Endeavour Announces 2012 Fourth Quarter and Year-End Financial and Operational Results
HOUSTON, March 6, 2013 /PRNewswire/ --
Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported fourth quarter 2012 net loss, as adjusted of $7.7 million compared to a net loss, as adjusted of $5.8 million for 2011. On a GAAP basis, net loss for the fourth quarter of 2012 was $6.5 million as compared to net loss of $44.6 million for the same quarter in 2011.
Sales volumes for the 2012 fourth quarter period were 11,541 boepd, compared to 4,253 boepd for the same quarter in the prior year. Physical production for the fourth quarter of 2012 averaged 10,300 barrels of oil equivalent per day ("boepd") compared to approximately 4,100 boepd for the same quarter of 2011, representing a 151% increase.
Fourth Quarter highlights include:
- Finance:
- Completed an offering for an additional $54 million of the 12% First Priority Notes due 2018
- Fully redeemed the $25 million 12% Senior Subordinated Notes
- Operational:
- Proved reserves in the U.K. increased 186% year-over-year
- Drilling commenced and infrastructure substantially completed on the Rochelle development
- Completed an exchange of Haynesville assets for Pennsylvania Marcellus assets
Recent Events:
- Strategic Review Process:
- The Board of Directors initiated a process to explore a broad range of strategic alternatives to further enhance shareholder value
- Current business focus remains on executing the operational plan
- Management and Board Developments:
- Catherine L. Stubbs named Chief Financial Officer
- Ashok Nayyor resigns from the Board of Directors
- Finance:
- Received $22.5 million through the forward sale of U.K. oil production
- Obtained an extension on the Revolving Credit Facility to midyear 2014
- Replaced or extended the Reimbursement Agreements to midyear 2014
- Entered into a Monetary Production Payment for $107.5 million to be satisfied out of proceeds of production from Endeavour's U.K. North Sea assets
- Established 2013 Capex budget in the U.K. of $140 million - $150 million
- North Sea:
- Drilling commenced at West Rochelle after suspension of the East Rochelle production well
- Bacchus third production well expected to commence drilling in March
- U.S. Onshore:
- Established a 23,000 acre Federal unit in Northwestern Colorado
"In 2012, the Company undertook two major development projects and a sizable acquisition resulting in increased oil production and reserves in the U.K. North Sea. Although the path to growth was challenging, we were able to manage through a series of complex business transactions to close on the additional working interest at Alba and bring the Bacchus development on-line. We remain confident that Rochelle production will be on-line soon demonstrating the quality of this important asset," said William L. Transier, chairman, chief executive officer and president. "Our ability to increase our liquidity quickly shows the perseverance of our management team to handle unexpected events for the benefit of all stakeholders."
Strategic Review Process
On February 14, 2013 Endeavour announced the Board of Directors intent to review a broad range of strategic alternatives. The primary motivation of the strategic review is to accelerate the delevering of the balance sheet and unlock the underlying value of the assets. The options under consideration include:
- a sale, joint venture or partnership in respect of the Company's activities in the North Sea;
- a sale of specific assets;
- a sale or merger of the Company; or
- continuing to execute on the Company's operational plan.
Tudor, Pickering, Holt & Co. and Lambert Energy Advisory Ltd. have been engaged as the Company's financial advisors in this process. There is no assurance that the strategic alternatives review will result in Endeavour changing its current business plan or completing any such transaction.
Management Developments
Catherine "Cathy" Stubbs was named Chief Financial Officer for the Company on February 14, 2013. She has over 20 years of experience in financial management in the energy industry and eight years with Endeavour. Cathy has served in various roles of increasing responsibility in corporate development, accounting and financial controls, and treasury roles since the inception of Endeavour and most recently served as the senior vice president, finance.
Ashok Nayyor resigned from the Board of Directors effective March 5, 2013. Mr. Nayyor joined the Board in August of 2012 and he made a significant contribution during his tenure as a board member.
Finance
Since year-end 2012, Endeavour has completed several transactions to improve the Company's liquidity position and has extended the maturities of its Revolving Credit Facility, as well as the two Reimbursement Agreements to midyear 2014.
In January, the Company entered into a new reimbursement arrangement to provide for a replacement Letter of Credit with an unaffiliated third party for $33 million and terminated its previous Reimbursement Agreement in the same amount. The new agreement, which secures the Company's decommissioning obligations in connection with the specific assets in the U.K. North Sea, matures in July of 2014.
In February, Endeavour entered into a forward sale agreement with one of its established purchasers and received a payment of approximately $22.5 million for a specified volume of crude oil in excess of 200,000 barrels to be delivered over a six month period from its U.K. North Sea production.
In early March, the Company and its existing lenders agreed to extensions on the Revolving Credit Facility and the $120 million Reimbursement Agreement. $100 million of the $115 million outstanding on the Revolving Credit Facility was extended from October 31, 2013 to June 30, 2014. The full amount of the $120 million Reimbursement Agreement was extended from December 31, 2013 to June 30, 2014.
Endeavour also entered into a Monetary Production Payment with a group of investors for the purchase price amount of $107.5 million. Closing is subject to the satisfaction of standard conditions, including regulatory approval in the United Kingdom. The Monetary Production Payment will be satisfied out of the production from certain U.K. North Sea assets and is expected to be satisfied over a two year period.
For 2013, the Company anticipates a direct oil and gas capital expenditures budget in the U.K. of $140 million to $150 million. Approximately sixty percent of the U.K. capital budget is being allocated to final drilling and completion of the Rochelle development, as well as the third development well at Bacchus. Endeavour has also allocated $30 million to $40 million of its capital budget for its U.S. acreage with plans to spend approximately half of that capital in the Pennsylvania Marcellus area for infrastructure expansion and well completions. The U.S. spend is primarily discretionary and will be evaluated once Rochelle production is on-line and after the completion of the strategic review process.
The completion of these recent financing activities are designed to provide sufficient liquidity to bring the Rochelle development on line, drill the third well at Bacchus and allow sufficient time for a thoughtful and disciplined strategic review process.
Operational Update
United Kingdom
In mid-February, the Transocean Prospect rig moved to the West Rochelle area and commenced drilling of the production well. Estimated time to drill and complete the well is approximately 120 days. At East Rochelle, analysis and testing of the cause of the non-uniform hole around the conductor pipe is on-going. Once the analysis is concluded, the Company will be able to determine the optimal path forward for the completion of the East Rochelle well. Endeavour anticipates drilling operations will re-commence at East Rochelle following first production at West Rochelle. A majority of the Rochelle subsea infrastructure has been installed at the field and the modification work to the Scott platform is nearing completion.
At the Bacchus development, the operator announced plans to commence drilling the third production well in March. In 2012, the partnership drilled two of three planned production wells. Due to the additional positive data gained from the second production well, the Bacchus partners decided to observe field results before proceeding forward with the third well. Endeavour has a 30% working interest in the field.
At Alba production volumes continue to be impacted by water handling issues. The matter is being dealt with by the operator and it is anticipated that the asset will return to normal production levels during the year.
United States Onshore
During 2012, Endeavour maintained a disciplined capital approach in the U.S. For the year, two gross wells were drilled and completed in the Louisiana Haynesville acreage, with all critical acreage currently held by production. Net daily production averaged 10.6 MMCFe/D for the fourth quarter and 14.3 MMCFe/D for the full year 2012.
In the fourth quarter of 2012, the Company closed an exchange of Haynesville assets for Pennsylvania Marcellus assets and obtained operatorship, while increasing the ownership to100% working interest in 31,000 total net acres and all upstream and midstream assets. In conjunction with the exchange, Endeavour secured an off-take solution in Cameron County for up to an additional 10 mmcf/d of production by year-end 2013. The Company has three wells drilled and cased in the area waiting on completion.
In the Montana Heath tight oil play, Endeavour deferred horizontal re-entries of its vertical pilot wells to evaluate drilling and production results from offset operators. In Northwest Colorado, the Company formed a 23,000 acre Federal unit with stacked Upper Cretaceous targets and liquids-rich potential. An initial test well is planned for later this year.
2012 Reserves
Year-over-year U.K. proved reserves increased 186%, with the Company's total proved reserves increasing 13%. Oil represented 54% of total proved reserves at December 31, 2012 up from 18% at the end of the prior year due to the increased working interest in Alba and additional reserves at the Bacchus field. Net proved and probable reserves increased 4.7% from the prior year, with oil representing 62% of the total up from 32% the year prior. There was a decline in the U.S. gas reserves as a result of decreasing natural gas prices.
Endeavour Historical
As of December 31,
2010 (3) 2011 2012
Net 1P reserves:
United Kingdom:
Oil (MBbls)(1) 3,967 4,060 13,733
Gas (MMcf) 56,267 50,723 56,901
Oil equivalents (MBOE)(2) 13,345 12,514 23,217
United States:
Oil (MBbls)(1) 59 41 6
Gas (MMcf) 31,777 60,978 14,690
Oil equivalents (MBOE)(2) 5,355 10,204 2,454
Total:
Oil (MBbls)(1) 4,026 4,101 13,739
Gas (MMcf) 88,044 111,701 71,591
Oil equivalents (MBOE)(2) 18,700 22,718 25,671
Percentage oil 22% 18% 54%
Percentage proved developed 19% 23% 32%
Net 2P reserves:
Total:
Oil (MBbls)(1) 14,897 14,556 29,208
Gas (MMcf) 172,820 182,989 107,715
Oil equivalents (MBOE)(2) 43,700 45,054 47,161
Percentage oil 34% 32% 62%
(1) Includes natural gas liquids.
(2) One Bbl of oil is equal to six Mcfe based on an approximate energy
equivalency. This is a physical correlation and does not reflect a
value or price relationship between the commodities.
(3) Reserve information includes the purchase of the additional 20%
(approximately 3.4 mmboe of 2P reserves) of the Bacchus field in the
North Sea, which closed in February 2011.
Earnings Conference Call, Wednesday, March 6, 2013 at 9:00 a.m., Central Time, 3:00 p.m. British Time
Endeavour International will host a conference call and web cast to discuss its 2012 fourth quarter and year-end financial and operating results on Wednesday, March 6, 2013 at 9 a.m. Central Time, 3 p.m. British Time. A supporting slide deck for the conference call is available on Endeavour's website at http://www.endeavourcorp.com. To participate and ask questions during the conference call, dial the local country telephone number and the confirmation code 8741109. The toll-free numbers are 888-708-5695 in the United States and 0-808-101-7548 in the United Kingdom. Other international callers should dial 913-312-1520 (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 Time on March 6, 2013 through 12:00 p.m. on March 12, 2013 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 8741109.
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.
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 http://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)
December December
31, 31,
2012 2011
Assets
Current Assets:
Cash and cash equivalents $ 59,185 $ 106,036
Restricted cash 178 -
Accounts receivable 46,003 8,649
Prepaid expenses and other current
assets 12,906 18,840
Total Current Assets 118,272 133,525
Property and Equipment, Net 1,003,441 549,196
Goodwill 262,764 211,886
Other Assets 49,906 30,384
Total Assets $ 1,434,383 $ 924,991
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 60,153 $ 62,275
Current maturities of debt 15,713 12,350
Accrued expenses and other 90,100 20,549
Total Current
Liabilities 165,966 95,174
Long-Term Debt 843,793 455,028
Deferred Taxes 133,798 115,759
Other Liabilities 147,692 61,248
Total Liabilities 1,291,249 727,209
Commitments and Contingencies
Series C Convertible Preferred Stock 43,703 43,703
Stockholders' Equity 99,431 154,079
Total Liabilities and Stockholders' Equity $ 1,434,383 $ 924,991
Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Fourth Quarter Year Ended
December 31, December 31,
2012 2011 2012 2011
Revenues $ 97,615 $ 16,632 $ 219,058 $ 60,091
Cost of Operations:
Operating
expenses 23,924 2,779 58,536 17,668
Depreciation,
depletion and
amortization 24,272 7,780 66,564 26,478
Impairment of
U.S. oil and gas
properties 5,956 36,913 53,072 65,706
General and
administrative 5,705 3,328 21,085 17,853
Total Expenses 59,857 50,800 199,257 127,705
Income (Loss) From
Operations 37,758 (34,168) 19,801 (67,614)
Other Income
(Expense):
Derivatives:
Unrealized
gains
(losses) 7,319 (2,719) 5,141 8,378
Interest expense (21,105) (12,688) (84,122) (44,893)
Loss on early
extinguishment of
debt - - (21,661) (402)
Letter of credit
fees (9,461) - (21,903) -
Interest income
and other (3,313) 172 (9,254) 597
Total Other Expense (26,560) (15,235) (131,799) (36,320)
Income (Loss) Before
Income Taxes 11,198 (49,403) (111,998) (103,934)
Income Tax Expense
(Benefit) 17,652 (4,758) 14,228 27,061
Net Loss (6,454) (44,645) (126,226) (130,995)
Preferred Stock
Dividends 456 455 1,823 1,974
Net Loss to Common
Stockholders $ (6,910) $ (45,100) $ (128,049) $ (132,969)
Net Loss per Common Share:
Basic and diluted $ (0.15) $ (1.15) $ (3.01) $ (3.70)
Weighted Average Number of Common Shares
Outstanding:
Basic and diluted 46,613 39,231 42,533 35,957
Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in thousands)
Year Ended December 31,
2012 2011
Cash Flows from Operating Activities:
Net loss $ (126,226) $ (130,995)
Adjustments to reconcile net loss
to net cash
provided by (used in)
operating activities:
Depreciation, depletion
and amortization 66,564 26,478
Impairment of oil and gas
properties 53,072 65,706
Deferred tax expense
(benefit) (17,594) 21,116
Unrealized gains on
derivatives (5,141) (8,378)
Amortization of non-cash
compensation 4,401 3,697
Amortization of loan costs
and discount 14,179 12,234
Non-cash interest expense 8,684 12,811
Loss on early
extinguishment of debt 21,661 402
Other 15,365 1,518
Changes in operating
assets and liabilities 3,648 (43,932)
Net Cash Provided by (Used in) Operating
Activities 38,613 (39,343)
Cash Flows From Investing Activities:
Capital expenditures (246,925) (165,062)
Acquisitions (238,854) (33,075)
Proceeds from sales, net of cash 1,407 -
(Increase) decrease in restricted
cash (178) 31,726
Net Cash Used in Investing Activities (484,550) (166,411)
Cash Flows From Financing Activities:
(Repayments) borrowings under debt
agreements 379,394 106,775
Proceeds from issuance of common
stock 60,805 118,444
Dividends paid (1,665) (1,816)
Payments for early extinguishment
of debt (7,248) -
Financing costs paid (32,204) (11,401)
Other financing 4 521
Net Cash Provided by Financing
Activities 399,086 212,523
Net Increase (Decrease) in Cash and Cash
Equivalents (46,851) 6,769
Cash and Cash Equivalents, Beginning of
Period 106,036 99,267
Cash and Cash Equivalents, End of Period $ 59,185 $ 106,036
Endeavour International Corporation
Operating Statistics
(Unaudited)
Fourth Quarter Year Ended
December 31, December 31,
2012 2011 2012 2011
Sales volume:
Oil and condensate
sales (Mbbls):
United
Kingdom 896 98 1,994 373
United
States - 3 3 7
Total 896 101 1,997 380
Gas sales (MMcf):
United
Kingdom 22 16 91 94
United
States 972 1,728 5,206 5,033
Total 994 1,744 5,298 5,127
Oil equivalent
sales (MBOE)
United
Kingdom 899 101 2,009 388
United
States 163 290 871 846
Total 1,062 391 2,880 1,234
Total BOE per day 11,541 4,253 7,868 3,382
Physical production
volume (BOE per day):
United
Kingdom 8,533 925 5,494 1,095
United
States 1,767 3,158 2,379 2,319
Total 10,300 4,083 7,873 3,414
Realized Prices:
Oil and condensate
price ($ per Bbl) $ 105.76 $ 110.93 $ 103.56 $ 109.20
Gas price ($ per
Mcf) $ 2.86 $ 3.14 $ 2.32 $ 3.63
Equivalent oil
price ($ per BOE) $ 91.94 $ 42.51 $ 76.07 $ 48.67
- 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. We use the entitlements method to account for sales of gas
production.
- The average sales prices include 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 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.
Fourth Quarter Year Ended
December 31, December 31,
2012 2011 2012 2011
Net loss $ (6,454) $ (44,645) $ (126,226) $ (130,995)
Impairment of
U.S. oil and
gas properties
(net of tax)
[(1)] 5,956 36,913 53,072 65,706
Unrealized
(gain) loss on
derivatives
(net of tax)
[(2)] (7,383) 1,976 (7,326) (10,269)
Loss on early
extinguishment
of debt (net of
tax) [(3)] - - 17,762 402
Deferred tax
expense due to
U.K. tax law
change 194 - 8,587 25,484
Net Loss as
Adjusted $ (7,687) $ (5,756) $ (54,131) $ (49,672)
Net loss $ (6,454) $ (44,645) $ (126,226) $ (130,995)
Unrealized
(gain) loss on
derivatives (7,319) 2,719 (5,141) (8,378)
Net interest
expense 21,083 12,547 83,872 44,781
Letter of
credit fees 9,461 - 21,903 -
Loss on early
extinguishment
of debt - - 21,661 402
Depreciation,
depletion and
amortization 24,272 7,780 66,564 26,478
Impairment of
U.S. oil and
gas properties 5,956 36,913 53,072 65,706
Income tax
expense
(benefit) 17,652 (4,758) 14,228 27,061
Adjusted EBITDA $ 64,651 $ 10,556 $ 129,933 $ 25,055
[(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 $64 and $743 and $2,185 and $1,891,
respectively.
[(3)] Net of tax benefit of $3,899 for the year ended December 31, 2012.
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