Endeavour International has reported discretionary cash flow for first quarter 2009 of $23.4 million and adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of $17.9 million. For the first quarter 2009, net loss to common stockholders, excluding the impairment charge caused by falling natural gas prices of $29.4 million, unrealized gains on derivatives and currency impacts on deferred taxes (net loss, as adjusted), was $2.2 million as compared to a loss of $4.7 million in the year-ago quarter.
The first quarter of 2009 was the best in our history for drilling results and of strategic importance for the company, said William L. Transier, chairman, chief executive officer and president. Successful appraisal wells at our Rochelle and Cygnus fields in the North Sea significantly enhanced our reserve base and will serve as the foundation for substantial production growth over the next two years. The sale of our Norway assets demonstrates the true value within Endeavour. The proceeds and our continuing cash flow from producing assets will provide the secure financial platform from which to pursue our growth strategies in the United Kingdom and US.
The impairment charge recorded in the first quarter of 2009 resulted mainly from a 50% drop in North Sea natural gas prices during the period. Under US generally accepted accounting principles, Endeavour International’s oil and gas hedges cannot be considered in the existing impairment calculations and, if used, would have eliminated the need for the impairment.
Highlights for the first quarter are as follows:
The sale of Endeavour Energy Norge AS for $150 million – The company announced in early April 2009 that it signed a definitive agreement with Verbundnetz Gas AG, a German utility, to divest its Norwegian subsidiary. The proposed sale will generate a major amount of capital that will facilitate Endeavour International to pursue a number of strategic opportunities, including accelerating the development of its drilling successes in the UK and actively pursuing shorter-cycle, lower-cost opportunities in the US. After allocation of $68 million of goodwill to the assets being sold, the company expects to recognize a gain at closing of about $47 million. The transaction is anticipated to be completed by the end of May 2009.
Continued successful appraisal drilling at two of Endeavour International’s major field developments
— Endeavour International took part in the drilling of three appraisal wells in the UK sector of the North Sea resulting in a significant increase in the overall potential of the previous discoveries.
Cygnus – Two appraisal wells drilled in block 44/12a in the Southern Gas basin during the first quarter effectively extended the productive area of the Cygnus area to a second and third fault block. Endeavour International estimates that gross recoverable reserves from the eastern portion of the field alone may be in excess of 500 billion cubic feet. This number is anticipated to rise as the fourth and fifth fault blocks are drilled and proven successful. A revised field development plan for the area was submitted to the department of energy and climate change (DECC) in March 2009 that called for a phased development scenario with early production to commence in the fourth quarter of 2010. Endeavour International holds a 12.5% interest in the Cygnus area spread over two UK blocks, 44/11a and 12a.
Rochelle – The commerciality of the undeveloped Rochelle discovery in block 15/27 was confirmed when the Rochelle 15/27-11 well tested at flow rates of 41 million cubic feet of gas per day and 2,300 barrels of oil condensate per day from perforations in the upper 20-foot section of a 77-foot hydrocarbon column. Reserves are anticipated at more than 30 million barrels of oil equivalent. Endeavour International is developing a plan for the exploitation of the Rochelle field and anticipates to file a field development plan with the DECC by the end of 2009. The company holds a 55.6% interest in the well and is operator for the block.
Three active exploratory prospects in progress – Drilling operations have began on two more wells as part of Endeavour International’s 2009 exploration campaign and testing continues at a third well.
Tesla – An exploratory well began drilling this week at the Tesla prospect on block 22/24c in the UK sector of the North Sea. Plans call for the well to be drilled to a projected 15,300 feet to test the gas condensate reserve potential of the Triassic Judy sandstones. The company holds a 15% working interest in the well.
Dalwhinnie – The company is taking part in its third South Texas well since launching its onshore initiative in the US in late 2008. The Dalwhinnie prospect in Wharton county began drilling in mid-April 2009. Endeavour International holds a 20% working interest in the prospect.
Alligator Bayou – The Armour Runnels #1 in Matagorda county in South Texas has been drilled to 23,800 feet with numerous potential gas sands. Testing is in progress and will be reported once there are definitive results. Endeavour International holds a 10% interest in the prospect.
The signing of a participation agreement for onshore exploration and development opportunities in the US – In April 2009, the company has entered into a definitive agreement with Caza Petroleum Inc., a subsidiary of Caza Oil and Gas, Inc., to take part in a jointly established exploration and development program covering Caza’s onshore acreage position and opportunity portfolio in the US . During the initial two-year term of the agreement, Endeavour International will have the option but not the compulsion to take part in the acquisition, exploration and appraisal activities of selected assets. Caza presently holds interests in 42,000 gross acres in Texas, New Mexico and Louisiana.
Continuing progress in debt reduction – Endeavour International repaid $10 million in long term debt during the quarter. In conjunction with the sale of its Norwegian subsidiary, Endeavour International expects decreasing debt by a further $25 – $30 million which will reduce the company’s net debt for about $50 million.
