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Endeavour Announces 2013 Fourth Quarter and Year-End Financial and Operational Results

HOUSTON, March 5, 2014 /PRNewswire/ -- Endeavour International Corporation (NYSE: END) (LSE: ENDV) today reported fourth quarter 2013 net loss, as adjusted of $24.7 million compared to a net loss, as adjusted of $7.7 million for the same period in 2012. On a GAAP basis, net loss for the fourth quarter was $27.7 million as compared to net loss of $6.5 million for the same quarter in 2012.

Sales volumes for the fourth quarter of 2013 were 13,648 barrels of oil equivalent per day ("boepd"), compared to 11,541 boepd for the same quarter in the prior year. Physical production for the fourth quarter of 2013 averaged 12,422 boepd compared to 10,300 boepd for the same quarter of 2012. Year-over-year average daily physical production increased 121%.

Fourth Quarter highlights include:

  • Achieved first production at the Rochelle field
  • Closed on the sale of a 50% interest in the Pennsylvania Marcellus
  • Completed an additional $25 million of Monetary Production Payment

Recent Events:

  • Refinanced the Revolving Credit Facility and replaced two LC reimbursement agreements
  • Resolved the stuck valve issue at Rochelle, resuming production at the field
  • Completed a private placement for $25 million
  • Amended the Decommissioning Securities Agreement for the Alba field, reducing security requirements
  • Consolidated the U.K. offices in Aberdeen, Scotland
  • Announced a capital expenditure budget for 2014 of $60 million$80 million
  • Completed the year-end 2013 reserves evaluation

"With the Rochelle situation resolved, we will continue our focus on reducing cost of capital and deleveraging our balance sheet. The reorganization and consolidation of our UK offices completed last year, combined with the reduced cost of capital from our refinancing effort in January, result in over $30 million in annual cash savings," said William L. Transier, chairman, chief executive officer and president. "Now with our core assets online in the North Sea, we should expect improved production and cash flow on a comparative basis so we can move forward prudently in the exploitation of our portfolio for the benefit of our stakeholders."

Operational Update

North Sea

At Rochelle, the East (E2) and West (W1) development wells at Rochelle, a gas-condensate field, were fully completed and tied-in to the production manifolds in January. During the restart of production, a valve was discovered stuck in the 'shut' position on the outlet side of the Rochelle production manifold. An attempt to open the valve manually was unsuccessful and the operator secured an intervention vessel to open the valve. The valve was reopened on February 26th and the E2 well commenced first production on February 28th. The E2 production is ramping up and the W1 well is expected to be online in the next few days. When both wells are fully operational, the production from the Rochelle field is expected to exceed the available production capacity at the Scott Platform. Endeavour has a 44% working interest in the Rochelle development.

The Bacchus field continues to perform in line with expectations. The 2013 production exit rate at the field was over 10,000 barrels of oil per day ("bopd") gross. 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. This will provide pressure support to help sustain the field's production rate and increase its overall recovery. A new 3D seismic survey was shot in 2013 and the results are being processed to define additional field development opportunities. Endeavour has a 30% working interest in the field.

Water handling and other operational issues at the Alba production facilities were addressed during the period up to and including the extended shutdown period last year. Subsequently, a problem occurred in the subsea water injection pipeline supplying pressure to the Southern area of the field. This has resulted in a portion of the Southern area being shut-in. The Alba 2013 exit rate was 18,500 bopd gross, below the levels expected from the field. Remedial action is currently being taken to reinstate partial water injection to offset some of this reduction and the permanent replacement of the pipeline is targeted for late 2014. Production will be improved by the first 2014 development well, which was recently brought online. An additional two development wells are scheduled to be drilled during the year. Endeavour has a 25.68% working interest in the field.

North America

During the fourth quarter in the Pennsylvania Marcellus area, the Company closed on a purchase and sale agreement covering 50% of its upstream and midstream assets to Samson Exploration LLC. The transaction provides for the joint development of the Marcellus assets, including the capital necessary for the next phase of development in the core Daniel Field area in Cameron County, Pennsylvania. Initially, the partnership plans to complete three previously drilled and cased horizontal Marcellus wells. These wells will be tied into a new third-party pipeline being constructed by EQT Corporation that allows firm capacity of up to 10 MMCF/D, with potential for future expansion. Endeavour will operate this initial phase of activity, which is expected to be completed by mid-year 2014.

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 mid-year 2014. Endeavour has leasehold and drilling options on 40,000 gross acres and 27,000 net acres.

Finance

In December, the Company completed an additional $25 million expansion to the Monetary Production Payment (MPP), bringing the total to $175 million outstanding. The MPP has a two-year term and will be satisfied out of the production from the Alba, Bacchus and Rochelle fields. Repayment of the MPP began in July 2013 under its terms and the current outstanding balance is approximately $162 million.

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.

Due to a change in the U.K. tax treatment for decommissioning, Endeavour has amended its Decommissioning Securities Agreement for the Alba field. The new tax law, which allows companies to treat decommissioning on an after-tax basis (including Petroleum Revenue Tax (PRT)), enables Endeavour to reduce its current Letter of Credit (LC) amount on the Alba field from $120 million to approximately $55 million. The reduced LC requirements as a result of the new U.K. decommissioning tax treatment, combined with the refinancing activities done in January, is expected to generate an annual cash savings of approximately $17 million to the Company.

On March 3rd, the Company completed a private placement for $25 million. The transaction was comprised of the issuance of 2.9 million shares at $4.28/share with the issuance of 729,000 warrants with a strike price of $5.29. In addition, the transaction involved the issuance of 6.5% convertible notes, with a conversion price of $4.66. The notes have a four year maturity. The transaction also includes an option for an additional $30 million and normal registration rights.

In the fourth quarter, Endeavour completed the consolidation of its U.K. offices in Aberdeen, Scotland. Annual cash savings are anticipated to be in the range of $15 million$20 million.

First Quarter Production Guidance

With the unanticipated downtime at the Rochelle field and continued restricted rates at Alba, average daily production volumes are expected to be in the range of 9,000 – 10,000 boepd for the first quarter of 2014.

2014 Capital Expenditure Program

Endeavour's direct capital expenditure program in 2014 is expected to be in the range of $60 million$80 million. Having completed the work on the Company's large North Sea development projects, Endeavour expects to spend approximately $45 million in the U.K., the majority on the Alba field for infill drilling, 4D seismic and the replacement of the subsea water injection line. The capital spend for the U.S. drilling program is expected to be in the range of $20 million$25 million.

Decommissioning costs during the year are expected to be approximately $50 million for the IVRR, Renee and Rubie fields.

2013 Reserves

Year-over-year, the Company added 1.5MMboe of proved reserves, which represents a reserves replacement ratio of 41%. Oil represented 52% of total proved reserves at December 31, 2013 down slightly from 54% at the end of the prior year. Net proved and probable reserves (2P) were 40.1 million in 2013 compared to 47.2 million in the previous year, with oil representing 61% of the total. The reduction in 2P reserves was due to the 2013 production, a slightly shorter Alba field life due to lower SEC pricing, minor revisions in Rochelle reserves following development drilling and lack of new drilling activities in the U.S.

Earnings Conference Call, Wednesday, March 5, 2014 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 2013 fourth quarter and year-end financial and operating results on Wednesday, March 5, 2014 at 9:00 a.m. Central Time, 3:00 p.m. British 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 5131878. The toll-free numbers are 888-684-1281 in the United States and 0-808-101-7548 in the United Kingdom. Other international callers should dial 913-312-1453 (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 March 5, 2014 through 12:00 p.m. on March 11, 2014 by dialing toll free 888-203-1112 (U.S.) or 719-457-0820 (international), confirmation code 5131878.

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

(Unaudited)

(Amounts in thousands)








December 31,


2013


2012







Assets






Current Assets:






Cash and cash equivalents

$

34,742


$

59,185

Accounts receivable


65,171



46,181

Prepaid expenses and other current assets


35,920



20,995

  Total Current Assets


135,833



126,361







Property and Equipment, Net


1,072,151



1,003,441

Goodwill


259,238



262,764

Other Assets


33,223



49,906







Total Assets

$

1,500,445


$

1,442,472







Liabilities and Stockholders' Equity






Current Liabilities:






Accounts payable

$

38,033


$

60,153

Current maturities of debt


-



15,713

Deferred revenue


20,965



-

Monetary production payment, current


74,167



-

Accrued expenses and other


88,625



90,100

  Total Current Liabilities


221,790



165,966







Long-Term Debt


870,878



843,793

Deferred Taxes


121,816



141,887

Other Liabilities


223,870



147,692

  Total Liabilities


1,438,354



1,299,338







Commitments and Contingencies












Series C Convertible Preferred Stock


43,703



43,703







Stockholders' Equity


18,388



99,431







Total Liabilities and Stockholders' Equity

$

1,500,445


$

1,442,472





Endeavour International Corporation

Condensed Consolidated Statement of Operations

(Unaudited)

(Amounts in thousands, except per share data)















Fourth Quarter


Year Ended


December 31,


December 31,


2013


2012


2013


2012

Revenues

$

116,926


$

97,615


$

337,664


$

219,058













Cost of Operations:












Operating expenses


33,493



23,924



105,444



58,536

Depreciation, depletion and amortization


49,582



24,272



143,048



66,564

Impairment of oil and gas properties


-



5,956



9,566



53,072

General and administrative


4,847



5,705



19,124



21,085

Total Expenses


87,922



59,857



277,182



199,257













Income From Operations


29,004



37,758



60,482



19,801













Other Income (Expense):












Unrealized gains (losses) on derivatives


(3,001)



7,319



(1,843)



5,141

Interest expense


(32,171)



(21,105)



(104,516)



(84,122)

Loss on early extinguishment of debt


-



-



-



(21,661)

Letter of credit fees


(7,643)



(9,461)



(33,425)



(21,903)

Unrealized foreign currency gains (losses)


(3,154)



12,266



(3,116)



8,080

Other expense


(2,114)



(15,579)



(6,619)



(17,334)

Total Other Expense


(48,083)



(26,560)



(149,519)



(131,799)













Income (Loss) Before Income Taxes


(19,079)



11,198



(89,037)



(111,998)













Income Tax Expense


8,583



17,652



6,442



14,228

Net Loss


(27,662)



(6,454)



(95,479)



(126,226)

Preferred Stock Dividends


456



456



1,823



1,823













Net Loss to Common Stockholders

$

(28,118)


$

(6,910)


$

(97,302)


$

(128,049)













Net Loss per Common Share












Basic and Diluted

$

(0.60)


$

(0.15)


$

(2.07)


$

(3.01)













Weighted Average Number of Common Shares Outstanding:









Basic and Diluted


47,111



46,613



47,089



42,533







Endeavour International Corporation

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(Amounts in thousands)










Year Ended December 31,



2013



2012


Cash Flows from Operating Activities:







Net loss

$

(95,479)


$

(126,226)


Adjustments to reconcile net loss to net







provided by (used in) operating activities:







Depreciation, depletion and amortization


143,048



66,564


Impairment of oil and gas properties


9,566



53,072


Deferred tax benefit


(14,255)



(17,594)


Unrealized (gains) losses on derivatives


1,843



(5,141)


Amortization of non-cash compensation


3,294



4,401


Amortization of loan costs and discount


22,359



14,179


Non-cash interest expense


7,082



8,684


Loss on early extinguishment of debt


-



21,661


Other


16,329



15,365


Changes in operating assets and liabilities


(42,450)



3,648


Net Cash Provided by Operating Activities


51,337



38,613









Cash Flows From Investing Activities:







Capital expenditures


(223,656)



(246,925)


Acquisitions, net of cash acquired


(2,787)



(238,854)


Proceeds from sales, net of cash


6,774



1,407


Increase in restricted cash


-



(178)


Net Cash Used in Investing Activities


(219,669)



(484,550)









Cash Flows From Financing Activities:







Repayments of borrowings


-



(274,629)


Borrowings under debt agreements, net of debt discount


-



654,023


Proceeds from issuance of common stock


-



60,805


Proceeds from issuance of monetary production payments


175,000



-


Repayment of monetary production payments


(8,333)



-


Payments for early extinguishment of debt


-



(7,248)


Financing costs paid


(21,198)



(32,204)


Other financing


(1,580)



(1,661)


Net Cash Provided by Financing Activities


143,889



399,086









Net Decrease in Cash and Cash Equivalents


(24,443)



(46,851)


Cash and Cash Equivalents, Beginning of Period


59,185



106,036









Cash and Cash Equivalents, End of Period

$

34,742


$

59,185






Endeavour International Corporation

Operating Statistics

(Unaudited)
















Fourth Quarter



Year Ended



December 31,



December 31,



2013



2012



2013



2012

Sales volume:












Oil and condensate sales (Mbbls):












United Kingdom


977



896



3,017



1,994

United States


-



-



1



3

Total


977



896



3,018



1,997













Gas sales (MMcf):












United Kingdom


1,159



22



1,194



91

United States


509



972



2,636



5,207

Total


1,668



994



3,830



5,298













Oil equivalent sales (MBOE):












United Kingdom


1,171



899



3,216



2,009

United States


85



163



441



871

Total


1,256



1,062



3,657



2,880













Total BOE per day


13,648



11,541



10,017



7,868













Physical production volume (BOE per day):












United Kingdom


11,441



8,533



8,665



5,494

United States


981



1,767



1,257



2,379

Total


12,422



10,300



9,922



7,873













Realized Price, before and after derivatives :












United Kingdom:












Oil and condensate price ($ per Bbl)

$

103.70


$

105.73


$

104.40


$

103.56

Gas price ($ per Mcf)

$

12.12


$

7.95


$

12.00


$

7.41

Equivalent oil price ($ per BOE)

$

98.51


$

105.57


$

102.39


$

103.13













United States:












Oil and condensate price ($ per Bbl)


-


$

44.00



120.00



94.67

Gas price ($ per Mcf)

$

3.04


$

2.74


$

3.13


$

2.23

Equivalent oil price ($ per BOE)

$

18.41


$

16.63


$

18.98


$

13.64













Total:












Oil and condensate price ($ per Bbl)

$

103.71


$

105.76


$

104.40


$

103.56

Gas price ($ per Mcf)

$

9.35


$

2.86


$

5.89


$

2.32

Equivalent oil price ($ per BOE)

$

93.09


$

91.94


$

92.36


$

76.07








• 

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.





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)

Fourth Quarter


Year Ended


December 31,


December 31,


2013


2012


2013


2012

Net loss

$

(27,662)


$

(6,454)


$

(95,479)


$

(126,226)

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


-



5,956



9,566



53,072

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


3,001



(7,383)



1,843



(7,326)

Loss on early extinguishment of debt (net of tax) (3)


-



-



-



17,662

Deferred tax expense related to U.K. tax rate change


-



194



-



8,587













Net Loss as Adjusted

$

(24,661)


$

(7,687)


$

(84,070)


$

(54,231)













Net loss

$

(27,662)


$

(6,454)


$

(95,479)


$

(126,226)

Unrealized gains (losses) on derivatives


3,001



(7,319)



1,843



(5,141)

Net interest expense


32,163



21,083



104,452



83,872

Letter of credit fees


7,643



9,461



33,425



21,903

Loss on early extinguishment of debt


-



-



-



21,661

Depreciation, depletion and amortization


49,582



24,272



143,048



66,564

Impairment of oil and gas properties


-



5,956



9,566



53,072

Income tax expense


8,583



17,652



6,442



14,228













Adjusted EBITDA

$

73,310


$

64,651


$

203,297


$

129,933







(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 of none, $64, none, $2,185 for the three months ended December 31, 2013 and 2012, year ended December 31, 2013 and 2012, respectively.

(3)

Net of tax benefit of $3,899 for the year ended December 31, 2012.





Endeavour International Corporation

2013 Reserve Information







Endeavour Historical


As of December 31,


2011

2012

2013

Net 1P reserves:




United Kingdom:




Oil (MBbls)(1)

4,060

13,733

12,340

Gas (MMcf)(3)

50,723

56,901

55,398

Oil equivalents (MBOE)(2)

12,514

23,217

21,573

United States:




Oil (MBbls)(1)

41

6

3

Gas (MMcf)

60,978

14,690

11,775

Oil equivalents (MBOE)(2)

10,204

2,454

1,965

Total:




Oil (MBbls)(1)

4,101

13,739

12,343

Gas (MMcf)

111,701

71,591

67,173

Oil equivalents (MBOE)(2)

22,718

25,671

23,538

Percentage oil

18%

54%

52%

Percentage proved developed

23%

32%

49%

Net 2P reserves:




Total:




Oil (MBbls)(1)

14,556

29,208

24,552

Gas (MMcf)(3)

182,989

107,715

93,370

Oil equivalents (MBOE)(2)

45,054

47,161

40,114

Percentage oil

32%

62%

61%







(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)

Gas prices in the U.K. have been in the range of $9.50 - $11.00 an Mcf during 2013.




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