Endeavour Announces Third Quarter 2010 Financial and Operational Results

-- UK West Rochelle well confirms reservoir

-- Sale of UK Cygnus Asset

-- Continued success in US Haynesville

News provided by

Endeavour International Corporation

Nov 03, 2010, 02:00 ET

HOUSTON, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Endeavour International Corporation (NYSE Amex: END) (LSE: ENDV) today reported discretionary cash flow for the third quarter of 2010 was $6.1 million compared to $7.6 million in the third quarter of 2009 and $11.2 million for the second quarter of 2010.  Net loss, as adjusted, was $(14.6) million for the third quarter of 2010 compared to $(6.4) million in the same period last year.  On a GAAP basis, the net loss was $(11.7) million for the third quarter of 2010 as compared to $(4.5) million in the same quarter in 2009.

"During the quarter, we achieved several important goals by executing steps to enhance Endeavour's overall value from both an operational, as well as a financial perspective," said William L. Transier, chairman, chief executive officer and president.  "The combination of the West Rochelle discovery, our recent financing and the sale of our Cygnus asset positions the company to execute our growth strategy."

Highlights for the third quarter are as follows:

West Rochelle Discovery Confirms Gas and Oil Reservoir – Located in the Central North Sea, the West Rochelle well was spud on September 3rd and reached a total depth of 10,787ft on October 7th encountering natural gas with an oil rim in an excellent quality reservoir similar to that discovered at Rochelle.  The well has been sidetracked to the north and has encountered hydrocarbons that extend the West Rochelle area.  The well straddles Blocks 15/26c and 15/26b and lies west of the Rochelle gas field in Block 15/27.  The West Rochelle accumulation is expected to be developed as a tie-back to the Rochelle field.

Completed the Sale of the UK Cygnus Asset – In October, Endeavour successfully completed the sale of its UK Cygnus asset to Bayerngas UK Ltd. for $110 million in cash.  The cash proceeds were not burdened by any current taxes payable and are being used primarily to accelerate the company's development projects.

Continued US Drilling Success and Momentum in the Haynesville – In the third quarter, net sales from US production more than doubled from the previous quarter.  Production growth was driven by activity in the Louisiana Haynesville shale play where the company had four successful completions during the quarter.  The Woodard 10-H well, where Endeavour holds a 40.8% working interest, flowed gas at an initial production rate of 22.6 million cubic feet of gas equivalent per day.  The company currently has an interest in four additional Haynesville wells waiting on completion, including two wells operated by its joint venture partner Cohort Energy. Endeavour plans to continue a conservative 1-2 rig drilling program for the remainder of the year in Louisiana and East Texas maintaining flexibility to adjust drilling activity in accordance with current and future gas prices.  In the Pennsylvania Marcellus shale play, the company will participate in two horizontal wells to be drilled in the fourth quarter to further evaluate the Daniel Field in Cameron County where an integrated development plan is being formalized.  In Alabama, the Hillwood-operated joint venture successfully drilled two vertical pilot tests which will be evaluated for future horizontal re-entries and/or completion tests.

Completed a Financing Transaction for $160 million – In August, Endeavour closed on a $150 million senior secured credit facility. Of the total proceeds, $66 million was used to repay the company senior bank and second lien facilities. This facility offered the company the flexibility to sell assets and reinvest the proceeds in the business, make acquisitions and incur additional debt.  It bears cash interest of 12 percent plus three percent payment in-kind payable in cash at the company's option.  The facility contains a covenant package customary for transactions of this type and is callable after the first year.  During October 2010, the company borrowed an additional $10 million as provided under this facility.

Awarded Blocks in the 26th Offshore Gas and Licensing Round – Endeavour has been awarded licenses in four blocks or part blocks in the United Kingdom North Sea.  The blocks are located in the company's core focus areas.

Share Consolidation Effected in the Form of a Reverse Stock Split – Earlier this week, the company announced a 1-for-7 share consolidation of its common stock in the form of a reverse stock split that is expected to be effective at the opening of trading on November 18, 2010.  With this share consolidation, the company expects to make the stock available to a broader range of investors and position the company's trading metrics more in-line with its peers.  As a result of the share consolidation, every seven shares of common stock outstanding will automatically be combined into one share of common stock and holders who would otherwise receive fractional shares will have their shares rounded up to the next whole share.  The company has not restated any share or per share amounts as a result of this share consolidation within this release.

Guidance for Year 2010

The table below sets forth estimates for operating statistics for the full year ending December 31, 2010.

Estimated Average Production (A)





  Daily Production (BOE per day)

4,500

to

6,000







Differentials (B)





  Oil ($/Bbl)

$

(5.00)

to

$

(6.00)

  Gas ($Mcf)

$

(0.50)

to

$

(0.60)







Gas percentage of Total

55%

to

60%

Lease Operating Expense ($ per barrel)

$

8.00

to

$

10.00











(A)  Actual results may differ materially from these estimates.


(B)  For purposes of the estimates, assumptions of price differentials are based on location, quality and other factors, excluding the effects of derivative financial instruments.  Gas price differentials are stated as premiums (discounts) from Henry Hub pricing, and oil price differentials are stated as premiums (discounts) from West Texas Intermediate pricing.

Earnings Conference Call, Wednesday, November 3, 2010 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 2010 third quarter financial and operating results on Wednesday, November 3, 2010 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 9961634.  The toll-free numbers are 888-812-8569 in the United States and 0-808-101-1402 in the United Kingdom. Other international callers should dial 913-312-0970 (tolls apply).  To listen only to the live audio web cast access Endeavour's home page at http://www.endeavourcorp.com.  A replay will be available beginning at 12:00 p.m. Central Daylight Time on November 3 through 12:00 p.m. on November 10 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 9961634.

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 http://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 of 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,




2010

2009








Assets

Current Assets:





Cash and cash equivalents

$

16,527

$

27,287

Restricted cash

32,524

2,879

Accounts receivable

9,812

14,800

Prepaid expenses and other current assets

9,558

10,118


Total Current Assets

68,421

55,084








Property and Equipment, Net

334,749

266,587

Assets Held for Sale

21,145

-

Goodwill

211,886

211,886

Other Assets

26,423

5,322






Total Assets

$

662,624

$

538,879








Liabilities and Stockholders' Equity

Current Liabilities:





Accounts payable

$

30,476

$

12,401

Current maturities of debt

16,500

-

Accrued expenses and other

16,850

17,798


Total Current Liabilities

63,826

30,199








Long-Term Debt

314,708

223,385

Deferred Taxes

86,887

80,692

Other Liabilities

72,722

85,412


Total Liabilities

538,143

419,688








Commitments and Contingencies












Series C Convertible Preferred Stock

53,152

59,058








Stockholders' Equity

71,329

60,133








Total Liabilities and Stockholders' Equity

$

662,624

$

538,879

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,



2010

2009

2010

2009

Revenues

$

19,849

$

7,759

$

55,102

$

42,179














Cost of Operations:











Operating expenses

4,595

3,876

10,881

14,455

Depreciation, depletion and amortization

7,697

5,646

21,290

24,828

Impairment of oil and gas properties

-

-

7,692

30,645

General and administrative

4,237

4,091

12,873

12,041

Total Expenses

16,529

13,613

52,736

81,969














Income (Loss) From Operations

3,320

(5,854)

2,366

(39,790)














Other Income (Expense):











Derivatives:












Realized gains (losses)

(452)

7,530

(1,552)

28,581


Realized loss on early termination

(10,201)

-

(10,201)

-


Unrealized gains (losses)

6,441

(4,360)

11,477

(38,455)

Interest expense

(10,474)

(3,919)

(21,733)

(12,054)

Interest income and other

(2,327)

1,402

1,281

(6,932)

Total Other Income (Expense)

(17,013)

653

(20,728)

(28,860)














Loss Before Income Taxes

(13,693)

(5,201)

(18,362)

(68,650)

Income Tax Expense (Benefit)

(2,001)

(441)

7,916

(10,477)














Loss from Continuing Operations

(11,692)

(4,760)

(26,278)

(58,173)

Income from Discontinued Operations

-

277

-

46,646














Net Loss

(11,692)

(4,483)

(26,278)

(11,527)

Preferred Stock Dividends

546

2,696

1,682

8,061














Net Loss to Common Stockholders

$

(12,238)

$

(7,179)

$

(27,960)

$

(19,588)














Basic and Diluted Net Loss per Common Share:






Continuing operations

$

(0.07)

$

(0.06)

$

(0.17)

$

(0.51)

Discontinued operations

-

-

-

0.36

Total

$

(0.07)

$

(0.06)

$

(0.17)

$

(0.15)














Weighted Average Number of Common Shares Outstanding:






Basic and Diluted

167,641

130,109

159,801

129,719

Endeavour International Corporation

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(Amounts in thousands)




Nine Months Ended September 30,




2010

2009

Cash Flows from Operating Activities:





Net loss

$

(26,278)

$

(11,527)

Adjustments to reconcile net loss to net cash








provided by operating activities:






Depreciation, depletion and amortization

21,290

29,509


Impairment of oil and gas properties

7,692

30,645


Deferred tax expense (benefit)

6,195

(3,269)


Unrealized (gains) losses on derivatives

(11,477)

38,455


Gain on sale of Norwegian operations

-

(47,420)


Other

13,767

13,577


Changes in operating assets and liabilities

20,113

(10,286)

Net Cash Provided by Operating Activities

31,302

39,684








Cash Flows From Investing Activities:





Capital expenditures

(75,677)

(88,639)

Acquisitions

(39,279)

(4,127)

Proceeds from sales, net of cash

-

144,765

(Increase) decrease in restricted cash

(29,645)

20,366

Net Cash Provided by (Used in) Investing Activities

(144,601)

72,365









Cash Flows From Financing Activities:





Borrowings (repayments) of borrowings

100,058

(64,458)

Proceeds from issuance of common stock

30,181

-

Dividends paid

(1,563)

(7,969)

Other financing

(26,137)

27

Net Cash Provided by (Used in) Financing Activities

102,539

(72,400)









Net Increase (Decrease) in Cash and Cash Equivalents

(10,760)

39,649

Cash and Cash Equivalents, Beginning of Period

27,287

38,156









Cash and Cash Equivalents, End of Period

$

16,527

$

77,805










Endeavour International Corporation

Operating Statistics

(Unaudited)




Three Months Ended

Nine Months Ended




September 30,

September 30,




2010

2009

2010

2009

Sales volume (1)











Oil and condensate sales (Mbbls):












United Kingdom

127

82

429

494


United States

2

1

5

2


Continuing operations

129

83

434

496


Discontinued operations - Norway

-

-

-

310


Total

129

83

434

806















Gas sales (MMcf):












United Kingdom

869

629

2,614

2,777


United States

978

19

1,699

130


Continuing operations

1,847

648

4,313

2,907


Discontinued operations - Norway

-

-

-

686


Total

1,847

648

4,313

3,593















Oil equivalent sales (MBOE)












United Kingdom

272

187

864

957


United States

165

4

288

23


Continuing operations

437

191

1,152

980


Discontinued operations - Norway

-

-

-

425


Total

437

191

1,152

1,405














Total BOE per day

4,755

2,072

4,222

5,147














Physical production volume (BOE per day) (2):












United Kingdom

2,993

2,777

3,130

3,675


United States

1,995

32

1,117

54


Continuing operations

4,988

2,809

4,247

3,729


Discontinued operations - Norway

-

-

-

1,545


Total

4,988

2,809

4,247

5,274













Realized Prices (3)











Oil and condensate price ($ per Bbl):












Before commodity derivatives

$

75.64

$

61.73

$

74.72

$

47.38


Effect of commodity derivatives

(3.11)

46.05

(7.12)

24.47


Realized prices including commodity derivatives

$

72.53

$

107.78

$

67.60

$

71.85















Gas price ($ per Mcf):












Before commodity derivatives

$

5.44

$

4.10

$

5.26

$

5.99


Effect of commodity derivatives

(0.03)

5.75

0.36

2.46


Realized prices including commodity derivatives

$

5.41

$

9.85

$

5.62

$

8.45















Equivalent oil price ($ per BOE):












Before commodity derivatives

$

45.37

$

40.70

$

47.81

$

42.51


Effect of commodity derivatives

(1.03)

39.50

(1.35)

20.34


Realized prices including commodity derivatives

$

44.34

$

80.20

$

46.46

$

62.85

(1)  We record oil revenues on 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 reflect both our continuing and discontinued operations and include realized 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, Adjusted EBITDA and discretionary cash flow.  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,



2010 

2009 

2010 

2009 

Net loss

$

(11,692)

$

(4,483)

$

(26,278)

$

(11,527)









Depreciation, depletion and amortization

7,697

5,646

21,290

29,509

Impairment of oil and gas properties

-

-

7,692

30,645

Deferred tax expense (benefit)

(2,249)

327

6,195

(3,269)

Gain on asset sales

-

(277)

-

(47,420)

Unrealized (gain) loss on derivatives

(6,441)

4,360

(11,477)

38,455

Realized loss on early termination of derivatives

10,201

-

10,201

-

Other

8,613

2,043

3,566

13,577









Discretionary Cash Flow (1)

$

6,129

$

7,615

$

11,189

$

49,970









Net loss to common shareholders

$

(12,238)

$

(7,179)

$

(27,960)

$

(19,588)

Impairment of oil and gas properties (net of tax) (2)

-

-

7,692

15,988

Unrealized (gain) loss on derivatives (net of tax) (3)

(2,413)

2,885

(5,070)

23,632

Currency impact on deferred taxes

95

(2,106)

(51)

8,143









Net Income (Loss) as Adjusted

$

(14,556)

$

(6,400)

$

(25,389)

$

28,175









Net loss

$

(11,692)

$

(4,483)

$

(26,278)

$

(11,527)









Unrealized (gain) loss on derivatives

(6,441)

4,360

(11,477)

38,455

Realized loss on early termination of derivatives

10,201

-

10,201

-

Net interest expense

10,467

3,877

21,704

11,860

Depreciation, depletion and amortization

7,697

5,646

21,290

29,509

Impairment of oil and gas properties

-

-

7,692

30,645

Income tax expense (benefit)

(2,001)

(441)

7,916

(5,047)

Gain on asset sales

-

(277)

-

(47,420)









Adjusted EBITDA

$

8,231

$

8,681

$

31,048

$

46,475

(1)  Discretionary cash flow is equal to cash flow from operating activities before the changes in operating assets and liabilities, excluding the early termination of commodity derivatives.

(2)  Net of tax benefits of $(14,657) for the nine months ended September 30, 2009.

(3)  Net of tax (benefits) expense of $(4,029), $1,475, $(6,408) and $14,823, respectively.

SOURCE Endeavour International Corporation

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