USA: Endeavour Reports Net Loss in Fourth Quarter 2011

Endeavour International Corporation reported fourth quarter 2011 net income (loss), as adjusted of $(5.8) million compared to $81.1 million for 2010, when it reported an $87 million gain on the sale of its North Sea asset Cygnus.

On a GAAP basis, net loss for the fourth quarter of 2011 was $44.6 million as compared to net income of $82.8 million for the same quarter in 2010. Production for the fourth quarter 2011 averaged approximately 4,100 barrels of oil equivalent per day (“boepd”).

Fourth quarter business highlights include:

North Sea:

* Announced the acquisition of three North Sea oil fields with production of ~10,000 boepd and 31 million barrels of oil equivalent (“mmboe”) proved and probable (“2P”) reserves

* At Bacchus, the first of three planned production wells reached total depth

* Rochelle remains on schedule to commence production by year-end 2012

U.S. Onshore:

* 4 gross Haynesville wells brought on production during the quarter

* Capital expenditures in U.S. shale gas plays restricted until environment allows for reasonable rates of return

* U.S. net production exited the quarter at approximately 20 million cubic feet of gas equivalent per day (“MMCFe/D”)

* Core and log analyses of the four vertical test wells, in the Heath Shale oil play is ongoing

Other Items:

* Completed the sale of $500 million of Senior Notes due 2018 to fund the North Sea acquisition and retire the Senior Term Loan

* Year-over-year proved reserve replacement rate of 423% of 2011 production

* A capital expenditure budget of $150 – $175 million is planned for 2012

“2011 was a pivotal year for Endeavour as we positioned the company for the next stage of its evolution. Although the anticipated production from Bacchus was delayed, the Company successfully reached key milestones to move the Rochelle project closer to its start-up. We also announced a significant and accretive acquisition in our core area of the U.K. North Sea,” said William L. Transier, chairman, chief executive officer and president. “During 2012, we will stay focused on activities designed to increase our U.K. North Sea crude and natural gas production.”

Operational Update

United Kingdom

In December, Endeavour announced the acquisition of interests in three producing oil fields in the North Sea. Current net production from the group of assets is approximately 10,000 boepd of Brent oil and estimated 2P reserves as of December 31, 2011 are approximately 31 mmboe. The Company is acquiring an additional 23.43% working interest in Alba, a field where it currently owns a 2.25% working interest, a 40% working interest in and, subject to partner approval, operatorship of MacCulloch, and an 18% interest in Nicol. The transaction is expected to close in the first quarter of 2012.

At the Bacchus field in Block 22/06a in the Central North Sea, in which Endeavour holds a 30% working interest, drilling at the first of three planned production wells has reached total depth. The liner for the well has been cemented in place and preparations are being made to run the production string. The operator has announced that production is expected to begin in the first quarter of 2012.

The Rochelle development continues on schedule for first production in the fourth quarter of 2012 with the contracted drilling rig expected to arrive in the spring to commence drilling of the two planned production wells. Endeavour is operator and holds a 44% ownership interest in the Rochelle development which is comprised of Blocks 15/26b, 15/26c and 15/27.

United States Onshore

In the fourth quarter of 2011, Endeavour significantly decelerated its capital spending program in its Haynesville area. The Company currently has one Haynesville well in progress, and key acreage is held by production. Any additional Haynesville wells drilled during 2012 will be discretionary. U.S. net daily production averaged 19 MMCFe/D for the fourth quarter with the quarter exit volumes at approximately 20 MMCFe/D.

In the Heath Shale tight oil play, the Company and its partners are completing core and log data analysis from its four vertical pilot wells. Endeavour plans to define possible horizontal re-entry target zones and test the play later this year.

Other Items

Endeavour priced $500 million of Priority Notes, due 2018. The Company intends to use the net proceeds from the offering to fund its previously announced acquisition of interests in three oil fields in the United Kingdom North Sea, to repay all amounts outstanding under its Senior Term Loan due 2013 and for general corporate purposes. The transaction was completed and funded on February 23, 2012.

Endeavour’s capital expenditure budget will be between $150 million and $175 million for 2012. The Company expects to spend approximately $125 million to $150 million of the total budget in the U.K. primarily on the advancement of its key development projects – Bacchus and Rochelle. The acquisition of the three new North Sea assets would add another $20 million to $25 million to Endeavour’s planned capital budget, subsequent to the completion of the transaction.

The Company’s year-over-year proved reserve replacement rate was 423% of 2011 production. Pro forma for the announced North Sea acquisition, 2P reserves would increase to 76.0 mmboe at year-end 2011, compared to 43.7 mmboe at year-end 2010.

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Subsea World News Staff , February 29, 2012;  Image: Endeavour