Endeavour International Corporation (END)
Q3 2008 Earnings Call
November 4, 2008 10:00 am ET
Mike Kirksey - Chief Financial Officer and Executive Vice President
Bill Transier - Chairman, President and Chief Executive Officer
John Williams - Executive Vice President of Exploration
Bruce Stover - Executive Vice President, Business Development & New Ventures
Carl Grenz - Executive Vice President of Operations
Irene Haas - Canaccord Adams
Peter Nicol - Tristone Capital
Ed Eduscan - Private Investor.
Welcome to the Endeavour International Corporation’s 2008 third quarter earnings release conference call. Today’s conference is being recorded.
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Welcome everyone and thank you for joining today’s third quarter conference call. Joining me here in Houston today is Bill Transier, our Chairman and Chief Executive Officer and John Williams, our Executive Vice President of Exploration. Also joining us from London is Bruce Stover, Executive Vice President of Business Development and New Ventures, and joining us for the first time today is Carl Grenz, our Executive Vice President of Operations.
Let me remind you that this presentation contains our best and most reasonable estimates. However, a number of factors can cause actual results to differ materially from what we present today. For the risk factors associated with our business, you should read our full disclosures on forward-looking statements in our 10-K and 10-Qs as well as our recent press releases.
I will turn the call over now to Bill Transier, our Chief Executive Officer.
Thanks Mike. Welcome to everyone for joining us this morning and let me also add my welcome to Carl Grenz who joins us for the first time, actually yesterday it is a little bit too much to ask him to speak about operations today, but next quarter you could be assured he will be deep into it and available to respond to any questions that you might have. This was really a tremendous quarter for our company and we will walk through the details with you in a minute. What I’d like to do is take a few minutes and talk about the state of the market and Endeavour’s business model.
All of us are aware of the extreme volatility and turmoil we have had in the capital markets over the last several months. What we set out to do when we established Endeavour was to build a balanced E&P Company that could withstand the ups and downs that the oil and gas business surely brings to us if you are in this business long enough. Now more than ever, we are showing that Endeavour has taken the right steps to build value and weather a very difficult market.
Indications of that are that we have cash flow that exceeds our capital expenditures making us really one of the only peer companies operating the North Sea that is self-funded. We actually expect to have excess cash flows in the range of $60 million for 2008 that is a very good position to be in when you are considering the status of the capital markets.
We have hedges in place to secure somewhere close to $140 million of cash flow for 2008 and in excess of $100 million in cash flow in 2009. After that you can expect our development projects, which we will talk about in a few minutes to start production and cash flow should take off from these levels to something much greater than that.
The cash flow that we have today and through next year ensures that we could stay on track with our development and exploration projects, something that many of our peer group companies cannot do.
We have also built an exploration team and a process that we go through in exploration that is showing extraordinary results, with now nine successes in a row over the last 12 months since we brought John Williams on board with the company. We have debt capacity with a core group of banks that we have talked to and we believe are some of the strongest banks in the industry today and hopefully untapped capability that we don’t need to go and look to.
We’ve been forecasting consolidation for at least the last 12 to 18 months amongst our peer group companies in the North Sea. The high cost, the long cycle time environment in the North Sea makes execution risk very difficult for small cap companies. Since we started Endeavour four and a half years ago, there have been over 160 companies that have entered the North Sea and in just the last couple of weeks, we’ve seen transactions that provide strong evidence of the value considerations we made in focussing on the North Sea when we started Endeavour and support much stronger underlying values for our companies. Some examples of that is Centrica’s purchase of Marathon’s Norwegian assets including Heimdal.
Last week the German E&P Company Wintershall, which is owned by BASF, announced its acquisition of Revus and then most recently EDF Energy, one of the UK’s largest electric companies announced they were acquiring about 80% of ATPs North Sea oil and gas assets. If you looked underneath these transactions, at the value per 2P reserve, it was running at about $36 per BOE, and on our Floyd production barrel of equivalent, it was about $80,000 per BOE.
I would like to apply those metrics to Endeavour, the market value would be somewhere between 700 million and 1.1 billion, and what that means is the arbitrage between asset values and equity values is the largest I have ever seen in my career. So it is, likely we will see a couple of things happen, equity values will probably rebound from the levels that they are today and asset values will probably come down.