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Endeavour International Corporation (END)

Q1 2010 Earnings Call Transcript

May 6, 2010 10:00 am ET

Executives

Mike Kirksey – EVP and CFO

Bill Transier – Chairman, President and CEO

John Williams – EVP, Exploration

Jim Emme – EVP, North America

Analysts

Thomas Martin – Thomas Weisel Partners

Michael Bodino – Global Hunter Securities

Al Shams – Midsouth Capital

Jon Evans – Edmunds White Partners

Tamera Alabum [ph] – Terry Hill Capital [ph]

Presentation

Operator

Good day everyone and welcome to this Endeavour International Corporation’s first quarter 2010 earnings conference call and webcast. Today’s conference is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Mr. Mike Kirksey, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Mike Kirksey

Thank you Anthony, good day everyone. Thanks for joining us today. Joining me here in Houston today is Bill Transier, our Chief Executive Officer; as well as Jim Emme, our Executive Vice President for North American Operations. Joining us from London is Carl Grenz, our Executive Vice President for Operations; and John Williams, our Executive Vice President for Exploration. Again, thanks for joining us today.

Before we start, 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 disclosures and our latest 10-K and 10-Qs. We do expect our 10-Q to be filed later today, but certainly before the end of this week. For some opening comments, let me turn it over to Bill Transier.

Bill Transier

Thanks. I, like Mike, would like to welcome you to the call this morning, and what you can expect in the next few minutes from us is a number of things. Obviously you know we have had a lot of progress during this quarter. We completed two financings early in the quarter that helped us kick-start our activity in the US. We will bring you up-to-date on the US activities, and I think you will see that we have a lot of things going on and a lot of things that will impact our second quarter.

We did have a very successful appraisal well that we announced earlier from Cygnus in the Southern Gas Basin of the UK North Sea. Because of all the activity that we have going on in the US, we notified Caza this quarter that we would no longer continue our joint venture relationship and that has moved on to a different direction. We did announce a little over a month ago that we were going to take a strategic review of our UK business because of what we believe is a dislocation between the underlying value of the assets and our stock price. And I will bring you up-to-date on that process as we go through the call.

All of our development projects that are ongoing in the UK North Sea have had positive movement during the quarter and I will try to bring you up-to-date on those. And really offsetting some of the good news was what we would classify as less-than-expected financial performance. That was primarily a result of lower production. Specifically, it was unplanned shutdowns and timing of some of the liftings that will shift production from first quarter into the second and third quarter.

Mike will walk you through the quarterly financials and bring you up-to-date on the capital items, and so, I am going to turn it over to him and then I will come back and bring you up-to-date on the operating results.

Mike Kirksey

Thanks Bill. As Bill said, production and sales volumes experienced an unfortunate timing in the first quarter. Our largest gas producer Goldeneye was closed for an extended period in January because of a fire at the onshore facilities, resulting in production in sales from Goldeneye being down 20%. The operator shale was able to take some advantage of the time and performed some maintenance activities that were planned later in the year, which should allow us to recapture some of this during the normal third quarter downtime periods.

Our oil liftings that drive sales and cash flow were very low in the first quarter. Timing and scheduling of tankers obviously affect this part of our sales. Several liftings have already happened in April with more schedules in the second quarter and this will result in second quarter liftings being 60% to 70% ahead of the first quarter.

While overall production for Q1 was 3,700 barrels a day oil equivalent, production in the second quarter from our existing producing assets is expected to be back in the range of 4,000 to 4,500 barrels a day and sales obviously more than that with the delayed liftings in the 4,500 to 5,000 barrels range. US production is small right now, but we look forward to what the US drilling will add here in the near future. So, while we like production sales to continue in a consistent predictable manner, it doesn’t always happen that way. A similar situation occurred last year in the third quarter and the fourth quarter results demonstrated that this catch-up of financial results.

Covering a little more of the details now, first quarter had an average Brent oil price of about $76, up slightly from the fourth quarter, resulting in average price when you include natural gas liquids in our production of about $70. Average gas prices also increased from about $4.25 in the fourth quarter to $5.50 in the first quarter. Our hedge program for 2010 was a slight profit in the first quarter. We made money on our $10.50 gas hedges, but our average price was reduced by our $69 oil hedges.

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