Heath Shale tight oil play, the Company and its partners are finishing the core and log data analysis from four vertical pilot wells.  Endeavour will target horizontal re-entry zones in the pilot wells to be tested later this year.

Finance

On February 23, 2012, Endeavour closed the private placement of $500 million aggregate principal amount of the 2018 Notes, priced at 96% of par.  The Company intends to use the net proceeds from the 2018 Notes to fund the North Sea acquisition, to repay all amounts outstanding under the Senior Term Loan due 2013 and for general corporate purposes.  Prior to the closing of the acquisition in the North Sea, the net proceeds of the offering are held in an escrow account and reflected as restricted cash on the balance sheet. 

On April 12, 2012, the Company entered into a $100 million revolving credit agreement and borrowed $40 million under the facility to supplement operating funds primarily in replacement of the $32 million of funds required by a bank to be escrowed to cash collateralize an existing letter of credit. The Company is actively engaged in replacing this letter of credit with another bank.  The remainder of the revolving credit facility is available on the closing of the Alba field acquisition.

Earnings Conference Call, Wednesday, May 2, 2012 at 9:00 a.m., Central Daylight Time, 3:00 p.m. British Summer Time 

Endeavour International will host a conference call and web cast to discuss its 2012 first quarter financial and operating results on Wednesday, May 2, 2012 at 9 a.m. Central Daylight Time, 3 p.m. British Summer Time.  To participate and ask questions during the conference call, dial the local country telephone number and the confirmation code 4222627.  The toll-free numbers are 888-228-5293 in the United States and 0-808-101-1402 in the United Kingdom. Other international callers should dial 913-312-1301(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 12:00 p.m. Central Daylight Time on May 2, 2012 through 12:00 p.m. on May 9, 2012 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 4222627.

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.

The Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose not only proved reserves, but also probable reserves and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such 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. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized.  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)










March 31,



December 31,




2012



2011









Assets

Current Assets:







    Cash and cash equivalents

$

18,186


$

106,036


    Restricted cash


493,434



-


    Accounts receivable


13,594



8,649


    Prepaid expenses and other current assets


25,335



18,840


        Total Current Assets


550,549



133,525









Property and Equipment, Net


593,973



549,196


Goodwill


211,886



211,886


Other Assets


48,347



30,384









Total Assets

$

1,404,755


$

924,991









Liabilities and Stockholders' Equity

Current Liabilities:







    Accounts payable

$

102,970


$

62,275


    Current maturities of debt


14,850



12,350


    Accrued expenses and other


14,147



20,549


        Total Current Liabilities


131,967



95,174
















Long-Term Debt







    2018 Notes, net of debt discount


480,000



-


    Other long-term debt


456,090



455,028


    Total long-term debt


936,090



455,028


Deferred Taxes


106,745



115,759


Other Liabilities


66,235



61,248


        Total Liabilities


1,241,037



727,209









Commitments and Contingencies














Series C Convertible Preferred Stock


43,703



43,703









Stockholders' Equity


120,015



154,079









Total Liabilities and Stockholders' Equity

$

1,404,755


$

924,991





Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
(Amounts in thousands, except per share data)












Three Months Ended




March 31,




2012


2011

Revenues

$

15,166


$

14,104









Cost of Operations:







Operating expenses


4,898



5,041


Depreciation, depletion and amortization


7,906



6,323


Impairment of oil and gas properties


15,740



-


General and administrative


5,323



4,713


Total Expenses


33,867



16,077









Loss From Operations


(18,701)



(1,973)









Other Income (Expense):







Derivatives:








Unrealized gains (losses)


(4,779)



4,464


Interest expense








Interest expense related to the 2018 Notes


(6,653)



-



Other interest expense


(13,054)



(12,523)



Total interest expense


(19,707)



(12,523)


Interest income and other


(2,668)



(139)

Total Other Expense


(27,154)



(8,198)









Loss Before Income Taxes


(45,855)



(10,171)









Income Tax Benefit


(10,593)



(2,714)

Net Loss


(35,262)



(7,457)

Preferred Stock Dividends


456



545









Net Loss to Common Stockholders

$

(35,718)


$

(8,002)









Net Loss per Common Share:


Basic and Diluted

$

(0.94)


$

(0.30)









Weighted Average Number of Common Shares Outstanding:


Basic and Diluted


37,854



26,750




Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows

(Unaudited)
(Amounts in thousands)










Three Months Ended March 31,





2012


2011

Cash Flows from Operating Activities:







Net loss

$

(35,262)


$

(7,457)


Adjustments to reconcile net loss to net cash








used in operating activities:








Depreciation, depletion and amortization


7,906



6,323



Impairment of oil and gas properties


15,740



-



Deferred tax benefit


(9,014)



(2,182)



Unrealized (gains) losses on derivatives


4,779



(4,464)



Amortization of non-cash compensation


1,559



875



Amortization of loan costs and discount


3,669



3,916



Non-cash interest expense


3,528



3,031



Other


1,894



2,602



Changes in operating assets and liabilities


(15,950)



(18,066)

Net Cash Used in Operating Activities


(21,153)



(15,422)









Cash Flows From Investing Activities:







Capital expenditures


(23,242)



(20,148)


Acquisitions


(8,017)



(20,964)


Increase in restricted cash


(493,434)



(1,295)

Net Cash Used in Investing Activities


(524,693)



(42,407)










Cash Flows From Financing Activities:







Repayments of borrowings


(588)



(5,400)


Borrowings under debt agreements, net of debt discount


480,000



-


Financing costs related to the 2018 Notes


(21,005)



-


Other financing costs paid


-



(583)


Proceeds from issuance of common stock


-



116,822


Dividends paid


(416)



(506)


Other financing


5



375

Net Cash Provided by Financing Activities


457,996



110,708










Net Increase (Decrease) in Cash and Cash Equivalents


(87,850)



52,879

Cash and Cash Equivalents, Beginning of Period


106,036



99,267










Cash and Cash Equivalents, End of Period

$

18,186


$

152,146




Endeavour International Corporation
Operating Statistics
(Unaudited)









Three Months Ended





March 31,





2012

2011

Sales volume (1)






Oil and condensate sales (Mbbls):







United Kingdom


96


100



United States


1


2



Total


97


102









Gas sales (MMcf):







United Kingdom


21


44



United States


1,677


965



Total


1,698


1,009









Oil equivalent sales (MBOE)







United Kingdom


100


108



United States


280


162



Total


380


270








Total BOE per day


4,174


3,001








Physical production volume (BOE per day) (1)



United Kingdom


893


1,307



United States


3,081


1,885



Total


3,974


3,192







Realized Price, before and after derivatives






Oil and condensate price ($ per Bbl)

$

116.99

$

98.79


Gas price ($ per Mcf)

$

2.25

$

4.00


Equivalent oil price ($ per BOE)

$

39.92

$

52.22








(1)

We record oil revenues using the sales method, i.e. when delivery has occurred. Physical production may differ based on the timing of tanker liftings for international sales. We use the entitlements method to account for sales of gas production.



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




March 31,




2012

2011

Net loss

$

(35,262)

$

(7,457)

Impairment of oil and gas properties (net of tax) (1)


15,740


-

Unrealized (gain) loss on derivatives (net of tax) (2)


4,148


(5,469)






Net Loss as Adjusted

$

(15,374)

$

(12,926)






Net loss

$

(35,262)

$

(7,457)

Unrealized (gain) loss on derivatives


4,779


(4,464)

Net interest expense


19,651


12,418

Depreciation, depletion and amortization


7,906


6,323

Impairment of oil and gas properties


15,740


-

Income tax (benefit)


(10,593)


(2,714)






Adjusted EBITDA

$

2,221

$

4,106







(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 of $631 and $1,006, respectively.

SOURCE Endeavour International Corporation



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