Attached files
file | filename |
---|---|
EX-2.1 - EX-2.1 - ENDEAVOUR INTERNATIONAL CORP | h77219exv2w1.htm |
EX-10.2 - EX-10.2 - ENDEAVOUR INTERNATIONAL CORP | h77219exv10w2.htm |
EX-31.2 - EX-31.2 - ENDEAVOUR INTERNATIONAL CORP | h77219exv31w2.htm |
EX-10.3 - EX-10.3 - ENDEAVOUR INTERNATIONAL CORP | h77219exv10w3.htm |
EX-31.1 - EX-31.1 - ENDEAVOUR INTERNATIONAL CORP | h77219exv31w1.htm |
EX-32.1 - EX-32.1 - ENDEAVOUR INTERNATIONAL CORP | h77219exv32w1.htm |
EX-10.4.C - EX-10.4.C - ENDEAVOUR INTERNATIONAL CORP | h77219exv10w4wc.htm |
EX-10.4.A - EX-10.4.A - ENDEAVOUR INTERNATIONAL CORP | h77219exv10w4wa.htm |
EX-10.4.B - EX-10.4.B - ENDEAVOUR INTERNATIONAL CORP | h77219exv10w4wb.htm |
EX-32.2 - EX-32.2 - ENDEAVOUR INTERNATIONAL CORP | h77219exv32w2.htm |
Table of Contents
United States
Securities and Exchange Commission
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2010
or
o | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _________ to ___________
Commission file number: 1-32212
Endeavour International Corporation
(Exact name of registrant as specified in its charter)
Nevada | 88-0448389 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
organization) |
1001 Fannin Street, Suite 1600, Houston, Texas 77002
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
(713) 307-8700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. þ Yes
o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). o Yes þ No
As of November 4, 2010, 173,553,769 shares of the registrants common stock were outstanding.
Index
1 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
24 | ||||||||
40 | ||||||||
40 | ||||||||
41 | ||||||||
41 | ||||||||
43 | ||||||||
EX-2.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-10.4.A | ||||||||
EX-10.4.B | ||||||||
EX-10.4.C | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
Quantities of natural gas are expressed in this report in terms of thousand cubic feet (Mcf)
and million cubic feet (MMcf). Oil is quantified in terms of barrels (Bbls) and thousands of
barrels (Mbbls). Natural gas is compared to oil in terms of barrels of oil equivalent (BOE),
thousand barrels of oil equivalent (MBOE) or million barrels of oil equivalent (MMBOE). One barrel
of oil is the energy equivalent of six Mcf of natural gas. With respect to information relating to
our working interest in wells or acreage, net oil and natural gas wells or acreage is determined
by multiplying gross wells or acreage by our working interest therein. References to number of
potential well locations are gross, unless otherwise indicated.
References to GAAP refer to U.S. generally accepted accounting principles.
Table of Contents
Part I: Financial Information
Item 1: | Financial Statements |
Endeavour International Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 16,527 | $ | 27,287 | ||||
Restricted cash |
32,524 | 2,879 | ||||||
Accounts receivable |
9,812 | 14,800 | ||||||
Prepaid expenses and other current assets |
9,558 | 10,118 | ||||||
Total Current Assets |
68,421 | 55,084 | ||||||
Property and Equipment, Net ($178,142 and $154,553 not subject
to amortization at 2010 and 2009, respectively) |
334,749 | 266,587 | ||||||
Assets Held for Sale |
21,145 | | ||||||
Goodwill |
211,886 | 211,886 | ||||||
Other Assets |
26,423 | 5,322 | ||||||
Total Assets |
$ | 662,624 | $ | 538,879 | ||||
See accompanying notes to condensed consolidated financial statements.
1
Table of Contents
Endeavour International Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 30,476 | $ | 12,401 | ||||
Current maturities of debt |
16,500 | | ||||||
Accrued expenses and other |
16,850 | 17,798 | ||||||
Total Current Liabilities |
63,826 | 30,199 | ||||||
Long-Term Debt |
314,708 | 223,385 | ||||||
Deferred Taxes |
86,887 | 80,692 | ||||||
Other Liabilities |
72,722 | 85,412 | ||||||
Total Liabilities |
538,143 | 419,688 | ||||||
Commitments and Contingencies |
||||||||
Series C Convertible Preferred Stock: |
||||||||
Face value (liquidation preference) |
45,000 | 50,000 | ||||||
Net non-cash premiums under fair value accounting on redemption |
8,152 | 9,058 | ||||||
Total Series C Convertible Preferred Stock |
53,152 | 59,058 | ||||||
Stockholders Equity: |
||||||||
Series B preferred stock Liquidation preference: $3,233 |
||||||||
Common stock; shares issued and outstanding 173,238
and 131,618 shares at 2010 and 2009, respectively |
173 | 132 | ||||||
Additional paid-in capital |
286,819 | 247,707 | ||||||
Treasury stock, at cost - 498 and 498 shares at 2010
and 2009, respectively |
(587 | ) | (587 | ) | ||||
Accumulated deficit |
(215,076 | ) | (187,119 | ) | ||||
Total Stockholders Equity |
71,329 | 60,133 | ||||||
Total Liabilities and Stockholders Equity |
$ | 662,624 | $ | 538,879 | ||||
See accompanying notes to condensed consolidated financial statements.
2
Table of Contents
Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | 19,849 | $ | 7,759 | $ | 55,102 | $ | 42,179 | ||||||||
Cost of Operations: |
||||||||||||||||
Operating expenses |
4,595 | 3,876 | 10,881 | 14,455 | ||||||||||||
Depreciation, depletion and amortization |
7,697 | 5,646 | 21,290 | 24,828 | ||||||||||||
Impairment of oil and gas properties |
| | 7,692 | 30,645 | ||||||||||||
General and administrative |
4,237 | 4,091 | 12,873 | 12,041 | ||||||||||||
Total Expenses |
16,529 | 13,613 | 52,736 | 81,969 | ||||||||||||
Income (Loss) From Operations |
3,320 | (5,854 | ) | 2,366 | (39,790 | ) | ||||||||||
Other Income (Expense): |
||||||||||||||||
Derivatives: |
||||||||||||||||
Realized gains (losses) |
(452 | ) | 7,530 | (1,552 | ) | 28,581 | ||||||||||
Realized loss on early termination |
(10,201 | ) | | (10,201 | ) | | ||||||||||
Unrealized gains (losses) |
6,441 | (4,360 | ) | 11,477 | (38,455 | ) | ||||||||||
Interest expense |
(10,474 | ) | (3,919 | ) | (21,733 | ) | (12,054 | ) | ||||||||
Interest income and other |
(2,327 | ) | 1,402 | 1,281 | (6,932 | ) | ||||||||||
Total Other Income (Expense) |
(17,013 | ) | 653 | (20,728 | ) | (28,860 | ) | |||||||||
Loss Before Income Taxes |
(13,693 | ) | (5,201 | ) | (18,362 | ) | (68,650 | ) | ||||||||
Income Tax Expense (Benefit) |
(2,001 | ) | (441 | ) | 7,916 | (10,477 | ) | |||||||||
Loss from Continuing Operations |
(11,692 | ) | (4,760 | ) | (26,278 | ) | (58,173 | ) | ||||||||
Income from Discontinued Operations |
| 277 | | 46,646 | ||||||||||||
Net Loss |
(11,692 | ) | (4,483 | ) | (26,278 | ) | (11,527 | ) | ||||||||
Preferred Stock Dividends |
546 | 2,696 | 1,682 | 8,061 | ||||||||||||
Net Loss to Common Stockholders |
$ | (12,238 | ) | $ | (7,179 | ) | $ | (27,960 | ) | $ | (19,588 | ) | ||||
Basic and Diluted Net Loss per Common Share: |
||||||||||||||||
Continuing operations |
$ | (0.07 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.51 | ) | ||||
Discontinued operations |
| | | 0.36 | ||||||||||||
Total |
$ | (0.07 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.15 | ) | ||||
Weighted Average Number of Common Shares Outstanding: |
||||||||||||||||
Basic and Diluted |
167,641 | 130,109 | 159,801 | 129,719 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in thousands)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net loss |
$ | (26,278 | ) | $ | (11,527 | ) | ||
Adjustments to reconcile net loss to net cash
provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
21,290 | 29,509 | ||||||
Impairment of oil and gas properties |
7,692 | 30,645 | ||||||
Deferred tax expense (benefit) |
6,195 | (3,269 | ) | |||||
Unrealized (gains) losses on derivatives |
(11,477 | ) | 38,455 | |||||
Gain on sale of Norwegian operations |
| (47,420 | ) | |||||
Amortization of non-cash compensation |
2,786 | 2,232 | ||||||
Amortization of loan costs and discount |
6,980 | 3,682 | ||||||
Non-cash interest expense |
5,179 | 3,949 | ||||||
Other |
(1,178 | ) | 3,714 | |||||
Changes in operating assets and liabilities: |
||||||||
Decrease in receivables |
4,988 | 6,593 | ||||||
(Increase) decrease in other current assets |
(2,340 | ) | 5,060 | |||||
Increase (decrease) in liabilities |
17,465 | (21,939 | ) | |||||
Net Cash Provided by Operating Activities |
31,302 | 39,684 | ||||||
Cash Flows From Investing Activities: |
||||||||
Capital expenditures |
(75,677 | ) | (88,639 | ) | ||||
Acquisitions |
(39,279 | ) | (4,127 | ) | ||||
Proceeds from sales, net of cash |
| 144,765 | ||||||
(Increase) decrease in restricted cash |
(29,645 | ) | 20,366 | |||||
Net Cash Provided by (Used in) Investing Activities |
(144,601 | ) | 72,365 | |||||
Cash Flows From Financing Activities: |
||||||||
Repayments of borrowings |
(74,942 | ) | (64,458 | ) | ||||
Borrowings under debt agreements |
175,000 | | ||||||
Proceeds from issuance of common stock |
30,181 | | ||||||
Dividends paid |
(1,563 | ) | (7,969 | ) | ||||
Financing costs paid |
(26,219 | ) | | |||||
Other financing |
82 | 27 | ||||||
Net Cash Provided by (Used in) Financing Activities |
102,539 | (72,400 | ) | |||||
Net Increase (Decrease) in Cash and Cash Equivalents |
(10,760 | ) | 39,649 | |||||
Cash and Cash Equivalents, Beginning of Period |
27,287 | 38,156 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 16,527 | $ | 77,805 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 1 General
Endeavour International Corporation (a Nevada corporation) is an independent oil and gas
company engaged in the acquisition, exploration and development of energy reserves. As used in
these Notes to Condensed Consolidated Financial Statements, the terms Endeavour, we, us,
our and similar terms refer to Endeavour International Corporation and, unless the context
indicates otherwise, its consolidated subsidiaries. The accompanying financial statements should
be read in conjunction with the audited consolidated financial statements and notes included in our
Annual Report on Form 10-K/A for the year ended December 31, 2009.
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared on
the accrual basis of accounting in accordance with GAAP and have been presented on a going concern
basis, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. These accounting principles require management to use estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities as of the date of the
financial statements, and revenues and expenses during the reporting period. Management reviews
its estimates, including those related to the determination of proved reserves, future
dismantlement costs, income taxes and litigation. Actual results could materially differ from
those estimates. In the opinion of management, all normal recurring adjustments considered
necessary for a fair presentation have been included in these financial statements. Certain
amounts for prior periods have been reclassified to conform to the current presentation.
Management believes that it is reasonably possible that the following material estimates affecting
the financial statements could change in the coming year:
| proved oil and gas reserves, |
| expected future cash flow from proved oil and gas properties, |
| future dismantlement and restoration costs, |
| fair values used in purchase accounting, and |
| fair value of derivative instruments. |
New Accounting Developments
On January 1, 2010, we adopted the following new standards without material effect on our
results of operations or financial position for the three and nine months ended September 30, 2010:
| Subsequent Events Amended standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. |
5
Table of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
| Fair Value New, expanded disclosures are required for recurring or nonrecurring fair-value measurements and the reconciliation of specific fair value measurements. |
Note 2 Discontinued Operations
On May 14, 2009, we completed the divestiture of our Norwegian subsidiary, Endeavour Energy
Norge AS, to Verbundnetz Gas AG for cash consideration of $150 million (the Norway Sale). We
recognized a gain upon closing the Norway Sale of $47 million, after the allocation of $68 million
of goodwill to the assets sold.
As a result of the Norway Sale, we have classified the results of operations and financial position
of our former Norwegian subsidiary as discontinued operations for all periods presented. The
following table details selected financial data for the assets included in the Norway Sale:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Sales |
$ | | $ | | $ | | $ | 17,550 | ||||||||
Income before Taxes |
$ | | $ | | $ | | $ | 4,656 | ||||||||
Income Tax Expense |
| | | (5,430 | ) | |||||||||||
Loss from Operations |
| | | (774 | ) | |||||||||||
Gain on sale |
| 277 | | 47,420 | ||||||||||||
Net Income from
Discontinued Operations |
$ | | $ | 277 | $ | | $ | 46,646 | ||||||||
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Table of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 3 Income Tax Expense (Benefit)
The following summarizes the components of income tax expense (benefit):
UK | U.S. | Other | Total | |||||||||||||
Nine Months Ended September 30, 2010: |
||||||||||||||||
Net income (loss) before taxes from continuing
operations |
$ | 6,249 | $ | (22,214 | ) | $ | (2,397 | ) | $ | (18,362 | ) | |||||
Current tax expense (benefit) |
1,892 | | (171 | ) | 1,721 | |||||||||||
Deferred tax expense (benefit) |
7,174 | | (928 | ) | 6,246 | |||||||||||
Foreign currency gains on deferred tax liabilities |
| | (51 | ) | (51 | ) | ||||||||||
Income tax expense (benefit) |
9,066 | | (1,150 | ) | 7,916 | |||||||||||
Net loss from continuing operations |
$ | (2,817 | ) | $ | (22,214 | ) | $ | (1,247 | ) | $ | (26,278 | ) | ||||
Nine Months Ended September 30, 2009: |
||||||||||||||||
Net loss before taxes from continuing
operations |
$ | (44,641 | ) | $ | (16,149 | ) | $ | (7,860 | ) | $ | (68,650 | ) | ||||
Current tax benefit |
(1,176 | ) | | | (1,176 | ) | ||||||||||
Deferred tax benefit |
(16,203 | ) | | | (16,203 | ) | ||||||||||
Foreign currency losses on deferred tax liabilities |
6,902 | | | 6,902 | ||||||||||||
Income tax expense (benefit) |
(10,477 | ) | | | (10,477 | ) | ||||||||||
Net loss from continuing operations |
$ | (34,164 | ) | $ | (16,149 | ) | $ | (7,860 | ) | $ | (58,173 | ) | ||||
Our income tax expense relates primarily to our operations in the U.K. where the statutory
income tax rate is 50%. Certain fields, such as our Alba field, are subject to an additional 25%
petroleum revenue tax (PRT). This PRT tax represents all of our current tax expense in the U.K.
for the nine months ended September 30, 2010. The combined effects of PRT, the statutory tax rate
of 50% and the non-deductibility of certain interest charges cause our effective tax rate in the
U.K. to vary considerably from period to period.
Until 2009, we did not have revenue from U.S. operations. We have been building net operating loss
carryforwards (NOLs) in the U.S. but have not been able to record income tax benefits on our U.S.
losses as there has been no assurance that we can generate any U.S. taxable earnings. At September
30, 2010, we have approximately $63.1 million in NOLs that have been offset in full by valuation
allowances. As operations expand in the U.S. and we are able to generate U.S. taxable earnings, we
expect to record income tax benefits in the U.S. through the recognition of the NOLs and removal of
the associated valuation allowance. With the NOLs we have accumulated, we do not anticipate paying
current federal income taxes in the U.S. for a number of years.
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Table of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 4 Property and Equipment
Property and equipment included the following at the dates indicated below:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Oil and gas properties under the full cost method: |
||||||||
Subject to amortization |
$ | 336,876 | $ | 275,278 | ||||
Not subject to amortization: |
||||||||
Acquired in 2010 |
61,981 | | ||||||
Acquired in 2009 |
29,553 | 51,797 | ||||||
Acquired in 2008 |
25,162 | 32,970 | ||||||
Acquired prior to 2008 |
61,446 | 69,786 | ||||||
515,018 | 429,831 | |||||||
Computers, furniture and fixtures |
3,964 | 3,560 | ||||||
Total property and equipment |
518,982 | 433,391 | ||||||
Accumulated depreciation, depletion and amortization |
(184,233 | ) | (166,804 | ) | ||||
Net property and equipment |
$ | 334,749 | $ | 266,587 | ||||
The costs not subject to amortization relate to unproved properties and properties being made
ready to be placed in service, which are excluded from amortizable capital costs until it is
determined whether or not proved reserves can be assigned to such properties. We capitalized $1.2
million and $0.7 million in interest related to exploration activities for the quarters ended
September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010 and 2009,
$3.1 million and $2.4 million, respectively, were capitalized in interest related to exploration.
Impairments
In the first quarter of 2010, we recorded $7.7 million in impairment of our U.S. oil and gas
properties, pre-tax, through the application of the full cost ceiling test at the end of the
quarter. The impairment was primarily due to the declaration of two wells as dry holes during the
first quarter of 2010, the Alligator Bayou well, which was spud in 2008, and a well under our
participation agreement with Caza Petroleum Inc. (Caza). The prices used to determine the
impairment for the U.S. properties were $69.83 per barrel for oil and $4.01 per Mcf for gas. We
did not have an impairment of U.K. oil and gas properties, pre-tax, through the application of the
full cost ceiling test at the end of the first quarter 2010. The prices used for the U.K.
properties were $68.74 per barrel for oil and $4.51 per Mcf for gas in the application of the full
cost ceiling test.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
For the second and third quarters of 2010, we did not have an impairment of oil and gas properties,
through the application of the full cost ceiling test at the end of either quarter. For the third
quarter of 2010, the prices used in the application of the full cost ceiling test were $77.82 per
barrel for oil and $4.42 per Mcf for gas for our U.S. properties, and $76.65 per barrel for oil and
$5.56 per Mcf for gas for our U.K. properties.
Acquisitions
On January 6, 2010, we acquired positions in several U.S. resource plays as discussed below.
We funded the initial cash contributions for these new focus areas from existing cash reserves.
We entered into a participation agreement with Cohort Energy Company (Cohort), a subsidiary of
J-W Operating Company, and acquired 50 percent of Cohorts interests in certain acreage in North
Louisiana/East Texas and Western Pennsylvania, primarily in the Haynesville and Marcellus gas shale
plays. Our initial investment was $15 million in cash, and we will pay a share of Cohorts
drilling and completion expenditures as wells are drilled over the next few years. Under this
agreement, we also acquired additional acreage in the Marcellus gas shale play area for
approximately $7.5 million during the second quarter of 2010.
We also acquired 50 percent of Hillwood Energy Alabama LPs (Hillwood) position in Hillwoods
exploratory gas shale play in Alabama with an initial net investment of approximately $8.0 million.
Pending Disposition
In the third quarter of 2010, we executed a definitive agreement to sell our interests in the
Cygnus asset in the North Sea for $110 million in cash consideration. We allocated $21.1 million
of our full cost pool to Cygnus which is presented separately as assets held for sale in the
condensed consolidated balance sheet as of September 30, 2010. The allocation was made using the
relative fair value of Cygnus and the other properties in the U.K. full cost pool. Assets held for
sale were assessed for impairment, and based on this assessment, no impairment was necessary as of
September 30, 2010. Additionally, we will not recognize depletion, depreciation and amortization
on our long-lived assets while they are classified as held for sale. The sale was completed in
October 2010.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 5 Debt Obligations
Our debt consisted of the following at the dates indicated:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Senior notes, 6% fixed rate, due 2012 |
$ | 81,250 | $ | 81,250 | ||||
Senior bank facility, variable rate, due 2011 |
| 49,942 | ||||||
Convertible bonds, 11.5%, due 2014 |
54,261 | 49,838 | ||||||
Subordinated notes, 12.0%, due 2014 |
50,878 | 50,122 | ||||||
Senior term loan, 15.0%, due 2013 |
150,000 | | ||||||
336,389 | 231,152 | |||||||
Less: debt discount |
(5,181 | ) | (7,767 | ) | ||||
Less: current maturities |
(16,500 | ) | | |||||
Long-term debt |
$ | 314,708 | $ | 223,385 | ||||
Standby letters of credit outstanding for abandonment liabilities |
$ | 32,474 | $ | 33,388 | ||||
We were in compliance with all financial covenants of our outstanding debt at September 30,
2010 and December 31, 2009.
The fair value of our debt obligations was $328 million and $219 million at September 30, 2010 and
December 31, 2009, respectively. The fair values of long-term debt were determined based upon
quotes obtained from banks for our senior notes, discounted cash flows for our 11.5% convertible
debt and book value for our other debt. Book value approximates fair value for our senior bank
facility as this instrument bears interest at market rates.
Junior Facility
In the first quarter of 2010, we entered into a $25 million junior lending facility between
us, our subsidiaries and Bank of Scotland PLC (the Junior Facility), with a maturity date of
February 5, 2011, and bearing interest at LIBOR plus 8%. We terminated the Junior Facility and
repaid the outstanding indebtedness in its entirety on August 16, 2010.
Senior Bank Facility
We had a $225 million senior bank facility (Senior Bank Facility), which was subject to a
borrowing base limitation with interest of LIBOR plus 1.3%. We terminated the Senior Bank Facility
and repaid the outstanding indebtedness in its entirety on August 16, 2010.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Senior Term Loan
On August 16, 2010 we entered into a credit agreement with Cyan Partners, LP (Cyan), as
administrative agent, and various lenders for a senior, secured term loan in the aggregate amount
of $150 million (the Senior Term Loan) which may be increased to $160 million in certain
circumstances. Subsequent to the September 30, 2010, we increased the borrowings under the Senior
Term Loan to an aggregate $160 million and borrowed the additional $10.0 million. No shares of our
common stock were issued upon this additional borrowing of
10.0 million.
The Senior Term Loan is a senior obligation of our U.K. subsidiary and guaranteed by Endeavour and
all of our material subsidiaries. In addition, substantially all of our assets are pledged as
collateral to secure the obligations under the Senior Term Loan. Such collateral may also secure
certain hedging obligations and reimbursement obligations in respect of letters of credit that may
be issued for our account.
As discussed above, we used $66 million of the proceeds from the loans to repay in full the
outstanding borrowings under the Senior Bank Facility and the Junior Facility. Following these
repayments, both the Senior Bank Facility and the Junior Facility terminated in accordance with
their terms. We expect to use the remaining net proceeds from the Senior Term Loan for general
corporate purposes.
The Senior Term Loan obligates us to pay annual cash interest of 12%. In addition, we are
obligated to pay an additional 3% in annual interest in-kind (PIK Interest), through an
increase in the outstanding principal amount of the Senior Term Loan. We have the ability to pay
the PIK Interest in cash at our option. We paid Cyan certain fees in the aggregate amount of $18
million. Concurrent with the closing of the Senior Term Loan, Cyan purchased nine million shares
of our common stock from us. See Note 7 for additional discussion on this purchase of our common
stock.
The Senior Term Loan has a three-year term and matures on August 16, 2013, provided that:
| Endeavours 6% Convertible Senior Notes due 2012 have been refinanced or extended and |
| the holders conditional redemption right on Endeavours 11.5% Guaranteed Convertible Senior Bonds due 2014 has been terminated or extended. Such conditional redemption right exists if our average common stock price, as defined, is below $2.36 per share on January 18, 2012. |
If these conditions are not met by October 14, 2011, however, the Senior Term Loan shall mature and
will be due in full on this date.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
The Senior Term Loan has quarterly principal prepayments of $375,000 beginning on December 31,
2010. At maturity, the remaining principal balance (including any PIK Interest) is due in full.
The Senior Term Loan is callable by us after one year. Between August 16, 2011 and August 15,
2012, we may voluntarily prepay any portion of or all amounts outstanding under the Senior Term
Loan at 103% of principal. For prepayments on or after August 16, 2012, the additional prepayment
fee will be 1% of the principal amount of the amount outstanding under the Senior Term Loan.
The Senior Term Loan permits certain asset sales and the incurrence of additional indebtedness,
subject to certain conditions and within specified limits. We are obligated to comply with certain
financial covenants, including:
| a specified maximum total leverage ratio (consolidated net indebtedness to consolidated EBITDAX), ranging from 7.85:1.00 at September 30, 2010 to 3.00:1.00 at December 31, 2012 and thereafter; |
| a specified minimum EBITDAX for each four-quarter period, ranging from $45,000,000 for the four-quarter period ending September 30, 2010 to $200,000,000 for the four-quarter period ending June 30, 2013; |
| a minimum Reserve Coverage Ratio, as defined, of not less than 3.00:1.00; and |
| a PDP Coverage Ratio, as defined, of not less than 0.25:1.00 on or prior to September 30, 2011 and not less than 0.50:1.00 after September 30, 2011. |
The Senior Term Loan contains various covenants that limit our ability, among other things, to:
grant liens; pay dividends; and make investments or loans. We are also obligated to maintain our
traditional hedging policies and program. See Note 10 for additional discussion.
The Senior Term Loan also contains customary events of default. If an event of default exists
under the Senior Term Loan, the administrative agent has the ability to accelerate the maturity of
the loan and exercise other rights and remedies.
Note 6 Asset Retirement Obligations
Our asset retirement obligations relate to obligations for the future plugging and abandonment
of oil and gas properties and are substantially all related to our U.K. assets. The following
table provides a rollforward of our asset retirement obligations for the nine months ended
September 30, 2010 and 2009:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Carrying amount of asset retirement obligations as of beginning of
period |
$ | 47,362 | $ | 38,776 | ||||
Accretion expense (included in DD&A expense) |
3,444 | 3,082 | ||||||
Impact of foreign currency exchange rate changes |
(1,379 | ) | 3,782 | |||||
Payment of asset retirement obligation |
(3,012 | ) | (6,620 | ) | ||||
Reduction in asset retirement obligation |
(1,812 | ) | | |||||
Sale of assets |
| (248 | ) | |||||
Carrying amount of asset retirement obligations as of end of period |
44,603 | 38,772 | ||||||
Less: Current portion |
(2,588 | ) | | |||||
Long-term asset retirement obligation |
$ | 42,015 | $ | 38,772 | ||||
Note 7 Equity Transactions
Series C Convertible Preferred Stock
On January 29, 2010, we and the holders of our outstanding Series C Convertible Preferred
Stock corrected a technical oversight in the Subscription and Registration Rights Agreement for our
Series C Convertible Preferred Stock. The amendment aligns the number of common shares reserved
for the potential conversion of the Series C Convertible Preferred Stock to the terms of the Series
C Convertible Preferred Stock after our partial redemption in November 2009. On March 10, 2010, we
also amended the Certificate of Designation for the Series C Convertible Preferred Stock and the
$50 million subordinated notes issued to the holders of the Series C Convertible Preferred Stock to
make certain technical changes that align certain definitions and provisions relating to potential
repurchases of securities by us.
In February and March 2010, a combined 3,375 shares of our Series C Convertible Preferred Stock
were converted into 2.7 million shares of our common stock. In April 2010, an additional 1,625
shares of our Series C Convertible Preferred Stock were converted into 1.3 million shares of our
common stock.
Common Stock Issuance
On August 16, 2010, in connection with the issuance of the Senior Term Loan, we completed a
registered direct offering of common stock pursuant to a Common Stock Purchase Agreement with Cyan
to sell 9.0 million shares of our common stock, par value $0.001 per share, for aggregate net cash
consideration of approximately $10.1 million, after deducting expenses. The purchase price per
share was $1.13, the closing price of our common stock on the NYSE Amex on August 13, 2010. We
intend to use the net proceeds from this offering for general corporate purposes.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
On February 4, 2010, we completed a private placement of our common stock pursuant to a Common
Stock Purchase Agreement with existing stockholders, certain directors and other third-party
investors, thereby selling 23.5 million shares of our common stock, for aggregate net cash
consideration of approximately $20.5 million. The purchase price per share was $0.90, the closing
price of our common stock on the NYSE Amex on February 3, 2010. The net proceeds from this private
placement have been used to partially fund our 2010 capital budget.
Note 8 Loss Per Share
Basic loss per common share is computed by dividing net loss to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted loss per share
includes the effect of our outstanding stock options, warrants and shares issuable pursuant to
convertible debt, convertible preferred stock and certain stock incentive plans under the treasury
stock method, if including such instruments would be dilutive.
For each of the periods presented, shares associated with stock options, warrants, convertible
debt, convertible preferred stock and certain stock incentive plans were not included because their
inclusion would be anti-dilutive.
The common shares potentially issuable arising from these instruments, which were outstanding
during the periods presented in the financial statements consisted of:
September 30, | ||||||||
2010 | 2009 | |||||||
Warrants, options and stock-based compensation |
703 | 699 | ||||||
Convertible debt: |
||||||||
Senior notes |
16,185 | 16,185 | ||||||
Convertible bonds |
22,992 | 20,528 | ||||||
Convertible preferred stock |
36,000 | 50,000 | ||||||
75,880 | 87,412 | |||||||
Note 9 Fair Value Measurements
We apply fair value measurements to certain assets and liabilities including derivative
instruments, marketable securities and embedded derivatives relating to conversion and change in
control features in certain of our debt instruments. We seek to maximize the use of observable
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
inputs and minimize the use of unobservable inputs when measuring fair value. Fair value
measurements are classified and disclosed in one of the following categories:
Level 1: | Fair value is based on actively-quoted market prices, if available. |
Level 2: | In the absence of actively-quoted market prices, we seek price information from external sources, including broker quotes and industry publications. Substantially all of these inputs are observable in the marketplace during the entire term of the instrument, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. |
Level 3: | If valuations require inputs that are both significant to the fair value measurement and less observable from objective sources, we must estimate prices based on available historical and near-term future price information and certain statistical methods that reflect our market assumptions. |
Financial assets and liabilities are classified based on the lowest level of input that is
significant to the fair value measurement. The following table summarizes the valuation of our
investments and financial instruments by pricing levels as of September 30, 2010:
Quoted Market Prices | Significant Other | Significant | ||||||||||||||
in Active Markets - | Observable Inputs - | Unobservable Inputs | Total | |||||||||||||
Level 1 | Level 2 | Level - 3 | Fair Value | |||||||||||||
September 30, 2010: |
||||||||||||||||
Oil and gas derivative contracts: |
||||||||||||||||
Oil and gas swaps |
$ | | $ | | $ | | $ | | ||||||||
Embedded derivatives |
| | (30,181 | ) | (30,181 | ) | ||||||||||
Total derivative liabilities |
$ | | $ | | $ | (30,181 | ) | $ | (30,181 | ) | ||||||
December 31, 2009: |
||||||||||||||||
Oil and gas derivative contracts: |
||||||||||||||||
Oil and gas swaps |
$ | | $ | (12,816 | ) | $ | | $ | (12,816 | ) | ||||||
Embedded derivatives |
| | (28,843 | ) | (28,843 | ) | ||||||||||
Total derivative liabilities |
$ | | $ | (12,816 | ) | $ | (28,843 | ) | $ | (41,659 | ) | |||||
Our commodity derivative contracts were measured based on quotes from our counterparties, all
of whom are major financial institutions or commodities trading institutions. Such quotes have
been derived using models that consider various inputs including current market and contractual
prices for the underlying instruments, quoted forward prices for natural gas and crude oil,
volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
derivative contract term. The inputs for the fair value models for our swaps are all observable
market data, and as a result these instruments have been classified as Level 2.
The following is a reconciliation of changes in fair value of net derivative assets and liabilities
classified as Level 3:
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Balance at beginning of period |
$ | (28,843 | ) | $ | (12,057 | ) | ||
Total gains or losses (realized/unrealized) |
||||||||
Included in earnings |
(1,338 | ) | (9,541 | ) | ||||
Balance at end of period |
$ | (30,181 | ) | $ | (21,598 | ) | ||
Changes in unrealized gains (losses) relating to derivatives assets and liabilities |
$ | (1,338 | ) | $ | (6,663 | ) | ||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are reported at fair value on a nonrecurring basis in our
consolidated balance sheets. The following methods and assumptions were used to estimate the fair
values:
Goodwill Goodwill is tested annually at year end for impairment. The first step of that process
is to compare the fair value of the reporting unit to which goodwill has been assigned to the
carrying amount of the associated net assets and goodwill. Significant Level 3 inputs are used in
the determination of the fair value of the reporting unit, including present values of expected
cash flows from operations.
Note 10 Derivative Instruments
From time to time, we may utilize derivative financial instruments to hedge cash flows from
operations or to hedge the fair value of financial instruments. We may use derivative financial
instruments with respect to a portion of our oil and gas production or a portion of our variable
rate debt to achieve a more predictable cash flow by reducing our exposure to price fluctuations.
These transactions are likely to be swaps, collars or options and to be entered into with major
financial institutions or commodities trading institutions. Derivative financial instruments are
intended to reduce our exposure to declines in the market prices of crude oil and natural gas that
we produce and sell, to increases in interest rates and to manage cash flows in support of our
annual capital expenditure budget. We also have embedded derivatives related to our debt
instruments and convertible preferred stock.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
In conjunction with the repayment of the Senior Bank Facility in August 2010, we terminated all of
our outstanding commodity derivative positions for a realized loss of $10.2 million and have no
commodity derivatives at September 30, 2010. Under the Senior Term Loan, we are required to
re-establish our commodity derivatives program covering specified percentages of our reserves
within 90 days of closing the Senior Term Loan. We expect to enter into commodity derivatives
during the fourth quarter of 2010.
The fair market value of these derivative instruments is included in our balance sheet as follows
for the periods indicated:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Derivatives not designated as hedges: |
||||||||
Oil and gas commodity derivatives: |
||||||||
Assets: |
||||||||
Prepaid expenses and other current assets |
$ | | $ | 2,890 | ||||
Other assets long term |
| 318 | ||||||
Liabilities: |
||||||||
Accrued expenses and other |
| (6,817 | ) | |||||
Other liabilities long-term |
| (9,207 | ) | |||||
$ | | $ | (12,816 | ) | ||||
Embedded derivatives related to debt and equity instruments: |
||||||||
Liabilities: |
||||||||
Other liabilities long-term |
(30,181 | ) | (28,843 | ) |
The effect of the derivatives not designated as hedges on our results of operations was as
follows for the periods indicated:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Derivatives not designated as hedges: |
||||||||||||||||
Oil and gas commodity derivatives |
||||||||||||||||
Realized gains (losses) |
$ | (452 | ) | $ | 7,530 | $ | (1,552 | ) | $ | 28,581 | ||||||
Realized loss on early termination |
(10,201 | ) | | (10,201 | ) | | ||||||||||
Unrealized gains (losses) |
8,057 | (2,950 | ) | 12,815 | (29,645 | ) | ||||||||||
(2,596 | ) | 4,580 | 1,062 | (1,064 | ) | |||||||||||
Embedded derivatives related to debt
and equity instruments |
||||||||||||||||
Unrealized gains (losses) |
$ | (1,616 | ) | $ | (1,410 | ) | $ | (1,338 | ) | $ | 8,810 | |||||
The effect of derivatives designated as cash flow hedges on our results of operations and
other comprehensive income was as follows for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
Location of | ||||||||||||||||||||
Reclassification | ||||||||||||||||||||
into Income | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Interest rate swap |
||||||||||||||||||||
Gain recognized in other comprehensive
income, net of tax |
$ | | $ | (21 | ) | $ | | $ | (94 | ) | ||||||||||
Gain reclassified from accumulated
other comprehensive income |
Interest | |||||||||||||||||||
into income |
expense | | 418 | | 1,176 |
We held an interest rate swap with BNP Paribas for a notional amount of $37.5 million whereby
we paid a fixed rate of 5.05% and received three-month LIBOR through November 2009.
We did not exclude any component of the hedging instruments gain or loss when assessing
effectiveness. The ineffective portion of the hedges is not material for the periods presented and
is included in other income (expense).
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 11 Supplemental Cash Flow Information
Cash paid during the period for interest and income taxes was as follows:
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Interest paid |
$ | 10,313 | $ | 6,191 | ||||
Income taxes paid (refunded) |
$ | (172 | ) | $ | 4,334 | |||
The net cash flows provided by operating activities are primarily impacted by the earnings
from our business activities. The cash flows provided by operating activities decreased to $31.3
million for the nine months ended September 30, 2010 as compared to $39.7 million for the nine
months ended September 30, 2009.
The cash provided by or used in investing activities represents expenditures for capital projects,
acquisition costs and changes to restricted cash.
The cash used in financing activities consists of borrowings and repayments of debt, payments of
preferred dividends, payment of financing costs, and proceeds from the issuance of common stock.
Note 12 Comprehensive Income (Loss)
Excluding net income (loss), our source of comprehensive income (loss) is the net unrealized
loss on derivative instruments and marketable securities, which are classified as
available-for-sale. The following summarizes the components of comprehensive income (loss):
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (11,692 | ) | $ | (4,483 | ) | $ | (26,278 | ) | $ | (11,527 | ) | ||||
Unrealized gain on interest rate swap
derivative instrument, net of tax |
| (21 | ) | | (94 | ) | ||||||||||
Reclassification adjustment for gain
realized in net loss above |
| 418 | | 1,176 | ||||||||||||
Net impact on comprehensive income (loss) |
| 397 | | 1,082 | ||||||||||||
Comprehensive loss |
$ | (11,692 | ) | $ | (4,086 | ) | $ | (26,278 | ) | $ | (10,445 | ) | ||||
Note 13 Stock-Based Compensation Arrangements
We grant restricted stock and stock options to employees and directors as incentive
compensation. The restricted stock and options generally vest over three years. Non-cash
stock-based compensation is recorded in general and administrative (G&A) expenses or capitalized
G&A as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
G & A Expenses |
$ | 656 | $ | 506 | $ | 2,474 | $ | 1,436 | ||||||||
Capitalized G & A |
211 | 159 | 711 | 556 | ||||||||||||
Total non-cash
stock-based
compensation |
$ | 867 | $ | 665 | $ | 3,185 | $ | 1,992 | ||||||||
At September 30, 2010, total compensation cost related to awards not yet recognized was
approximately $4.4 million and is expected to be recognized over a weighted average period of less
than three years.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Stock Options
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option-pricing model. Information relating to stock options, including notional stock options, is
summarized as follows:
Weighted | Weighted | |||||||||||||||
Number of | Average | Average | ||||||||||||||
Shares | Exercise | Contractual | Aggregate | |||||||||||||
Underlying | Price per | Life in | Intrinsic | |||||||||||||
Options | Share | Years | Value | |||||||||||||
Balance outstanding January 1, 2010 |
4,212 | $ | 1.87 | |||||||||||||
Exercised |
(147 | ) | 0.56 | |||||||||||||
Forfeited |
(44 | ) | 1.98 | |||||||||||||
Expired |
(643 | ) | 4.14 | |||||||||||||
Balance outstanding September
30, 2010 |
3,378 | $ | 1.49 | 6.6 | $ | 849 | ||||||||||
Currently exercisable September
30, 2010 |
2,305 | $ | 1.82 | 6.0 | $ | 311 | ||||||||||
Restricted Stock
The restricted stock awards were valued based on the closing price of our common stock on the
measurement date, typically the date of grant. Status of the restricted shares as of September 30,
2010 and the changes during the nine months ended September 30, 2010 are presented below:
Weighted | ||||||||
Average Grant | ||||||||
Date Fair | ||||||||
Number of | Value per | |||||||
Shares | Share | |||||||
Balance outstanding January 1, 2010 |
3,420 | $ | 1.00 | |||||
Granted |
5,074 | 1.12 | ||||||
Vested |
(2,424 | ) | 1.15 | |||||
Forfeited |
(59 | ) | 0.87 | |||||
Balance outstanding September 30, 2010 |
6,011 | $ | 1.04 | |||||
Total grant date fair value of shares vesting during the period |
$ | 2,791 | ||||||
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Note 14 Commitments and Contingencies
We have previously disclosed a potential commitment on a drilling rig in our North Sea
operations. We are in dispute with the rig operator in relation to this potential commitment and
have also raised potential counterclaims. We will defend our position vigorously, but there can be
no certainty that we will resolve this matter favorably.
Note 15 Subsequent Events
Subsequent to September 30, 2010, we closed on the sale of our Cygnus asset, located in the
Southern Gas Basin of the United Kingdom, to Bayerngas UK Ltd. for cash consideration of $110
million.
In October 2010, our Board of Directors authorized a one-for-seven share consolidation of our
common stock, in the form of a reverse stock split, that is expected to be effective at the opening
of trading on November 18, 2010. As a result of the share consolidation, every seven shares of
common stock outstanding will automatically be combined into one share of common stock. The
Companys stock will begin trading at the split-adjusted price on November 18, 2010. Holders who
would otherwise receive fractional shares will have their shares rounded up to the next whole
share. We have not restated any share or per share amounts as a result of this share consolidation
within this Quarterly Report.
Common shares issued and outstanding, giving retroactive effect to the share consolidation as of
September 30, 2010 and December 31, 2009, would have been 24.7 million and 18.8 million,
respectively. Pro forma loss per share, giving retroactive effect to the share consolidation for
the three and nine months ended September 30, 2010 and 2009, is as follows:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
As reported: |
||||||||||||||||
Basic and Diluted Net Loss per Common Share: |
||||||||||||||||
Continuing operations |
$ | (0.07 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.51 | ) | ||||
Discontinued operations |
| | | 0.36 | ||||||||||||
Total |
$ | (0.07 | ) | $ | (0.06 | ) | $ | (0.17 | ) | $ | (0.15 | ) | ||||
Weighted Average Number of Common Shares
Outstanding: |
||||||||||||||||
Basic and Diluted |
167,641 | 130,109 | 159,801 | 129,719 | ||||||||||||
Pro forma: |
||||||||||||||||
Basic and Diluted Net per Common Share: |
||||||||||||||||
Continuing operations |
$ | (0.51 | ) | $ | (0.39 | ) | $ | (1.22 | ) | $ | (3.58 | ) | ||||
Discontinued operations |
| | | 2.52 | ||||||||||||
Total |
$ | (0.51 | ) | $ | (0.39 | ) | $ | (1.22 | ) | $ | (1.06 | ) | ||||
Weighted Average Number of Common Shares
Outstanding: |
||||||||||||||||
Basic and Diluted |
23,949 | 18,587 | 22,829 | 18,531 | ||||||||||||
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Endeavour International Corporation
(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited Condensed
Consolidated Financial Statements and related notes thereto included elsewhere in this report. The
following discussion also includes non-GAAP financial measures, which may not be comparable to
similarly titled measures presented by other companies. Accordingly, we strongly encourage
investors to review our financial statements in their entirety and not rely on any single financial
measure.
Overview
We are an international oil and gas exploration and production company. Historically, we have
focused our operations in the North Sea, but began expanding our focus in 2009 to target
unconventional U.S. onshore resource shale plays with shorter production-cycle times and more
compelling risk/return profiles. Since the beginning of 2009, we have taken measured and specific
steps to achieve this strategic shift while maintaining our strong financial discipline, including:
| In October 2010, we completed the previously-announced sale of our North Sea Cygnus asset for $110 million in cash. With this sale, we have concluded the review of strategic alternatives for our North Sea assets. | ||
| On August 16, 2010 we entered into the Senior Term Loan with Cyan and various lenders and under which we borrowed $150 million. We used a portion of the loan proceeds to repay all of our outstanding borrowings under the Senior Bank Facility and the Junior Facility. Subsequent to the third quarter of 2010, we borrowed an additional $10 million under the Senior Term Loan. These borrowings will be used for general corporate purposes. | ||
| Concurrent with the Senior Term Loan, we sold 9.0 million shares of our common stock to Cyan for gross cash consideration of $10.1 million. See Note 7 for additional discussion. | ||
| During the second quarter of 2010, we completed a farm-out with Nexen Petroleum U.K. Limited to test the West Rochelle prospect that lies west of our Rochelle gas development area. Under the terms of the farm-out agreement, we are carried for our share of the drilling costs for the initial West Rochelle well, remain operator of the block and retain a 50 percent interest in the block. This West Rochelle well began drilling in September 2010 and natural gas with an oil rim was encountered in early October 2010. The well has been sidetracked to the north and has encountered hydrocarbons that extend the West Rochelle area. | ||
| In February 2010, we sold 23.5 million shares of common stock in a private placement for aggregate net proceeds of $20.5 million. We also entered into a $25 million junior lending facility, with a maturity date of February 5, 2011. The net proceeds from the private placement and the Junior Facility have been used to partially fund our 2010 capital budget. |
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
| In January 2010, we acquired 50 percent of Cohorts interests in certain acreage in North Louisiana/East Texas and Western Pennsylvania, primarily in the Haynesville and Marcellus gas shale plays, for $15 million in cash (the 2010 Cohort Acquisition). As part of this acquisition, we also acquired additional acreage in the Marcellus gas shale play area for approximately $7.5 million during the second quarter of 2010. | ||
| In January 2010, we also acquired 50 percent of Hillwoods position in Hillwoods exploratory gas shale play in Alabama with an initial net investment of approximately $8.0 million (the Hillwood Acquisition). During the third quarter of 2010, we drilled two vertical pilot wells in this area which will be evaluated for future horizontal re-entries and completion tests. | ||
| In the fourth quarter of 2009, we entered into a participation agreement with Cohort providing us with acreage positions and production in the Haynesville and Marcellus gas shales for $15 million in cash. | ||
| In the fourth quarter of 2009, we acquired 50 percent of the interests owned by a private company in more than 300,000 gross (75,000 net) acres in central Montana in the highly prospective, but previously untested Heath Shale oil play with an initial net cash investment of $3.75 million. | ||
| In the fourth quarter of 2009, we redeemed 60 percent of the outstanding shares of our Series C Preferred Stock, for face value of $75 million, and amended the terms of the remaining shares of Series C Preferred Stock. The redemption price consisted of a $25 million cash payment and the issuance of $50 million Subordinated Notes. | ||
| In the second quarter of 2009, we sold our Norwegian operations for cash consideration of $150 million, providing us with financial flexibility and strength to continue our U.K. development program and accelerate our expanding U.S. initiative. |
With our recent entry into the onshore U.S. shale plays, we are attempting to balance the capital
intensive, long lead-time nature of our North Sea assets. We believe the resource-rich shale plays
provide us with less expensive, shorter lead-time opportunities in some of the most active
hydrocarbon producing areas in the U.S. In addition, we intend to continue to actively manage our
North Sea assets in a manner that maximizes value while enabling us to allocate resources to
effectively pursue our strategic objectives. Our North Sea assets remain a key source of value
that can be further developed to increase our overall reserves and production. Our primary North
Sea development projects Bacchus, Rochelle, and Columbus have the potential to significantly
expand our total proved reserves and production levels. Further exploration and development
efforts will continue on our properties as we seek to improve our risk-adjusted value for our North
Sea assets. We continue to believe that our balanced portfolio of exploration and development
assets, exploited through a disciplined approach to capital resources, should enable us to realize
the full value of our assets and increase shareholder return.
Results of Operations
Revenue, net income and cash flows from operating activities are very sensitive to changes in
prices received for our products. With our business policy to utilize various oil and gas
derivative instruments to achieve more predictable cash flows by reducing our exposure to price
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
fluctuations, our realized commodity prices including the effect of derivatives, particularly for
oil, were less volatile than commodity prices before the effect of derivatives.
Net loss to common shareholders for the nine months ended September 30, 2010 was $28.0 million, or
$0.17 per share. For the nine months ended September 30, 2009, net loss to common shareholders was
$19.6 million, or $0.15 per share. In connection with the August 2010 issuance of the Senior Term
Loan, we settled all outstanding commodity derivatives, which covered a portion of production
through the end of 2011, and recorded a realized loss of $10.2 million for the third quarter and
nine months ended September 30, 2010.
In addition to our operations, our net income can be significantly affected by various non-cash
items, such as unrealized gains and losses on our derivatives, impairment of oil and gas
properties, currency impact of long-term liabilities and deferred taxes. Net loss as adjusted for
the nine months ended September 30, 2010 would have been $25.4 million without the effect of
derivative transactions, impairment of oil and gas properties and currency impacts of deferred
taxes as compared to net income as adjusted of $28.2 million for the same period in 2009, which
includes the gain on the sale of our discontinued operations. For the third quarter of 2010 net
loss as adjusted was $14.6 million, compared to $6.4 million for the third quarter in 2009.
For the nine months ended September 30, 2010, discretionary cash flow was $11.2 million as compared
to $50.0 million for the same period in 2009. For the third quarter of 2010, discretionary cash
flow was $6.1 million as compared to $7.6 million for the same period in 2009. The decline in
discretionary cash flow reflects the effects of commodity derivatives, increased interest expense
related to additional debt issuances and increased current tax expense, partially offset by lower
operating expenses. In addition, our discontinued operations had discretionary cash flow of
approximately $10 million for the nine months ended September 30, 2009, which was fully offset by
the capital expenditures for these operations. Our oil derivatives in 2009 had a higher average
price than our oil derivatives in 2010. This decrease in average price is primarily due to oil
collars with a floor of $100.00 per barrel that expired at the end of 2009.
Adjusted EBITDA decreased to $31.0 million for the nine months ended September 30, 2010 from $46.5
million for the same period in 2009, primarily due to the decrease in realized prices after the
effects of commodity derivatives discussed above. For the third quarter of 2010, Adjusted EBITDA
decreased slightly to $8.2 million as compared to $8.7 million for the same period in 2009. For
definitions of Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow, and a
reconciliation of each to the nearest comparable GAAP measure, please see Reconciliation of
Non-GAAP Accounting Measures.
The cash flows provided by operating activities decreased to $31.3 million for the nine months
ended September 30, 2010 as compared to $39.7 million for the same period in 2009 primarily due to
decreases in realized prices after the effects of commodity derivatives, increased interest expense
related to additional debt issuances and increased current tax expense, partially offset by lower
operating expenses. In addition, our discontinued operations had discretionary cash flow of
approximately $10 million for the nine months ended September 30, 2009, which was fully offset by
the capital expenditures for these operations.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Revenue and Sales Volume
Our revenues have increased from $42.2 million in the nine months ended September 30, 2009 to
$55.1 million in the same period of 2010 primarily as a result of substantially increased oil
prices and increased sales from our U.S. operations, partially offset by a decrease in natural gas
prices. While our overall volumes remained consistent between the periods, our expanded operations
in the U.S. have led to an increase in natural gas as a percentage of our total production.
For the third quarter of 2010, revenues increased to $19.8 million as compared to $7.8 million for
the same period in 2009, substantially attributable to our expanding U.S. production and
operations, increased production in the U.K. as the maintenance downtimes in 2009 did not reoccur
and increased commodity prices. Oil prices in the third quarter of 2010 also increased
substantially compared to the corresponding period in 2009. However, natural gas prices increased
slightly in the third quarter of 2010 compared to the same period in the prior year, reducing the
offsetting effect on our revenues of our shift toward natural gas.
The following table shows our average sales volumes and sales prices for our operations for the
periods presented. None of our current producing fields represent more than 15 percent of our
total proved reserves during 2010 or 2009. However, certain of our non-producing North Sea
development assets the Rochelle, Cygnus and Columbus fields each represent more than 15 percent
of our proved reserves during these years. As these fields do not have any current sales or
production, they have not been separately identified in the table below.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Sales volume (1) |
||||||||||||||||
Oil and condensate sales (Mbbls): |
||||||||||||||||
United Kingdom |
127 | 82 | 429 | 494 | ||||||||||||
United States |
2 | 1 | 5 | 2 | ||||||||||||
Continuing operations |
129 | 83 | 434 | 496 | ||||||||||||
Discontinued operations Norway |
| | | 310 | ||||||||||||
Total |
129 | 83 | 434 | 806 | ||||||||||||
Gas sales (MMcf): |
||||||||||||||||
United Kingdom |
869 | 629 | 2,614 | 2,777 | ||||||||||||
United States |
978 | 19 | 1,699 | 130 | ||||||||||||
Continuing operations |
1,847 | 648 | 4,313 | 2,907 | ||||||||||||
Discontinued operations Norway |
| | | 686 | ||||||||||||
Total |
1,847 | 648 | 4,313 | 3,593 | ||||||||||||
Oil equivalent sales (MBOE) |
||||||||||||||||
United Kingdom |
272 | 187 | 864 | 957 | ||||||||||||
United States |
165 | 4 | 288 | 23 | ||||||||||||
Continuing operations |
437 | 191 | 1,152 | 980 | ||||||||||||
Discontinued operations Norway |
| | | 425 | ||||||||||||
Total |
437 | 191 | 1,152 | 1,405 | ||||||||||||
Total BOE per day |
4,755 | 2,072 | 4,222 | 5,147 | ||||||||||||
Physical production volume (BOE per day) (2): |
||||||||||||||||
United Kingdom |
2,993 | 2,777 | 3,130 | 3,675 | ||||||||||||
United States |
1,995 | 32 | 1,117 | 54 | ||||||||||||
Continuing operations |
4,988 | 2,809 | 4,247 | 3,729 | ||||||||||||
Discontinued operations Norway |
| | | 1,545 | ||||||||||||
Total |
4,988 | 2,809 | 4,247 | 5,274 | ||||||||||||
Realized Prices (3) |
||||||||||||||||
Oil and condensate price ($ per Bbl): |
||||||||||||||||
Before commodity derivatives |
$ | 75.64 | $ | 61.73 | $ | 74.72 | $ | 47.38 | ||||||||
Effect of commodity derivatives |
(3.11 | ) | 46.05 | (7.12 | ) | 24.47 | ||||||||||
Realized prices including commodity derivatives |
$ | 72.53 | $ | 107.78 | $ | 67.60 | $ | 71.85 | ||||||||
Gas price ($ per Mcf): |
||||||||||||||||
Before commodity derivatives |
$ | 5.44 | $ | 4.10 | $ | 5.26 | $ | 5.99 | ||||||||
Effect of commodity derivatives |
(0.03 | ) | 5.75 | 0.36 | 2.46 | |||||||||||
Realized prices including commodity derivatives |
$ | 5.41 | $ | 9.85 | $ | 5.62 | $ | 8.45 | ||||||||
Equivalent oil price ($ per BOE): |
||||||||||||||||
Before commodity derivatives |
$ | 45.37 | $ | 40.70 | $ | 47.81 | $ | 42.51 | ||||||||
Effect of commodity derivatives |
(1.03 | ) | 39.50 | (1.35 | ) | 20.34 | ||||||||||
Realized prices including commodity derivatives |
$ | 44.34 | $ | 80.20 | $ | 46.46 | $ | 62.85 | ||||||||
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
(1) | We record oil revenues using the sales method, i.e. when delivery has occurred. We use the entitlements method to account for sales of gas production. | |
(2) | Physical production may differ from sales volumes based on the timing of tanker liftings for our international oil sales. | |
(3) | The average sales prices reflect both our continuing and discontinued operations and include gains and losses for derivative contracts we utilize to manage price risk related to our future cash flows. |
Our revenues and cash flows from operating activities are very sensitive to changes in the prices
we receive for the oil and natural gas we produce. Our production is sold at prevailing market
prices which may be volatile and subject to numerous factors which are outside of our control.
Further, the current tightly balanced supply and demand market for oil and gas allows a small
variation in supply or demand to significantly impact the market prices for these commodities.
The markets in which we sell our oil and natural gas also materially impact our revenues and cash
flows. Oil trades on a worldwide market and consequently, price movements for all types and grades
of crude oil generally trend in the same direction and within a relatively narrow price range.
However, natural gas prices vary among geographic areas as the prices received are largely impacted
by local supply and demand conditions as the global transportation infrastructure for natural gas
is still developing. As such, the oil we produce and sell is typically sold at prices in line with
global prices, whereas our natural gas is to a large extent impacted by regional supply and demand
issues and to a lesser extent by global fuel prices, including oil and coal. Specifically, we sell
a significant portion of our gas into the U.K. market, which is very sensitive to and impacted by
tighter European gas supplies and gas deliveries from Russia. Therefore, the price for natural gas
in the U.K. market is typically higher than the price for natural gas in other geographic regions
and markets, including the U.S.
Sales volumes for our continuing operations increased during the third quarter of 2010 as compared
to 2009 with 4,755 BOE per day and 2,072 BOE per day, respectively, as we realized the production
gains from our acquisition of U.S. properties at the end of the third quarter of 2009. For the
nine months ended September 30, 2010, sales volumes decreased slightly compared to the
corresponding period in the prior year. The slight decrease in sales volume is primarily
attributable to the absence of sales volumes from our discontinued operations in 2009, fewer oil
liftings and maintenance down time in the U.K. particularly during the first quarter, and was
partially offset by increased production from our expanding U.S. operations.
The production from our IVRRH, Renee and Rubie fields has been suspended until the development
activities at Rochelle are completed which we currently anticipate to begin in early 2012. These
fields had a combined sales volume of 244 BOE per day for the first quarter of 2009, the last
period during which they were in production. After the start of Rochelle production, we expect to
re-develop these fields if commercially advisable and practicable.
During the nine months ended September 30, 2010, we realized $1.6 million in losses on the
settlement of commodity derivatives, compared to $28.6 million in gains for the same period in
2009. These realized losses for 2010 do not include $10 million loss paid to extinguish all
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
outstanding commodity derivative positions in conjunction with the issuance of our new Senior
Term Loan. Under the terms of the Senior Term Loan, we are required to re-establish our commodity
derivatives program covering specified percentages of our reserves within 90 days of closing the
Senior Term Loan. We expect to enter into commodity derivatives during the fourth quarter of 2010.
Expenses
Operating expenses decreased to $10.9 million for the nine months ended September 30, 2010, as
compared to $14.5 million for the same period in 2009. For the nine months ended September 30,
2010, our operating expenses have declined from the corresponding period in 2009 due to the March
2009 suspension of production at the IVRRH and Rubie fields in the U.K., which were our fields with
the highest operating costs. For the third quarter of 2010, operating expense increased to $4.6
million as compared to $3.9 million for the same period in 2009, substantially all attributable to
our expanding U.S. production and operations.
However, since our U.S. operations have lower operating costs per BOE and U.S. operations have been
increasing as a share of our total operations, overall operating costs per BOE actually decreased
from $14.75 per BOE for the nine months ended September 30, 2009 to $9.44 per BOE for the nine
months ended September 30, 2010. Operating costs per BOE also decreased from $20.33 per BOE for
the third quarter of 2009 to $10.50 per BOE for the same period in 2010 due to the absence of
expenses from IVRRH and Rubie and the increasing U.S. lower-cost component.
Depreciation, depletion and amortization (DD&A) expense increased to $7.7 million for the third
quarter of 2010 compared to $5.6 million for the third quarter of 2009, and decreased to $21.3
million from $24.8 million for the nine months ended September 30, 2010 and 2009, respectively,
reflecting a decrease in our DD&A rate per BOE after the reserve additions and impairments recorded
in 2009.
G&A expenses increased slightly to $4.2 million during the third quarter of 2010 as compared to
$4.1 million for the corresponding period in 2009 and $12.9 million during the nine months ended
September 30, 2010 as compared to $12.0 million for the corresponding period in 2009. The increase
primarily resulted from higher compensation expense due to expanding U.S. operations and increased
consulting, accounting, and legal fees that pertain to our expanding U.S. operations and the
strategic review of our U.K. assets, substantially offset by increased capitalized G&A expenses.
Components of G&A expenses for these periods are as follows:
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Compensation |
$ | 4,209 | $ | 3,659 | $ | 12,618 | $ | 10,448 | ||||||||
Consulting, legal and accounting fees |
1,357 | 1,537 | 4,433 | 3,529 | ||||||||||||
Occupancy costs |
315 | 221 | 837 | 717 | ||||||||||||
Other expenses |
694 | 85 | 1,948 | 1,062 | ||||||||||||
Total gross cash G&A expenses |
6,575 | 5,502 | 19,836 | 15,756 | ||||||||||||
Non-cash stock-based compensation |
789 | 567 | 2,786 | 1,680 | ||||||||||||
Gross G&A expenses |
7,364 | 6,069 | 22,622 | 17,436 | ||||||||||||
Less: capitalized G & A expenses |
(3,127 | ) | (1,978 | ) | (9,749 | ) | (5,395 | ) | ||||||||
Net G&A expenses |
$ | 4,237 | $ | 4,091 | $ | 12,873 | $ | 12,041 | ||||||||
Interest expense increased by $6.6 million to $10.5 million for the third quarter ending
September 30, 2010 as compared to $3.9 million for the corresponding period in 2009. Interest
expense increased by $9.6 million to $21.7 million for the nine months ended September 30, 2010 as
compared to $12.1 million for the corresponding period in 2009. We have had several changes in our
outstanding debt obligations since late 2009 that are responsible for these increases in interest
expense.
| In the fourth quarter of 2009, we issued $50 million of Subordinated Notes in connection with the redemption and modification of our Series C Preferred Stock. | ||
| In the first quarter of 2010, we borrowed $25 million under the Junior Facility. | ||
| In August 2010, we borrowed $150 million under the Senior Term Loan and repaid all outstanding balances under the Senior Bank Facility and Junior Facility. | ||
| In connection with the repayment of the Senior Bank and Junior Facilities, we expensed the remaining deferred financing costs of $1.2 million related to these instruments. |
Income Taxes
The following summarizes the components of tax expense (benefit):
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
UK | U.S. | Other | Total | |||||||||||||
Nine Months Ended September 30, 2010: |
||||||||||||||||
Net income (loss) before taxes from continuing
operations |
$ | 6,249 | $ | (22,214 | ) | $ | (2,397 | ) | $ | (18,362 | ) | |||||
Current tax expense (benefit) |
1,892 | | (171 | ) | 1,721 | |||||||||||
Deferred tax expense (benefit) |
7,174 | | (928 | ) | 6,246 | |||||||||||
Foreign currency gains on deferred tax liabilities |
| | (51 | ) | (51 | ) | ||||||||||
Income tax expense (benefit) |
9,066 | | (1,150 | ) | 7,916 | |||||||||||
Net loss from continuing operations |
$ | (2,817 | ) | $ | (22,214 | ) | $ | (1,247 | ) | $ | (26,278 | ) | ||||
Nine Months Ended September 30, 2009: |
||||||||||||||||
Net loss before taxes from continuing
operations |
$ | (44,641 | ) | $ | (16,149 | ) | $ | (7,860 | ) | $ | (68,650 | ) | ||||
Current tax benefit |
(1,176 | ) | | | (1,176 | ) | ||||||||||
Deferred tax benefit |
(16,203 | ) | | | (16,203 | ) | ||||||||||
Foreign currency losses on deferred tax liabilities |
6,902 | | | 6,902 | ||||||||||||
Income tax expense (benefit) |
(10,477 | ) | | | (10,477 | ) | ||||||||||
Net loss from continuing operations |
$ | (34,164 | ) | $ | (16,149 | ) | $ | (7,860 | ) | $ | (58,173 | ) | ||||
Our income taxes are substantially all attributable to our U.K. operations. The change in
income tax expense (benefit) from $(10.5) million to $7.9 million for the nine months ended
September 30, 2009 and 2010, respectively, is primarily due to increased income resulting from
decreases in operating expenses, impairments on our oil and gas properties and unrealized gains on
derivatives, partially offset by lower realized revenue and losses on settled derivatives.
In 2010 and 2009, we did not record any income tax benefits in the U.S. as there was no assurance
that we could generate any U.S. taxable earnings, resulting in a full valuation allowance of
deferred tax assets generated.
Reconciliation of Non-GAAP Measures
Net income can be significantly affected by various non-cash items, such as unrealized gains and
losses on our commodity derivatives, currency impact of long-term liabilities and deferred taxes.
Given the significant impact that non-cash items may have on our net income, we use various
measures in addition to net income and net cash provided by operating activities, including
non-financial performance indicators and non-GAAP measures as key metrics to manage our business.
These metrics demonstrate our ability to maintain or grow production levels and reserves,
internally fund capital expenditures and service debt as well as provide comparisons to other oil
and gas exploration and production companies. Net Income (Loss) as Adjusted, Adjusted EBITDA and
Discretionary Cash Flow are internal, supplemental measures of our performance that are not
required by, or presented in accordance with, GAAP. We view these non-GAAP measures, and we
believe that others in the oil and gas industry, securities analysts, investors, and other
interested parties view these, or similar, non-GAAP measures, as commonly used analytic indicators
to compare performance among companies in our industry and in the evaluation of issuers.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Because Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow are not
measurements determined in accordance with GAAP and thus are susceptible to varying calculations,
our non-GAAP measures as presented may not be comparable to similarly titled measures of other
companies. Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow have
limitations as analytical tools, and you should not consider these measures in isolation, or as a
substitute for analysis of our financial statement data presented in the consolidated financial
statements as reported under GAAP.
Provided below are reconciliations of net loss to the following non-GAAP financial measures: Net
Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (11,692 | ) | $ | (4,483 | ) | $ | (26,278 | ) | $ | (11,527 | ) | ||||
Depreciation, depletion and amortization |
7,697 | 5,646 | 21,290 | 29,509 | ||||||||||||
Impairment of oil and gas properties |
| | 7,692 | 30,645 | ||||||||||||
Deferred tax expense (benefit) |
(2,249 | ) | 327 | 6,195 | (3,269 | ) | ||||||||||
Gain on asset sales |
| (277 | ) | | (47,420 | ) | ||||||||||
Unrealized (gain) loss on derivatives |
(6,441 | ) | 4,360 | (11,477 | ) | 38,455 | ||||||||||
Realized loss on early termination of derivatives |
10,201 | | 10,201 | | ||||||||||||
Other |
8,613 | 2,042 | 3,566 | 13,577 | ||||||||||||
Discretionary Cash Flow (1) |
$ | 6,129 | $ | 7,615 | $ | 11,189 | $ | 49,970 | ||||||||
Net loss to common shareholders |
$ | (12,238 | ) | $ | (7,179 | ) | $ | (27,960 | ) | $ | (19,588 | ) | ||||
Impairment of oil and gas properties (net of
tax) (2) |
| | 7,692 | 15,988 | ||||||||||||
Unrealized (gain) loss on derivatives (net of
tax) (3) |
(2,413 | ) | 2,885 | (5,070 | ) | 23,632 | ||||||||||
Currency impact on deferred taxes |
95 | (2,106 | ) | (51 | ) | 8,143 | ||||||||||
Net Income (Loss) as Adjusted |
$ | (14,556 | ) | $ | (6,400 | ) | $ | (25,389 | ) | $ | 28,175 | |||||
Net loss |
$ | (11,692 | ) | $ | (4,483 | ) | $ | (26,278 | ) | $ | (11,527 | ) | ||||
Unrealized (gain) loss on derivatives |
(6,441 | ) | 4,360 | (11,477 | ) | 38,455 | ||||||||||
Realized loss on early termination of derivatives |
10,201 | | 10,201 | | ||||||||||||
Net interest expense |
10,467 | 3,877 | 21,704 | 11,860 | ||||||||||||
Depreciation, depletion and amortization |
7,697 | 5,646 | 21,290 | 29,509 | ||||||||||||
Impairment of oil and gas properties |
| | 7,692 | 30,645 | ||||||||||||
Income tax expense (benefit) |
(2,001 | ) | (441 | ) | 7,916 | (5,047 | ) | |||||||||
Gain on asset sales |
| (277 | ) | | (47,420 | ) | ||||||||||
Adjusted EBITDA |
$ | 8,231 | $ | 8,682 | $ | 31,048 | $ | 46,475 | ||||||||
(1) | Discretionary cash flow is equal to cash flow from operating activities before the changes in operating assets and liabilities, excluding the early termination of commodity derivatives. | |
(2) | Net of tax benefits of $(14,657) for the nine months ended September 30, 2009. | |
(3) | Net of tax (benefits) expense of $(4,029), $1,475, $(6,408) and $14,823, respectively. |
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Liquidity and Capital Resources
The following table summarizes our net cash flows from operating, investing and financing
activities for the periods indicated. For additional details regarding the components of our
primary cash flow amounts, see the Condensed Consolidated Statements of Cash Flows under Item 1 of
this report.
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 31,302 | $ | 39,684 | ||||
Net cash provided by (used in) investing activities |
$ | (144,601 | ) | $ | 72,365 | |||
Net cash provided by (used in) financing activities |
$ | 102,539 | $ | (72,400 | ) | |||
The net cash flows provided by operating activities are primarily impacted by the earnings
from our business activities. The cash flows provided by operating activities decreased to $31.3
million for the nine months ended September 30, 2010 as compared to $39.7 million for the same
period in 2009, primarily due to decreases in realized prices on our oil and gas sales, realized
loss on the early termination of commodity derivatives, increased interest expense and increased
current tax expense, partially offset by lower operating expenses. In addition, our discontinued
operations had discretionary cash flow of approximately $10 million for the nine months ended
September 30, 2009 which was fully offset by the capital expenditures for these operations.
In conjunction with repayment of the Senior Bank Facility in August 2010, we terminated all of our
outstanding commodity derivative positions for a realized loss of $10.2 million and have no
commodity derivatives at September 30, 2010. Under the Senior Term Loan, we are required to
re-establish our commodity derivatives to manage our cash flows from operations. We expect to
enter into commodity derivatives during the fourth quarter of 2010.
The cash provided by or used in investing activities represents expenditures for our capital
projects and acquisitions, proceeds from the disposition of our discontinued operations and changes
in restricted cash. For the nine months ended September 30, 2010, cash used in investing
activities was $144.6 million versus $72.4 million provided by investing activities for the same
period in 2009, which includes net proceeds of $140 million for the sale of our discontinued
operations. See Capital Program below for a discussion of our 2010 capital expenditures.
As a result of the termination of the Senior Bank Facility, we also terminated the lines of credit
related to our abandonment obligation that were secured by assets under the Senior Bank Facility.
We placed $32.5 million in restricted cash as collateral for these abandonment obligations. The
Senior Term Loan provides for lines of credit to be issued, with the secured assets providing
collateral. We are negotiating with various parties for the establishment of new lines of credit
for the abandonment obligations and anticipate completing these new lines of credit during the
fourth quarter of 2010. Such new lines of credit would release a portion, or all,
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
of the $32.5
million in restricted cash and make such amounts available for our normal operations.
The cash provided by financing activities consists of borrowings, payments of preferred dividends,
payment of financing costs, and proceeds from issuances of our common stock. For the nine months
ended September 30, 2010, net cash provided by financing activities included $150 million of
borrowings under the Senior Term Loan and $25 million from the Junior Facility. We used $66 million
of the proceeds from the new Senior Term Loan to fully repay the outstanding borrowings under both
the Senior Bank Facility and the Junior Facility. During October 2010, we borrowed an additional
$10 million under the Senior Term Loan.
In August 2010, in conjunction with the Senior Term Loan, we sold 9.0 million shares of our common
stock to Cyan for aggregate proceeds of $10.1 million. In February 2010, we issued 23.5 million
shares of common stock for aggregate net proceeds of $20.5 million.
In October 2010, we completed the previously-announced sale of our Cygnus asset for $110 million in
cash.
Capital Program
We anticipate spending approximately $90 million, excluding acquisition costs, during 2010 to
fund oil and gas activities in the U.S. and U.K. As of September 30, 2010, we had incurred $75.7
million of costs associated with our drilling and exploration activities. For the nine months
ended September 30, 2010, we also incurred approximately $39.3 million in acquisition costs,
primarily to expand our existing U.S. acreage position. During the fourth quarter, we expect
capital expenditures to be concentrated in drilling additional wells in the Haynesville area as
well as further development work at our Rochelle and Bacchus development projects.
United Kingdom Activity
Activity in the U.K. during 2010 continues to focus on four development projects Bacchus,
Columbus, Cygnus and Rochelle and we advanced the status of the projects or had positive drilling
results. As discussed below, we completed the sale of our Cygnus asset in October 2010 for cash
consideration of $110 million.
For the Bacchus field, the U.K. Department of Energy and Climate Change (DECC) sanctioned the
development plans during the second quarter of 2010. The plans call for a subsea development with
three wells to be drilled and linked to production facilities at the nearby Forties field. First
production is planned for mid 2011.
At the Columbus field, we reached an agreement for production facilities that will feature a
bridge-linked platform that will connect production to the Lomond field and provide gas and
condensate reception facilities. Project sanction by the DECC is scheduled for 2011 with expected
first production in 2013.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Drilling began in September 2010 on the West Rochelle prospect, targeting oil and natural gas in
the Lower Cretaceous. The prospect lies west of our Rochelle gas development area. Nexen Petroleum
U.K. Limited operates the well. The West Rochelle well encountered natural gas with
an oil rim in a reservoir similar to that discovered at Rochelle. The well has been sidetracked to
the north and has encountered hydrocarbons that extend the West Rochelle area. We are carried for
our share of the drilling costs of the initial well, remain operator of the West Rochelle block and
retain a 50 percent interest in the block.
During the first two quarters of 2010, we had significant activity on the Cygnus project. Two
appraisal wells were successfully completed this year. During the third quarter, we signed a
definitive agreement to sell our Cygnus asset for cash consideration of $110 million. The
transaction closed in October 2010. We plan to use the proceeds from the Cygnus sale to accelerate
our development projects.
In April 2010, we submitted applications to the DECC for licenses containing 17 blocks in the U.K.
26th Offshore Licensing Round licensing round. We were awarded four blocks located in
the Outer Moray Firth and Central Graben during October 2010.
In 2009, we began drilling an exploration well at the U.K. Deacon prospect, which resulted in a dry
hole during the first quarter of 2010.
United States Drilling
In late 2009 and in January 2010, we acquired positions in four U.S. shale resource plays, totaling
526,000 gross acres. We funded the initial cash contributions for these new focus areas from
existing cash reserves. Our drilling activity during 2010 has increased as we begin to pursue the
potential of these recent acquisitions. During 2010, we have participated in 16 wells, twelve of
which are through our participation agreement with Cohort.
In the U.S., seven wells in our gas shale portfolio were successfully drilled and completed, all of
which were producing prior to the end of the third quarter of 2010. In August 2010, we announced
continued success at the Woodardville Field in Red River Parish, Louisiana, where the Woodward
10-1H horizontal Haynesville well tested at an initial rate of 22.6 million cubic feet per day
(mmcfd). The Company has a 40.8 percent working interest in the Woodard well. Another six wells
in our gas shale portfolio are still in progress, four of which are awaiting completion and we
expect these four wells to begin producing in the fourth quarter of 2010. One well, which was spud
in 2008, was declared a dry hole during the first quarter of 2010, at Alligator Bayou. Two
additional wells had operations suspended in the first quarter under our participation agreement
with Caza.
United States Acquisitions and Participation Agreements
Under the terms of the Cohort Acquisition, we entered into a participation agreement with Cohort
and acquired 50 percent of its interests in certain acreage in North Louisiana/East Texas and
Western Pennsylvania, primarily in the Haynesville and Marcellus gas shale plays. Our initial
investment was $15 million in cash, and we will pay a share of Cohorts drilling and
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
completion
expenditures as wells are drilled over the next few years. In connection with this agreement, we
also acquired additional acreage in the Marcellus gas shale play area for approximately $7.5
million.
Under the terms of the Hillwood Acquisition, we acquired 50 percent of Hillwoods position in its
exploratory gas shale play in Alabama with an initial net investment of approximately $8.0 million.
In addition, we will pay a share of Hillwoods drilling and completion expenditures of the first
two wells in the program. During the third quarter of 2010, we successfully drilled two vertical
pilot wells in this area which will be evaluated for future horizontal re-entries and completion
tests.
In the fourth quarter of 2009, we acquired 50 percent of the interests owned by a private company
in more than 300,000 gross (75,000 net) acres in central Montana in the highly prospective, but
previously untested Heath Shale oil play with an initial net cash investment of $3.75 million. We
are currently performing geological and geophysical evaluations of the acreage with the expectation
that pilot test wells will be drilled sometime in 2011.
In April 2009, we executed an agreement with Caza to participate in a jointly established
exploration and development program covering Cazas onshore acreage position and opportunity
portfolio in the United States. We terminated the agreement effective April 2010.
Outlook
During the fourth quarter, we expect to incur approximately $15 million in capital
expenditures, primarily due to drilling additional wells in the Haynesville area as well as further
development work at our Rochelle and Bacchus development projects. We also anticipate funding our
expected fourth quarter 2010 and 2011 capital programs and operations primarily through utilizing
available cash, the proceeds from the sale of our Cygnus assets, and cash flow from operations,
including additional cash flows from the Bacchus project once it commences production. We
generally have the ability to balance and time capital expenditures with our available cash flows
from operations.
Our 6% Convertible Senior Notes mature in January 2012 and have an outstanding balance of $81.3
million as of September 30, 2010. We expect to repay these amounts through accessing the capital
markets in the coming year to refinance our 2012 maturities. In addition, our Convertible Bonds
have a conditional redemption right in 2012 and have an outstanding balance of $54.3 million as of
September 30, 2010.
We strive to synchronize our capital expenditures with our cash flow, evaluate the most appropriate
actions to fund our activities and utilize our economic resources wisely. We monitor our capital
requirements, commodity prices and financing markets to manage the risks inherent in the
exploration, development and production of energy reserves with a sufficient return on those
assets. We continue to believe our existing U.K. reserves, together with our U.S. assets, can be
used as support for increased financial resources to help fund our on-going activities or refinance
indebtedness.
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Disclosures About Contractual Obligations and Commercial Commitments
See Capital Program for a discussion of our planned expenditures.
Cautionary Statement for Forward-Looking Statements
Certain statements and information in this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The words believe, expect, anticipate, plan, intend, foresee, should, would,
could or other similar expressions are intended to identify forward-looking statements, which are
generally not historical in nature. These forward-looking statements are based on our current
expectations and beliefs concerning future developments and their potential effect on us. While
management believes that these forward-looking statements are reasonable as and when made, there
can be no assurance that future developments affecting us will be those that we anticipate. All
comments concerning our expectations for future revenues and operating results are based on our
forecasts for our existing operations and do not include the potential impact of any future
acquisitions. In particular, this report contains forward-looking statement pertaining to the
following:
| our future financial position; | ||
| our business strategy; | ||
| budgets; | ||
| projected costs, savings and plans; | ||
| objectives of management for future operations; | ||
| legal strategies; and | ||
| legal proceedings. |
Our forward-looking statements involve significant risks and uncertainties (some of which are
beyond our control) and assumptions that could cause actual results to differ materially from our
historical experience and our present expectations or projections. Important factors that could
cause actual results to differ materially from those in the forward-looking statements include, but
are not limited to, those summarized below:
| discovery, estimation, development and replacement of oil and gas reserves; | ||
| decreases in proved reserves due to technical or economic factors; | ||
| drilling of wells and other planned exploitation activities; | ||
| timing and amount of future production of oil and gas; | ||
| the volatility of oil and gas prices; | ||
| availability and terms of capital; | ||
| operating costs such as lease operating expenses, administrative costs and other expenses; | ||
| our future operating or financial results; |
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
| amount, nature and timing of capital expenditures, including future development costs; | ||
| cash flow and anticipated liquidity; | ||
| availability of drilling and production equipment; | ||
| uncertainties related to drilling and production operations in a new region; | ||
| business strategy and the availability of acquisition opportunities; and | ||
| factors not known to us at this time. |
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We produce and sell crude oil and natural gas. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and regional gas spot market prices that have been
volatile and unpredictable for several years. As a result, our financial results can be
significantly impacted as these commodity prices fluctuate widely in response to changing market
forces. From time to time, we have engaged in oil and gas hedging activities to realize commodity
prices that we consider favorable. For additional information regarding our derivative
instruments, see Note 10 to the Condensed Consolidated Financial Statements.
In conjunction with the issuance of the Senior Term Loan, we terminated all of our outstanding
commodity derivative positions for a realized loss of $10.2 million and have no commodity
derivatives at September 30, 2010. Under the Senior Term Loan, we are required to re-establish our
commodity derivatives to manage our cash flows from operations. We expect to enter into commodity
derivatives during the fourth quarter of 2010. The failure to execute these required hedging
commitments within the stated period would cause us to be in violation of certain terms under the
Senior Term Loan.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, our management carried out an evaluation,
with the participation of our chief executive officer (the CEO) and chief financial officer (the
CFO), of the effectiveness of the design and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended).
Based on that evaluation, the CEO and CFO concluded:
(i) that our disclosure controls and procedures are designed to ensure that information we
are required to disclose in our reports filed or submitted under the Securities Exchange Act
of 1934, as amended, is (a) recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and (b) is
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
accumulated and communicated to
our management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure; and
(ii) that our disclosure controls and procedures were effective as of September 30, 2010.
Changes in Internal Control over Financial Reporting
There was no change in our system of internal control over financial reporting (as defined in
Rules 13a 15(f) and 15d 15(f) under the Securities Exchange Act of 1934, as amended), during
the last fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Part II. Other Information
Item 1A: Risk Factors
In addition to the factors discussed elsewhere in this report, including the financial
statements and related notes, you should consider carefully the risks and uncertainties described
below and in our Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2009
under Item 1A Risk Factors, which could materially adversely affect our business, financial
condition and results of operations. While these are the risks and uncertainties we believe are
most important, you should know that they are not the only risks or uncertainties facing us or that
may adversely affect our business. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also could impair our business operations and financial
condition. If any of these risks or uncertainties were to occur, our business, financial condition
or results of operation could be adversely affected.
Item 6: Exhibits
The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of
Exhibits 32.1 and 32.2) with this Form 10-Q.
2.1 *
|
Agreement for the Sale and Purchase of the Cygnus Asset dated August 27, 2010. | |
3.1(a)
|
Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30, 2004). | |
3.1(b)
|
Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13, 2006). | |
3.1(c)
|
Certificate of Amendment dated June 1, 2010 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on June 3, 2010). |
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
3.2(a)
|
Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006). | |
3.2(b)
|
Amendment to Amended and Restated Bylaws dated December 12, 2007 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on December 13, 2007). | |
10.1
|
Common Stock Purchase Agreement, dated August 16, 2010, by and between Endeavour International Corporation and the purchasers named therein (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on August 20, 2010). | |
10.2 *
|
Form of Restricted Stock Agreement under the 2010 Incentive Plan. | |
10.3 *
|
Form of Stock Option Agreement under the 2010 Incentive Plan. | |
10.4(a) *
|
Credit Agreement among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP dated August 16, 2010. | |
10.4(b)*
|
Incremental Term Loan Commitment and Amendment Agreement among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP dated October 21, 2010. | |
10.4(c) *
|
Incremental Fee Letter among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP, as supplement to the Incremental Term Loan Commitment and Amendment Agreement, dated October 21, 2010. | |
31.1 *
|
Certification of William L. Transier, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 *
|
Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 *
|
Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 *
|
Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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(Amounts in thousands, except per unit data)
(Amounts in thousands, except per unit data)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Endeavour International Corporation
Date: November 5, 2010
|
/s/ J. Michael Kirksey | /s/ Robert L. Thompson | ||
J. Michael Kirksey | Robert L. Thompson | |||
Executive Vice President and | Senior Vice President and | |||
Chief Financial Officer | Chief Accounting Officer | |||
(Principal Financial Officer) | (Principal Accounting Officer) |
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EXHIBIT INDEX
The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of
Exhibits 32.1 and 32.2) with this Form 10-Q.
2.1 *
|
Agreement for the Sale and Purchase of the Cygnus Asset dated August 27, 2010. | |
3.1(a)
|
Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30, 2004). | |
3.1(b)
|
Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13, 2006). | |
3.1(c)
|
Certificate of Amendment dated June 1, 2010 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on June 3, 2010). | |
3.2(a)
|
Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006). | |
3.2(b)
|
Amendment to Amended and Restated Bylaws dated December 12, 2007 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on December 13, 2007). | |
10.1
|
Common Stock Purchase Agreement, dated August 16, 2010, by and between Endeavour International Corporation and the purchasers named therein (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on August 20, 2010). | |
10.2 *
|
Form of Restricted Stock Agreement under the 2010 Incentive Plan. | |
10.3 *
|
Form of Stock Option Agreement under the 2010 Incentive Plan. | |
10.4(a) *
|
Credit Agreement among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP dated August 16, 2010. | |
10.4(b)*
|
Incremental Term Loan Commitment and Amendment Agreement among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP dated October 21, 2010. | |
10.4(c) *
|
Incremental Fee Letter among Endeavour International Corporation, Endeavour Energy UK Limited, various lenders and Cyan Partners, LP, as supplement to the Incremental Term Loan Commitment and Amendment Agreement, dated October 21, 2010. | |
31.1 *
|
Certification of William L. Transier, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 *
|
Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 *
|
Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 *
|
Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |