Endeavour Announces Third Quarter 2011 Financial and Operational Results

HOUSTON, Nov. 2, 2011 /PRNewswire/ -- 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 913-312-1269 (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 12:20 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 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 http://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.

SOURCE Endeavour International Corporation