Endeavour Posts 2Q 2009 Financial, Operating Results
Endeavour has reported discretionary cash flow for the second quarter of 2009 of $19.0 million and net income, as adjusted, of $38.5 million. Production for the period averaged 5,360 barrels of oil equivalent per day.
"This was a quarter of strategic significance for Endeavour with the completion of the sale of our Norwegian operations, a significant reduction in debt, and the expansion of our portfolios both in the United Kingdom and United States," said William L. Transier, chairman, chief executive officer and president. "Together with continued good operating performance and better than anticipated results from appraisal drilling at the Rochelle and Cygnus discoveries, we are now moving forward with three North Sea developments that will significantly increase our UK production and provide the financial foundation to pursue other growth opportunities."
On a GAAP basis, net income to common stockholders was $7.1 million for the second quarter of 2009 as compared to a loss of $66.7 million in the same quarter in 2008. Included in 2009 second quarter after-tax results are $47.1 million in gain on sale of the Norwegian operations, non-cash charges of $31.4 million primarily relating to unrealized losses on derivatives and the impact of deferred taxes on the change in currency exchange rates.
Endeavour recorded unrealized losses on commodity derivatives during the second quarter of $27 million as compared to $122 million for the same period in 2008 largely due to increases in commodity prices during these periods. The results reflect the hedging program for future oil and gas production that applies mark-to-market accounting principles to pull forward into current periods the non-cash gains and losses from commodity price fluctuations relating to all upcoming deliveries.
Highlights for the second quarter are as follows:
The closing on the sale of Norwegian operations for $150 million -- In mid-May, Endeavour completed the sale of its Norwegian operations to VNG-Verbundnetz Gas AG. The sale is a significant strategic step as it increases the company's financial flexibility and strength to capitalize on recent drilling success in the United Kingdom and to actively pursue growth strategies. It also demonstrates the implied value underlying Endeavour's remaining asset portfolio.
Significant debt reduction -- Endeavour repaid approximately $54 million in bank debt during the second quarter resulting in a total debt reduction of $65 million thus far in 2009. Proceeds from the Norway sale are expected to be used to supplement cash flow from operations and to fund field developments in the United Kingdom as well as growth opportunities in the North Sea and United States.
Continuous development of a more balanced and extensive exploration portfolio -- Endeavour continues to focus on maintaining a drilling inventory that is well-balanced between risk, potential and timing of impact. Portfolio and risk management initiatives implemented in late 2007 have resulted in 13 successful exploration and appraisal wells out of 15 wells drilled. The company plans to drill an estimated 10 wells per year during 2009 and 2010 in the United Kingdom sector of the North Sea and onshore United States.
Increased exploration activity in the United Kingdom -- Endeavour completed testing of two significant wells in the North Sea and entered into agreements to participate in three new prospects. Activities include:
- The testing of an appraisal well at the Central North Sea Rochelle discovery that added significant reserves and tested the upper 20 feet of an 87-foot hydrocarbon column at a rate of 41 million cubic feet of gas per day and 2,300 barrels of condensate per day.
- The completion of a third successful Southern North Sea appraisal well at Cygnus that tested gas at a rate of 32 million cubic feet of gas per day.
- Entry into farm-in agreements to participate in the following Central North Sea exploratory wells:
Maureen -- Planned for drilling during the third quarter to target an untested fault block of a previously producing oil field abandoned in 1999 due to low prices. Endeavour holds a 38.5 percent interest.
Deacon -- Scheduled to be drilled in late 2009 as a high-potential, medium-risk prospect with Endeavour holding a 10 percent interest.
Centurion -- Slated for drilling in late 2010 as an appraisal of a previous discovery. Endeavour holds a 33.3 percent interest.
Onshore exploration program in the United States accelerates -- Endeavour plans to drill approximately 10 wells over the next two years in its three exploratory focus areas in South Texas, South Louisiana and Southeast New Mexico. Activities include:
- Drilling four wells in the emerging Wolfcamp horizontal drilling oil play in Southeast New Mexico at a 56.3 percent interest. The first well, Lucky Penny, is ready for testing and a second, Moore Bailout, will spud within days. Two additional exploratory wells are scheduled for drilling later in the year. Approximately 10,000 gross acres in the play have been leased to date in seven prospect areas. Additional wells would be drilled with success of the initial program.
- Drilling of the high-risk, high-potential Pidan prospect in the first half of 2010 targeting a gas play with significant gas potential. Endeavour holds a 10 percent interest.
- Testing of the Middle Wilcox formation in the Armour Runnels #1 exploration field in the Alligator Bayou prospect based on positive log analysis. Endeavour holds a 10 percent interest in the very large prospect.
Continued development of new fields in the United Kingdom sector of the North Sea -- Endeavour continues to aggressively pursue the development of three previous discoveries following successful appraisal programs that heightened the potential of the fields.
- Rochelle -- Work is progressing for the exploitation of the Rochelle field in Block 15/27 with a field development program expected to be filed with the Department of Energy and Climate Change (DECC) by the end of the year. Production from Rochelle is expected to begin in late 2010. Endeavour holds a 55.6 percent interest in the well and is operator for the block.
- Cygnus -- A revised field development plan for the Cygnus project was submitted earlier in the year to the DECC that calls for a phased development scenario with initial production from the first phase to begin by mid-2011. The company estimates potential reserves in the greater Cygnus area of one trillion cubic feet of gas, including 500 billion cubic feet proven to date in the eastern half of the structure. Endeavour holds a 12.5 percent interest in the Cygnus area spread over two United Kingdom blocks, 44/11a and 12a.
- Columbus -- Endeavour and its partners continue to pursue commercial agreements as part of the field development plan for the Columbus field in Block 21/16f with anticipated production by mid-2011. Reserves on the block are approximately 100 billion cubic feet of natural gas.
- Endeavour Halts Drilling Ops at East Rochelle (Feb 14)
- Endeavour: Transocean Semisub Mobilized to Rochelle Field (Jan 07)
- Endeavour CFO Resigns (Oct 29)