Endeavour Announces 2012 Third Quarter Financial and Operational Results

HOUSTON, Nov. 1, 2012 /PRNewswire/ -- Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported third quarter 2012 Adjusted EBITDA of $51.6 million compared to $2.4 million for the same quarter of 2011. On a GAAP basis, for the third quarter of 2012 net loss was $33.7 million as compared to net loss of $63.3 million for the same quarter in 2011. 

Production for the quarter ending September 30, 2012 was up 370% from the comparable quarter in 2011, with U.K. crude oil accounting for 100% of the increase. For the first nine months of 2012 compared to the same period in 2011, sales volumes increased 215% from U.K. crude production. For the third quarter 2012, entitlement production averaged approximately 10,700 barrels of oil equivalent per day ("boepd") compared to actual sales volumes for the period of approximately 11,000 boepd.

Business highlights include:

  • North Sea:
    • At Rochelle, the installation of subsea pipelines and umbilicals has been completed ahead of schedule
    • The first of the two planned production wells was drilled to a final casing point
    • Awarded seven licenses covering ten exploration blocks in the U.K.'s 27th Licensing Round around existing core areas
  • U.S. Onshore:
    • Closed an exchange with co-owner J-W Operating to obtain operator status, control of upstream and midstream assets and an additional 15,500 net acres in the Pennsylvania Marcellus
    • U.S. net production averaged 12.9 million cubic feet of gas equivalent per day (MMCFe/D) for the third quarter
  • Finance:
    • Completed an offering of an additional $54 million of 12% Senior Notes due 2018 for net proceeds of $58 million
    • Fully redeemed the $25.1 million 12% Senior Subordinated Notes due 2014

"The Company enjoyed significant progress in the third quarter with strong increases in Brent priced crude oil production in the U.K. North Sea. We are focused on and making great progress to deliver first production at our Rochelle development," said William L. Transier, chairman, chief executive officer and president.  "For health and safety reason, drilling and infrastructure implementation cannot occur in the same area simultaneously. By making the difficult decision to suspend drilling before final completion, we were able to keep our service contractor on schedule to complete the necessary subsea infrastructure. This decision preserves the option to achieve first production at Rochelle in early 2013."

Operational Update

United Kingdom

The contracted rig at Rochelle, the Diamond Ocean Nomad, completed the drilling on the first of two planned development wells to the final casing point before moving the rig off location to allow for the hook-up of the pipelines and flow-lines to the subsea manifolds. Final drilling and completion of this first development well will be done by the Transocean Prospect which is scheduled to arrive in field in December. Due to the change in the timing of completion of the first well, first production at the field is now expected in January 2013 assuming the rig arrives as scheduled. The Rochelle subsea infrastructure installation has been substantially completed. Endeavour is the operator of the Rochelle development project and holds a 44% ownership interest in the Rochelle development which is comprised of Blocks 15/26b, 15/26c and 15/27.

During the 27th Licensing Round, the U.K. government awarded the Company seven new licenses, covering ten exploration blocks located around existing core areas. All the licenses, which have a traditional four year term, will be operated by the Company and offer additional growth opportunities in the future. There are no firm well obligations on any of the licenses and minimal upfront capital commitments.

United States Onshore

Effective October 1, 2012 Endeavour completed an exchange of assets with co-owner J-W Operating to trade the Company's Bull Bayou Haynesville and Willow Springs Cotton Valley projects for all of J-W's upstream and midstream Marcellus assets in Pennsylvania. The transaction adds 15,500 net acres to Endeavour's position in the Marcellus bringing the total to 31,000 net acres and decreases the Company's position in the Haynesville/Cotton Valley by 2,100 net acres and approximately 3.2 MMCFe/d (530 boepd) of net production. Also in the Marcellus, Endeavour has secured an off-take solution in the key Daniel area of Cameron County for up to an additional 10 mmcf/d of production with a local gatherer by year-end 2013. In conjunction with the transaction, the Company currently has three wells drilled and cased in the area waiting on completion with no additional drilling requirements until 2014.

In the Heath Shale tight oil play, the Company has deferred horizontal re-entries of its vertical pilot wells until 2013 while it evaluates results from offset operators and operational efficiencies. In Colorado, the Company continues to acquire acreage for Upper Cretaceous targets and has formed a 23,000 acre Federal unit, where it expects to drill an initial test in 2013.

There is currently no drilling activity underway in the Company's U.S. gas fields in the Louisiana, Haynesville or the Pennsylvania Marcellus. Net daily production averaged 12.9 MMCFe/D for the third quarter and 15.5 MMCFe/D for the first nine months of 2012.  

Finance

Operating expenses during the quarter included a non-recurring expense of approximately $9.7 million related to the initial purchase price value allocation of inventory at Alba at the date of acquisition.

In October, Endeavour completed a $54 million addition to its 12% Senior Notes due 2018 at 109% of principal amount, resulting in a yield of 9.4%. Proceeds of $58 million were used to fully redeem $25.1 million of the Company's 12% Senior Subordinated Notes due 2014. The remaining proceeds will be used to finance a portion of the construction, improvement and other capital costs related to its U.S. and U.K oil and natural gas properties. The redemption of the 12% Senior Subordinated Notes was an important step in preparing for the syndicated bank revolver Endeavour expects to put in place in 2013.

In addition, the Company increased the amount available to be borrowed under the Revolving Credit Facility an additional $25 million and drew down an additional $15 million bringing the outstanding balance to approximately $115 million.

Earnings Conference Call, Thursday, November 1, 2012 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 2012 third quarter financial and operating results on Thursday, November 1, 2012 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 2204201.  The toll-free numbers are 888-677-8751 in the United States and 0-808-101-1402 in the United Kingdom. Other international callers should dial 913-312-0682(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 November 1, 2012 through 12:00 p.m. on November 8, 2012 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 2204201.

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)













September 30,



December 31,





2012



2011









Assets

Current Assets:







Cash and cash equivalents

$

75,722


$

106,036


Restricted cash


178



-


Accounts receivable


16,131



8,649


Prepaid expenses and other current assets


28,047



18,840



Total Current Assets


120,078



133,525









Property and Equipment, Net


836,369



549,196

Goodwill


258,973



211,886

Other Assets


51,417



30,384







Total Assets

$

1,266,837


$

924,991







Liabilities and Stockholders' Equity

Current Liabilities:







Accounts payable

$

84,744


$

62,275


Current maturities of debt


12,500



12,350


Accrued expenses and other


23,680



20,549



Total Current Liabilities


120,924



95,174

















Long-Term Debt


812,926



455,028

Deferred Taxes


111,806



115,759

Other Liabilities


72,338



61,248



Total Liabilities


1,117,994



727,209









Commitments and Contingencies














Series C Convertible Preferred Stock


43,703



43,703









Stockholders' Equity


105,140



154,079









Total Liabilities and Stockholders' Equity

$

1,266,837


$

924,991

 

Endeavour International Corporation

Condensed Consolidated Statement of Operations

(Unaudited)

(Amounts in thousands, except per share data)










Third Quarter


Nine Months Ended




September 30,


September 30,




2012


2011


2012


2011

Revenues

$

83,275


$

10,302


$

121,444


$

43,459















Cost of Operations:













Operating expenses


23,973



3,496



34,613



14,888


Depreciation, depletion and amortization


23,759



5,372



42,292



18,698


Impairment of U.S. oil and gas properties


11,416



28,793



47,116



28,793


General and administrative


5,026



4,863



15,379



14,525


Total Expenses


64,174



42,524



139,400



76,904















Income (Loss) From Operations


19,101



(32,222)



(17,956)



(33,445)















Other Income (Expense):













Derivatives:














Unrealized gains (losses)


(1,204)



13,081



(2,178)



11,098


Interest expense


(18,053)



(12,253)



(63,016)



(32,607)


Loss on early extinguishment of debt


-



-



(21,661)



(402)


Letter of credit fees


(9,378)



-



(12,442)



-


Other income (expense)


(2,663)



611



(5,944)



826

Total Other Income (Expense)


(31,298)



1,439



(105,241)



(21,085)















Loss Before Income Taxes


(12,197)



(30,783)



(123,197)



(54,530)















Income Tax Expense (Benefit)


21,505



32,507



(3,424)



31,820

Net Loss


(33,702)



(63,290)



(119,773)



(86,350)

Preferred Stock Dividends


456



466



1,367



1,518















Net Loss to Common Stockholders

$

(34,158)


$

(63,756)


$

(121,140)


$

(87,868)















Net Loss per Common Share:








Basic and Diluted

$

(0.73)


$

(1.63)


$

(2.94)


$

(2.52)















Weighted Average Number of Common Shares Outstanding:








Basic and Diluted


46,555



39,064



41,163



34,854

 

Endeavour International Corporation

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(Amounts in thousands)




Nine Months Ended September 30,


2012


2011

Cash Flows from Operating Activities:







Net loss

$

(119,773)


$

(86,350)


Adjustments to reconcile net loss to net cash








provided by (used in) operating activities:








Depreciation, depletion and amortization


42,292



18,698



Impairment of U.S. oil and gas properties


47,116



28,793



Deferred tax expense (benefit)


(15,849)



23,052



Unrealized (gains) losses on derivatives


2,178



(11,098)



Amortization of non-cash compensation


3,605



2,733



Amortization of loan costs and discount


10,536



9,151



Non-cash interest expense


7,077



9,306



Loss on early extinguishment of debt


21,661



402



Other


9,692



1,839



Changes in operating assets and liabilities


(7,191)



(25,145)

Net Cash Provided by (Used in) Operating Activities


1,344



(28,619)







Cash Flows From Investing Activities:







Capital expenditures


(175,597)



(113,137)


Acquisitions


(228,437)



(22,898)


(Increase) decrease in restricted cash


(178)



31,726

Net Cash Used in Investing Activities


(404,212)



(104,309)







Cash Flows From Financing Activities:







Repayments of borrowings


(247,065)



(97,638)


Borrowings under debt agreements, net of debt discount


595,000



210,000


Proceeds from issuance of common stock


60,805



118,444


Dividends paid


(833)



(1,400)


Payments for early extinguishment of debt


(7,248)



-


Financing costs paid


(28,109)



(11,226)


Other financing


4



511

Net Cash Provided by Financing Activities


372,554



218,691







Net Increase (Decrease) in Cash and Cash Equivalents


(30,314)



85,763

Cash and Cash Equivalents, Beginning of Period


106,036



99,267















Cash and Cash Equivalents, End of Period

$

75,722


$

185,030

 

Endeavour International Corporation

Operating Statistics

(Unaudited)












Third Quarter


Nine Months Ended





September 30,


September 30,





2012


2011

2012


2011

Sales volume (1)













Oil and condensate sales (Mbbls):














United Kingdom


812



49



1,099



274



United States


1



3



2



5



Total


813



52



1,101



279
















Gas sales (MMcf):














United Kingdom


19



-



69



78



United States


1,182



1,329



4,234



3,305



Total


1,201



1,329



4,303



3,383
















Oil equivalent sales (MBOE)














United Kingdom


815



49



1,110



287



United States


198



225



708



556



Total


1,013



274



1,818



843















Total BOE per day


11,006



2,972



6,635



3,089















Physical production volume (BOE per day) (1)












United Kingdom


8,573



838



4,474



1,152



United States


2,151



2,436



2,585



2,036



Total


10,724



3,274



7,059



3,188














Realized Price, before and after derivatives













Oil and condensate price ($ per Bbl)

$

99.31


$

106.57


$

101.76


$

108.57


Gas price ($ per Mcf)

$

2.16


$

3.59


$

2.19


$

3.88


Equivalent oil price ($ per BOE)

$

82.24


$

37.68


$

66.80


$

51.53














(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. Physical production may differ from sales volumes based on the timing of tanker liftings for our 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.




(amounts in thousands)

Third Quarter

Nine Months Ended




September 30,

September 30,




2012

2011

2012

2011

Net loss

$

(33,702)

$

(63,290)

$

(119,773)

$

(86,350)

Impairment of U.S. oil and gas properties (net of tax) (1)


11,416


28,793


47,116


28,793

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


265


(13,034)


58


(12,245)

Loss on early extinguishment of debt (net of tax)(3)


-


-


17,762


402

Deferred tax expense related to U.K. tax rate change


8,393


25,387


8,393


25,387










Net Loss as Adjusted

$

(13,628)

$

(22,144)

$

(46,444)

$

(44,013)










Net loss

$

(33,702)

$

(63,290)

$

(119,773)

$

(86,350)

Unrealized loss on derivatives


1,204


(13,081)


2,178


(11,098)

Net interest expense


18,005


12,084


62,789


31,832

Letter of credit fees


9,378


-


12,442


-

Loss on early extinguishment of debt


-


-


21,661


402

Depreciation, depletion and amortization


23,759


5,372


42,292


18,698

Impairment of U.S. oil and gas properties


11,416


28,793


47,116


28,793

Income tax expense (benefit)


21,505


32,507


(3,424)


31,820










Adjusted EBITDA (4)

$

51.565

$

2,385

$

65,281

$

14,097


(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 $939 and $(47) and $2,120 and $1,147, respectively.

(3)

Net of tax benefit of $3,899 for the nine months ended September 30, 2012.

(4)

Includes operating expenses of approximately $9.7 million for the third quarter of 2012 and nine months ended September 30, 2012 related to the initial purchase price value allocation of inventory at Alba at acquisition date.


 

SOURCE Endeavour International Corporation



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