Endeavour Announces 2014 First Quarter Financial and Operational Results

HOUSTON, May 7, 2014 /PRNewswire/ -- Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported first quarter 2014 net loss, as adjusted of $27.3 million compared to a net loss, as adjusted of $12.1 million for the same period in 2013. On a GAAP basis, net loss for the first quarter was $44.9 million as compared to net loss of $14.0 million for the same quarter in 2013.

Sales volumes for the first quarter of 2014 were 11,134 barrels of oil equivalent per day ("boepd"), compared to 7,186 boepd for the same quarter in the prior year.  Physical production for the first quarter of 2014 averaged 9,440 boepd compared to 9,385 boepd for the same quarter of 2013.

Recent Events:

  • Refinanced the Revolving Credit Facility and replaced two LC reimbursement agreements
  • Achieved first production from the East Rochelle (E2) well
  • Reinstated partial water injection to the southern part of the Alba field
  • Placed the Alba development well A68 on production
  • Successfully finished the hydraulic fracture stimulations of two Pennsylvania Marcellus wells
  • Completed a private placement for $30 million

"Despite a challenging quarter, we continue to execute on our business plan, as evidenced by the list of recent events," said William L. Transier, chairman, chief executive officer and president. "The Company is focused on growing production by achieving more consistent performance from its assets, maintaining operational margins, reducing G&A, enhancing liquidity, reducing cost of capital and accelerating value from our existing portfolio."

Operational Update

North Sea
The Bacchus field continues to perform in line with expectations. Consistent with the original development plans, the first well drilled (B3Y) is expected to be turned into a water injector during the second quarter of 2014 to provide pressure support to help sustain the field's production rates and increase its overall recovery. Endeavour has a 30% working interest in the field.

At Rochelle, the second development well East Rochelle (E2) was completed and tied-in to the production manifold in January. The E2 well commenced first production on February 28, 2014 averaging around 65 million cubic feet of gas per day with approximately 3,000 boepd of liquids production. The production was lower than previously anticipated due to gas compression capacity constraints on the Scott platform, as a result of unexpectedly high gas production rates from the Telford field that also produces through Scott. At the end of March, the Scott Platform experienced an incident requiring a full platform shutdown. The three fields flowing across the platform, Rochelle, Scott and Telford were shut-in while an investigation and remedial action occurred. Production from Rochelle resumed on the 26th of April. Endeavour has a 44% working interest in the Rochelle development.

At Alba, progress has been made in the Southern part of the field with partial water injection being reinstated. Permanent replacement of the pipeline is targeted for late 2014. The first well of this year's infill drilling program, the A68 well was brought online in March. A second well, the A69, is currently drilling and anticipated to be online in June.  The partial reinstatement of a water injection in the Southern part of the field and the infill drilling program is expected to increase overall production rates from the field. Endeavour has a 25.68% working interest in Alba.

North America
In the Pennsylvania Marcellus, Endeavour successfully completed hydraulic fracture stimulations of the C-14 and C-20 horizontal wells. The operation included more than double the number of frac stages on the longest laterals to date, relative to previous wells. The Endeavour operated activity went smoothly and according to specifications. The third C-13 well is scheduled for stimulation in mid-June using the same completion design. The wells will be tied into a new third-party pipeline being constructed by EQT Corporation that allows firm capacity of up to 10 million cubic feet per day, with potential for future expansion.

In the Piceance Basin Rim play in Northwest Colorado, Endeavour has two projects targeting liquids-rich Niobrara and Frontier objectives. The Company has formed two federal units and has plans to drill initial horizontal tests in the Niobrara target zone by late summer or early fall. Endeavour has leasehold and drilling options on 40,000 gross acres and 27,000 net acres.

Finance
In January 2014, Endeavour closed on a $255 million senior secured first lien term loan with an interest rate of 8.25% (Libor + 700 basis points).  The first lien note is a strip facility consisting of a $125 million Secured Term Loan and a $130 million LC Procurement Facility.  The Company has used the net proceeds from the offering to refinance its 13% $115 million Revolving Credit Facility and replace its two reimbursement agreements ($120 million at 13% and $33 million at 9%, interest rates, respectively). The facility is due in November 2017. In late February, the Company reduced the outstanding balance on the LC Procurement Facility from $130 million to $90 million.

In March, the Company completed a private placement of $12.5 million of common stock and warrants and $17.5 million of 6.5% convertible notes. The transaction included the issuance of 2.9 million shares at $4.28 per share and warrants to purchase 729,000 shares at a strike price of $5.29 per share. The convertible notes bear a conversion price of $4.66 per share. In addition, the purchaser has an option to purchase an additional $25 million of shares, warrants and convertible notes under the same terms as the original issuance.  The option expires at the end of May and is not expected to be exercised under current market conditions. 

Second Quarter Production Guidance and Third Quarter Maintenance Downtime
With the unanticipated downtime at the Rochelle field in April resulting from the incident on the Scott Platform and lower Alba volumes with continued water injection issues, average daily production volumes are expected to be in the range of 9,000 – 10,000 boepd for the second quarter of 2014. Also during the second quarter, it is anticipated that there will not be a lifting at the Alba field, which will affect sales numbers for the period. However, under its marketing agreement, Endeavour is paid monthly for Alba's production.

In the U.K. North Sea, the third quarter is typically the time for the maintenance shutdowns. During 2014, Endeavour anticipates that its fields will be modestly impacted relative to the long programs that occurred on Alba and Rochelle during 2013. At present, there is a 16 day shut-down on the Forties Pipeline System planned in August that will affect oil production from Bacchus and Rochelle. At Alba, where the production is lifted by tanker, a short shutdown in planned in July.

Earnings Conference Call, Wednesday, May 7, 2014 at 9:00 a.m., Central Time, 3:00 p.m. British Summer Time 
Endeavour International will host a conference call and web cast to discuss its 2014 first quarter financial and operating results on Wednesday, May 7, 2014 at 9:00 a.m. Central Time, 3:00 p.m. British Summer Time. A supporting slide deck for the conference call is available on the home page of Endeavour's website at www.endeavourcorp.com and under the Investor Relations section in conjunction with the details for the conference call. To participate and ask questions during the conference call, dial the local country telephone number and the confirmation code 5109885.  The toll-free numbers are 888-690-2874 in the United States and 0-808-101-7548 in the United Kingdom. Other international callers should dial 913-312-1516 (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 Time on May 7, 2014 through 12:00 p.m. on May13, 2014 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 5109885.

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 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

(Amounts in thousands)








March 31,


December 31,


2014


2013


(unaudited)










Assets






Current Assets:






Cash and cash equivalents

$

55,490


$

34,742

Accounts receivable


48,217



65,171

Prepaid expenses and other current assets


82,896



60,318

   Total Current Assets


186,603



160,231







Property and Equipment, Net


1,053,775



1,072,151

Goodwill


259,238



259,238

Other Assets


32,997



33,222







Total Assets

$

1,532,613


$

1,524,842







Liabilities and Stockholders' Equity






Current Liabilities:






Accounts payable

$

56,199


$

38,033

Current maturities of debt


2,140



-

Deferred revenue


2,152



20,965

Monetary production payment, current


120,833



74,167

Accrued expenses and other


79,219



88,625

   Total Current Liabilities


260,543



221,790







Long-Term Debt


891,829



870,878

Deferred Taxes


173,847



146,213

Other Liabilities


168,622



223,870

Total Liabilities


1,494,841



1,462,751







Commitments and Contingencies












Series C Convertible Preferred Stock


43,703



43,703







Stockholders' Equity


(5,931)



18,388







Total Liabilities and Stockholders' Equity

$

1,532,613


$

1,524,842


Endeavour International Corporation

Condensed Consolidated Statement of Operations

(Unaudited)

(Amounts in thousands, except per share data)









Three Months Ended



March 31,



2014


2013


Revenues

$

94,163


$

57,672









Cost of Operations:







Operating expenses


27,170



17,490


Depreciation, depletion and amortization


44,968



22,947


Impairment of oil and gas properties


-



3,534


General and administrative


4,849



5,482


Total Expenses


76,987



49,453









Income From Operations


17,176



8,219









Other Income (Expense):







Unrealized gains on derivatives


2,659



1,580


Interest expense


(31,477)



(21,438)


Letter of credit fees


(3,789)



(11,380)


Loss on early extinguishment of financing agreements


(3,543)



-


Litigation settlement expense


(19,034)



-


Unrealized gain (loss) on foreign currency exchange


(1,273)



9,760


Other income (expense)


(2,020)



122


Total Other Expense


(58,477)



(21,356)









Loss Before Income Taxes


(41,301)



(13,137)


Petroleum Revenue Tax ("PRT") Expense


1,725



628


Corporate Tax Expense


1,844



281


Total Tax Expense


3,569



909


Net Loss


(44,870)



(14,046)


Preferred Stock Dividends


456



456









Net Loss to Common Stockholders

$

(45,326)


$

(14,502)









Net Loss per Common Share:







Basic and Diluted

$

(0.91)


$

(0.31)









Weighted Average Number of Common Shares Outstanding:




Basic and Diluted


49,590



47,060



Endeavour International Corporation

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(Amounts in thousands)








Three Months Ended


March 31,


2014


2013

Cash Flows from Operating Activities:






Net loss

$

(44,870)


$

(14,046)

Adjustments to reconcile net loss to net cash






   provided by operating activities:






   Depreciation, depletion and amortization


44,968



22,947

   Impairment of oil and gas properties


-



3,534

   Deferred tax expense


1,969



128

   Unrealized gains on derivatives


(2,659)



(1,580)

   Amortization of non-cash compensation


971



832

   Amortization of loan costs and discount


6,705



3,439

   Non-cash interest expense


1,883



2,274

   Loss on early extinguishment of financing agreements


6,856



-

   Litigation settlement expense


19,034



-

   Other


1,848



(4,723)

   Changes in operating assets and liabilities


(9,156)



34,800

Net Cash Provided by Operating Activities


27,549



47,605







Cash Flows From Investing Activities:






Capital expenditures


(27,294)



(58,257)

Acquisitions, net of cash acquired


(1,551)



(817)

Proceeds from sales, net of cash


1,352



-

Increase in restricted cash


(2,457)



-

Net Cash Used in Investing Activities


(29,950)



(59,074)







Cash Flows From Financing Activities:






Repayments of borrowings


(115,163)



-

Borrowings under debt agreements, net of debt discount


140,625



-

Proceeds from issuance of common stock


12,376



-

Proceeds from issuance of monetary production payment


-



43,000

Repayments of monetary production payment


(5,000)



-

Financing costs paid


(9,273)



(9,935)

Other financing


(416)



-

Net Cash Provided by Financing Activities


23,149



33,065







Net Increase in Cash and Cash Equivalents


20,748



21,596

Cash and Cash Equivalents, Beginning of Period


34,742



59,185







Cash and Cash Equivalents, End of Period

$

55,490


$

80,781


Endeavour International Corporation

Operating Statistics

(Unaudited)










Three Months Ended




March 31,




2014



2013


Sales volume: (1)







Oil and condensate sales (Mbbls):







United Kingdom


833



508


United States


-



-


Total


833



508









Gas sales (MMcf):







United Kingdom


586



11


United States


431



821


Total


1,017



832









Oil equivalent sales (MBOE):







United Kingdom


930



510


United States


72



137


Total


1,002



647









Total BOE per day


11,134



7,186









Physical production volume (BOE per day): (1)







United Kingdom


8,604



7,862


United States


836



1,523


Total


9,440



9,385









Realized Price, before and after derivatives :







United Kingdom:







Oil and condensate price ($ per Bbl)

$

103.54


$

108.40


Gas price ($ per Mcf)

$

10.25


$

7.89


Equivalent oil price ($ per BOE)

$

99.12


$

108.17









United States:







Oil and condensate price ($ per Bbl)

$

140.50


$

96.77


Gas price ($ per Mcf)

$

4.52


$

3.07


Equivalent oil price ($ per BOE)

$

27.14


$

18.50









Total:







Oil and condensate price ($ per Bbl)

$

103.54


$

108.40


Gas price ($ per Mcf)

$

7.82


$

3.13


Equivalent oil price ($ per BOE)

$

93.97


$

89.17




(1)

We record oil revenues when deliveries have occurred and legal ownership of the oil transfers to the customer.  Physical production may differ from sales volumes based on the timing of tanker liftings for our international sales.


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)

Three Months Ended


March 31,


2014


2013

Net loss

$

(44,870)


$

(14,046)

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


-



3,534

Unrealized gains on derivatives (net of tax) (2)


(2,659)



(1,580)

Loss on early extinguishment of financing agreements (net of tax) (3)


1,220



-

Litigation settlement expense (net of tax) (1)


19,034



-







Net Loss as Adjusted

$

(27,275)


$

(12,092)







Net loss

$

(44,870)


$

(14,046)

Unrealized gains (losses) on derivatives


(2,659)



(1,580)

Net interest expense


31,466



21,422

Letter of credit fees


3,789



11,380

Depreciation, depletion and amortization


44,968



22,947

Impairment of oil and gas properties


-



3,534

Loss on early extinguishment of financing arrangements


3,543



-

Litigation settlement expense


19,034



-

Income tax expense


3,569



909







Adjusted EBITDA

$

58,840


$

44,566



(1)

We recognized no tax benefits as there was no assurance that we could generate any U.S. taxable earnings.

(2)

Since the unrealized gains on derivatives were related to liabilities other than the U.K., we recognized no tax benefits as there was no assurance that we could generate any taxable earnings..

(3)

Net of tax benefit of $2,323 and none, respectively.

SOURCE Endeavour International Corporation



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