Endeavor International Corporation (END)

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Endeavour International Corporation (END)

Q3 2009 Earnings Call

November 4, 2009 10:00 am ET

Executives

Mike Kirksey - CFO

Bill Transier - CEO

John Williams - EVP of Exploration

Carl Grenz - EVP of Operations

Analysts

Leigh Curry - Guerrilla

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Third Quarter 2009 Endeavour International Corporation Earnings Call. My name is Anne, and I will be your coordinator for today's call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session following the presentation. I would like to turn the presentation over to Mr. Mike Kirksey, Chief Financial Officer.

Mike Kirksey

I'm Mike Kirksey, the Chief Financial Officer. I'm joining you from Houston, Texas today. Also on the phone with us from London is Bill Transier, our Chief Executive Officer, John Williams our Executive VP for Exploration, and Carl Grenz, our Executive VP for Operations.

Before we start today, let me remind everyone that this presentation contains our best 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 and our latest 10-K and the 10-Qs. We do expect to file our third quarter 10-Q later this week. For some opening comments, let me turn it over to Bill Transier.

Bill Transier

Welcome to all of you. I hope that you had a chance to look at our earnings release that went out last night. As you can tell, the third quarter was a tough quarter. This was the first full quarter that we had without our Norwegian operations. More importantly, we had significant unplanned downtime at Goldeneye, Enoch, and Bittern, and our liftings this quarter primarily related to the lower volumes were down fairly significantly from comparative quarters in the past.

Looking forward to our operations in the fourth quarter and beyond, I will tell you that our operations team, which Carl has built has made a real substantive impact on the operators of these assets that we're involved with, and we're now seeing positive results which we think will take effect and be consistent going forward. We're back on production, and all of our assets' without loss of either rate or reserves.

The good news for Endeavour going forward is the developments at Rochelle, Cygnus and Columbus are on track and you'll hear more about that from Carl in a few minutes. Our exploration has continued its successful record with more planned activity yet to come this year and early in the next year. The Wolfcamp resource play in Southern New Mexico is now starting to gain traction and add oil production for us in the U.S. And with the fall out of the independent sector over here in the U.K. primarily for financial reasons, Endeavour really kind of stands alone and is on track to be the largest independent gas producer in the North Sea by mid-2011.

Now I'd like to turn over the call, and Mike will walk you through our financial results, then Carl will discuss our development projects in the U.K. and our production. John will come next and discuss our exploration and appraisal activities and give you more information on this Wolfcamp play, and then I'll come back to you with some comments about our business development activities and some comments about Endeavour's strategy.

Mike Kirksey

The third quarter financial results are all about volumes, as Bill mentioned. As you can see on the tables attached to the press release, volumes were about half of last year, and a similar drop compared to Q2.

As we stated in our second quarter conference call, we expected Q3 volumes to be down from planned maintenance as is normal this time of year. In fact, we had more downtime than planned. We experienced 95 days of downtime in the third quarter on our various producing assets compared to 22 days in the second quarter and 69 days last year in the third quarter.

Goldeneye, our biggest producer was down 37 days, more than double last year's Q3 downtime. Much of this was planned, but the extended downtime on Goldeneye was not planned and impacted the third quarter. Goldeneye is back on stream now at previous production rates, as are all of our producing assets. Carl will cover this in more detail in a moment.

Lower production volumes impacts gas revenues of course, and impacts tanker liftings which drives our oil revenue number. There were three oil liftings from our producing fields in the third quarter, compared to seven liftings in the second quarter, and we expect six liftings in the fourth quarter. Therefore, we expect the fourth quarter to return to more normal financial levels.

While market prices for oil and gas were significantly down from last year, hedges continue to be an important tool for us, generating a cash gain of 7.5 million, basically recovering all the drop in pricing from last year's results. Our hedging position continues to be robust with approximately 95% of our oil of our '09 at about $85 and excellent gas hedges in place for this year and next at approximately 55 pence per therm, as they measured in the U.K.

As we said, our last quarter CapEx was frontend loaded in 2009 and we expect the remaining of '09 that our cash flow will fund any CapEx plans.

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