Table Of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Note 1 – General
Description of Business
Endeavour International Corporation is an independent oil and gas company engaged in the exploration, development, production and acquisition of energy reserves in the U.S. and U.K. Endeavour was incorporated under the laws of the state of Nevada on January 13, 2000. As used in these Notes to Condensed Consolidated Financial Statements, the terms “Endeavour,” “Company,” “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 for the year ended December 31, 2013.
2014 Liquidity and Capital Resources
As of March 31, 2014, we had $912.2 million in outstanding indebtedness. Being highly leveraged, servicing our debt and other long-term obligations will continue to require a significant portion of our cash flow from operations and available cash on hand. The combination of these debt servicing requirements, capital expenditures and the delay in cash flow resulting from the Rochelle mechanical issues may exceed the cash flow from our current operations. During 2014, our primary uses of financial resources are expected to be:
| · | | our capital expenditures, primarily related to our drilling activities in the U.K.; |
| · | | payments for abandonment obligations, |
| · | | payments due under our production payments; and |
| · | | interest payments on outstanding indebtedness and payments in support of our reimbursement agreement covering our abandonment obligations. |
Since year-end 2013, we have also completed several transactions to improve our liquidity position and extend the maturities of some of our debt and other obligations. These recent financing activities are designed in part to provide sufficient liquidity to replace the interruption in production at Rochelle that occurred in the first and second quarter of 2014. These transactions include:
| · | | replacing certain credit facilities which would have expired in 2014; |
| · | | replacing reimbursement agreements covering certain of our abandonment liabilities in the U.K. which would have expired in 2014; |
| · | | issuing $12.5 million in common stock and warrants; and |
| · | | issuing $17.5 million in 6.5% convertible debt. |
Table Of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Note 2 – Summary of Significant Accounting Policies
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 accounting principles generally accepted in the United States of America (“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. 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.
These accounting principles require management to use estimates, judgments and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported herein. While management regularly reviews its estimates, actual results could differ from those estimates.
Management believes that it is reasonably possible that the following material estimates affecting the financial statements could change in the current year:
| · | | estimates of proved oil and gas reserves; |
| · | | estimates as to the expected future cash flow from proved oil and gas properties; |
| · | | estimates of future dismantlement and restoration costs; |
| · | | estimates of fair values used in purchase accounting; and |
| · | | estimates of the fair value of derivative instruments. |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Note 3 – Property and Equipment
Property and equipment included the following at the dates indicated below:
| | | | | |
| | | | | |
| | March 31, | | | December 31, |
| | 2014 | | | 2013 |
Oil and gas properties under the full cost method: | | | | | |
Subject to amortization | $ | 1,102,962 | | $ | 1,084,669 |
Not subject to amortization: | | | | | |
Incurred in 2014 | | 23,041 | | | - |
Incurred in 2013 | | 37,936 | | | 52,748 |
Incurred in 2012 | | 134,287 | | | 138,641 |
Incurred prior to 2012 | | 175,551 | | | 177,271 |
| | 1,473,777 | | | 1,453,329 |
Computers, furniture and fixtures | | 8,733 | | | 8,734 |
Total property and equipment | | 1,482,510 | | | 1,462,063 |
| | | | | |
Accumulated depreciation, depletion and amortization | | (428,735) | | | (389,912) |
| | | | | |
Net property and equipment | $ | 1,053,775 | | $ | 1,072,151 |
The costs not subject to amortization include:
| · | | values assigned to unproved reserves acquired; |
| · | | exploration costs such as drilling costs for projects awaiting approved development plans or the determination of whether or not proved reserves can be assigned; and |
| · | | other seismic and geological and geophysical costs. |
These costs are transferred to the amortization base when it is determined whether or not proved reserves can be assigned to such properties. This analysis is dependent upon well performance, results of infield drilling, approval of development plans, drilling results and development of identified projects and periodic assessment of reserves. We expect acquisition costs and exploration costs excluded from amortization to be transferred to the amortization base over the next three years due to a combination of well performance and results of infield drilling relating to currently producing assets and the drilling and development of identified projects, such as the Rochelle field. Because of the nature of offshore oil and gas activities, development activities, including sanctioning and regulatory approvals, may take a significant amount of time to implement. Even though our expectation is that most costs not subject to amortization are to be transferred to the amortization base over the next two years, it is not uncommon for the cycle times to be longer. We have one U.K. field, Columbus, where costs have been excluded from amortization for greater than five years; however, we continue to work on the development planning for the field.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
For the three months ended March 31, 2014 and 2013, we capitalized $2.6 million and $6.2 million, respectively, in interest related to exploration and development, primarily related to our U.K. activities. For the three months ended March 31, 2014 and 2013, we capitalized $3.1 million and $5.1 million, respectively, in certain directly related employee costs.
We did not have an impairment of U.S. oil and gas properties through the application of the full cost ceiling test at the end of the first quarter of 2014, which utilized prices of $98.43 per barrel for oil and $3.99 per Mcf for gas. We did not have an impairment of U.K. oil and gas properties through the application of the full cost ceiling test at the end of the first quarter of 2014, which utilized prices of $107.06 per barrel for oil and $10.57 per Mcf for gas.
For the first quarter of 2013, we recorded a pre-tax impairment of $3.5 million related to our U.S. oil and gas properties through the application of the full cost ceiling test at the end of the quarter. The prices used to determine the impairment for our U.S. properties were $92.63 per barrel for oil and $2.97 per Mcf for gas. We did not have an impairment of U.K. oil and gas properties through the application of the full cost ceiling test at the end of the first quarter of 2013, which utilized prices of $110.49 per barrel for oil and $9.71 per Mcf for gas.
Note 4 – Deferred Revenue
For certain of our U.K. fields, we sell production on a monthly basis; however, the production remains in the field’s storage tanks. The inventory associated with these sales remains on our balance sheet and the revenue is deferred until the production is shipped out of our storage tanks.
In 2013, we entered into two separate forward sale agreements with one of our established purchasers for payments of approximately $22.5 million each. This effectively hedged a portion of production from our U.K. North Sea assets by locking in pricing for in excess of 200,000 barrels of oil, over a six month delivery period. Payment for these agreements was received in the first and third quarters of 2013. The first forward sale commitment was fulfilled in June 2013 and the second forward sale commitment was fulfilled at the end of the first quarter of 2014. The forward sale liabilities were included in deferred revenue until the purchaser took possession of the product.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Note 5 – Debt Obligations
At March 31, 2014, we had $912.2 million in outstanding debt. Our debt consisted of the following at March 31, 2014 and December 31, 2013:
| | | | | |
| | | | | |
| | March 31, | | | December 31, |
| | 2014 | | | 2013 |
| | | | | |
Senior notes, 12% fixed rate, due 2018 | $ | 554,000 | | $ | 554,000 |
Convertible senior notes, 5.5% fixed rate, due 2016 | | 135,000 | | | 135,000 |
Convertible senior notes, 6.5% fixed rate, due 2017 | | 17,500 | | | - |
Term loan facility, variable rate, due 2017 | | 125,000 | | | - |
Revolving credit facility, 13% fixed rate, due 2014 | | - | | | 115,163 |
Convertible bonds, 11.5% until March 31, 2014 and 7.5% thereafter, due 2016 | 80,692 | | | 78,437 |
| | 912,192 | | | 882,600 |
Less: debt discount, net of premium | | (18,223) | | | (11,722) |
Less: current maturities | | (2,140) | | | - |
Long-term debt | $ | 891,829 | | $ | 870,878 |
Senior Notes
In February 2012, we closed the private placement of $350 million aggregate principal amount of 12% first priority notes due 2018 and $150 million aggregate principal amount of 12% second priority notes due 2018. In October 2012, we completed a private placement of an additional $54 million aggregate principal amount of 12% first priority notes due 2018 (collectively, the “2018 Notes”).
5.5% Convertible Senior Notes
In July 2011, we issued $135 million aggregate principal amount of our 5.5% Convertible Senior Notes due July 15, 2016. Interest on these notes is payable semi-annually at a rate of 5.5% per annum. The 5.5% Convertible Senior Notes are convertible into shares of our common stock at an initial conversion rate of 54.019 shares (equivalent to $18.51 per share) of common stock per $1,000 principal amount of the notes, subject to certain anti-dilution adjustments.
6.5% Convertible Senior Notes
On February 28, 2014, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) relating to the issuance of up to $55 million in common stock, warrants and convertible notes. We closed on an initial $30 million in late February and early March 2014, comprised of:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| · | | 2.9 million shares of our common stock; |
| · | | warrants to purchase 0.7 million shares of our common stock at an exercise price of $5.292 per share, expiring on February 28, 2019; and |
| · | | $17.5 million in aggregate principal amount of our 6.5% convertible senior notes (the “6.5% Convertible Notes).” |
The purchasers also have a 90-day option (the “Purchasers’ Option”) to purchase up to $25,000,000 of additional common stock, warrants and convertible debt on the same terms as the initial issuance, subject to certain limitations.
The 6.5% Convertible Notes will mature one day following the earlier of (i) November 30, 2017 and (ii) the date 91 days prior to the maturity date of our outstanding 5.5% Convertible Senior Notes due 2016 and our 11.5% Convertible Bonds due 2016, if such securities have not been converted, cancelled or extinguished prior to such date or extended or refinanced in full prior to such date with a resulting maturity date not earlier than March 1, 2018. Interest is payable on the 6.5% Convertible Notes quarterly, commencing on June 1, 2014. The notes are subject to customary events of default.
The 6.5% Convertible Notes are:
| · | | convertible at any time; |
| · | | convertible initially at a rate 214.5002 shares of our common stock per $1,000 principal amount of 6.5% Convertible Notes (equivalent to an initial conversion price of approximately $4.662 per share of our common stock); |
| · | | subject to certain anti-dilution adjustments; |
| · | | general unsecured and unsubordinated obligations; and |
| · | | equally ranked in right of payment with all of our existing and future unsubordinated indebtedness and senior in right of payment to any of our future indebtedness that is expressly subordinated to the 6.5% Convertible Notes. |
Term Loan Facility
On January 24, 2014, we entered into a $255 million agreement consisting of a $125 million senior secured first lien term loan facility (“Term Loan Facility”) and a $130 million Combined Procurement Agreement. The proceeds of the Term Loan Facility were used to repay the outstanding amounts under our Revolving Credit Facility. The repayment included a prepayment fee and accrued interest of approximately $2.0 million. Subsequent to the repayment, the Revolving Credit Facility was terminated, all of the associated liens on our collateral obligations were released, and we recorded a loss of $3.5 million on the early extinguishment of financing agreements.
The Term Loan Facility bears quarterly interest of LIBOR plus 7.00% annually (provided LIBOR equals at least 1.25% annually) and will mature on the earlier of (a) November 30, 2017
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
and (b) the date 91 days prior to the maturity of our 5.5% convertible senior notes due 2016 and our 11.5% convertible notes due 2016, provided the notes have not been converted, cancelled, extinguished, extended or refinanced prior to that date with a maturity date prior to March 1, 2018.
Borrowings under the Term Loan Facility are unconditionally guaranteed by us and each of our current and future restricted subsidiaries. The credit agreement contains covenants and provisions with respect to events of default that are substantially similar to the covenants in the indentures governing our 2018 Notes including, but not limited to, restrictions on our ability to: (i) pay distributions or repurchase or redeem our capital stock or subordinated debt; (ii) make certain investments; (iii) incur additional indebtedness (iv) create or incur certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of our assets; (vii) enter into agreements that restrict distributions from our restricted subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. In addition, the Term Loan Facility contains various financial and technical covenants, including:
| · | | a minimum interest coverage ratio of 1.50:1.0; |
| · | | a maximum leverage ratio of 5.0:1.0; and |
| · | | a minimum asset coverage ratio of 2.0:1.0. |
Revolving Credit Facility
On April 12, 2012, we entered into a Revolving Credit Facility, with Cyan Partners, LP, as administrative agent, under which we ultimately borrowed $115 million.
On January 24, 2014, we repaid the balance outstanding under the Revolving Credit Facility with proceeds from the Term Loan Facility. Following the repayment, the Revolving Credit Facility was terminated and all of the associated liens on the collateral securing our obligations were released.
11.5% Convertible Bonds
Our 11.5% Convertible Bonds bore interest at a rate of 11.5% per annum until March 31, 2014; and at a rate of 7.5% thereafter. Interest is compounded quarterly and added to the outstanding principal balance each quarter. The bonds are convertible into shares of our common stock at an initial conversion price of $16.52 per $1,000 of principal, which represents a conversion rate of approximately 61 shares of our common stock per $1,000 of principal.
Fair Value
The fair value of our outstanding debt obligations was $804.2 million and $868.4 million at March 31, 2014 and December 31, 2013, respectively. The fair values of long-term debt were
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
determined based upon external market quotes for our 2018 Notes and 5.5% Convertible Senior Notes and discounted cash flows for other debt, which results in a Level 3 fair-value measurement.
Note 6 – Income Taxes
Our U.S. operations are taxed at a statutory rate of 35%. However, we currently do not record tax benefits due to losses in the U.S. as there is no assurance that we will generate any U.S. taxable earnings, resulting in a full valuation allowance of all deferred tax assets generated.
Our income tax expense relates primarily to our operations in the U.K. which are taxed at a statutory rate of 62% plus an additional Petroleum Revenue Tax on our Alba field. The current tax expense is related to Petroleum Revenue Tax on our Alba field.
Note 7 – Monetary Production Payment
Our monetary production payment liability, net of repayments, consisted of the following at March 31, 2014 and December 31, 2013:
| | | | | |
| | | | | |
| | March 31, | | | December 31, |
| | 2014 | | | 2013 |
| | | | | |
Monetary production payment | $ | 161,666 | | $ | 166,667 |
| | | | | |
Less: current portion | | (120,833) | | | (74,167) |
| | | | | |
Long-term monetary production payment | $ | 40,833 | | $ | 92,500 |
During 2013, we entered into various monetary production payment arrangements (collectively, the “Monetary Production Payments”) covering the proceeds of sale from a portion of EEUK’s entitlement to production from its interests in the certain fields located in the U.K. sector of the North Sea. Pursuant to the Monetary Production Payments, our obligations are repayable only out of production and will cease upon the earlier of the repayment of amounts outstanding or production from the applicable licences permanently ceasing. We issued the Monetary Production Payments in the following manner:
| · | | In March through May 2013, a total of $125.0 million, with an effective interest rate of 10.0%, associated with production from our interests in the Alba and Bacchus fields; |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| · | | In August 2013, $25 million, with an effective interest rate of 8.75%, associated with production from our interests in the Alba and Bacchus fields; and |
| · | | In December 2013, $25 million, with an effective interest rate of 9.75%, associated with production from our interests in the Rochelle field. |
Principal and interest payments are payable within 20 days after the end of each calendar quarter. In January 2014, we made a principal payment of $5.0 million and payments for the next three quarters are expected to be $5.8 million each. In January and April 2015, the principal payments will be $51.7 million each. The final three payments range from $10 million to $18 million, with the final payment to be made in January 2016.
Our obligations under the Monetary Production Payments are secured by first priority liens over our interests in the applicable license and related joint operating agreements and sales proceeds accounts. Our obligations are also secured by second priority liens over certain of our other licenses, joint operating agreements and assets which are pari passu with the liens securing the Term Loan facility and the Combined Procurement Agreement.
Note 8 – Other Long-Term Liabilities
At March 31, 2014 and December 31, 2013, our other liabilities included the following:
| | | | | |
| | | | | |
| | March 31, | | | December 31, |
| | 2014 | | | 2013 |
| | | | | |
Asset retirement obligations | $ | 115,550 | | $ | 121,534 |
Long-term derivative liabilities | | 7,586 | | | 9,245 |
Other | | 4,653 | | | 591 |
| | | | | |
Total Other Liabilities | $ | 127,789 | | $ | 131,370 |
Asset Retirement Obligations
Our asset retirement obligations relate to our obligation for the plugging and abandonment of oil and gas properties. The asset retirement obligations are recorded at fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost. The following table provides a rollforward of our asset retirement obligations for the three months ended March 31, 2014 and 2013:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | |
| | Three Months Ended |
| | March 31, |
| | 2014 | | | 2013 |
Carrying amount of asset retirement obligations as of beginning of period | $ | 170,429 | | $ | 176,076 |
Accretion expense (included in DD&A expense) | | 6,145 | | | 5,521 |
Impact of foreign currency exchange rate changes | | 1,370 | | | (10,427) |
Payment of asset retirement obligations | | (16,548) | | | (4,886) |
Liabilities incurred and assumed | | 3,268 | | | 115 |
Carrying amount of asset retirement obligations, as of end of period | | 164,664 | | | 166,399 |
Less: Current portion of asset retirement obligations | | (49,114) | | | (35,368) |
Long-term asset retirement obligations | $ | 115,550 | | $ | 131,031 |
Note 9 – Equity Transactions
In February 2014, we entered into the Securities Purchase Agreement whereby we issued 2.9 million shares of our common stock and warrants to purchase 0.7 million shares of our common stock. The warrants have an exercise price of $5.292 per share and expire on February 28, 2019 and are subject to customary anti-dilution provisions.
The purchasers also have a 90-day option to purchase up to $25,000,000 of additional common stock, warrants and convertible debt on the same terms as the initial issuance. See Note 5: “Debt Obligations” for discussion of the Securities Purchase Agreement.
Note 10 – 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:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | |
| | | | | | |
| | Three Months Ended | |
| | March 31, | |
| 2014 | | 2013 | |
| | | | | | |
G&A Expenses | $ | 971 | | $ | 832 | |
Capitalized G&A | | 163 | | | 859 | |
| | | | | | |
Total non-cash stock-based compensation | $ | 1,134 | | $ | 1,691 | |
At March 31, 2014, total compensation cost related to awards not yet recognized was approximately $10.1 million and is expected to be recognized over a weighted average period of less than three years.
Stock Options
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. We did not grant any stock options during 2013 or 2014. Information relating to outstanding 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, 2014 | 120 | $ | 7.55 | | | | |
Forfeited | (1) | | 6.68 | | | | |
| | | | | | | |
Balance outstanding - March 31, 2014 | 119 | $ | 7.56 | | 4.1 | $ | - |
Currently exercisable - March 31, 2014 | 119 | $ | 7.56 | | 4.1 | $ | - |
Restricted Stock
Restricted stock awards are valued based on the closing price of our common stock on the measurement date, which is typically the date of grant. The status of the restricted shares outstanding as of March 31, 2014 is presented below:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | |
| | | | | |
| | | | | Weighted |
| | | | | Average Grant |
| | | | | Date Fair |
| | Number of | | | Value per |
| | Shares | | | Share |
Balance outstanding - January 1, 2014 | | 628 | | $ | 7.44 |
Granted | | 548 | | | 8.75 |
Vested | | (283) | | | 8.71 |
Forfeited | | (51) | | | 6.04 |
| | | | | |
Balance outstanding - March 31, 2014 | | 842 | | $ | 5.72 |
| | | | | |
Total grant date fair value of shares vesting during the period | $ | 2,622 | | | |
Performance-Based Share Awards
Certain of our executive officers were granted a target number of performance shares under individual Performance Unit Award Agreements. The performance shares will be earned as the relative total shareholder return ranking is measured among a designated peer group at the end of a three-year performance period. Payouts will be based on a predetermined schedule at the end of the performance period. The shares issued may range from 0% to 200% of the number of Performance Units specified in the agreements. The fair value of each performance-based award is estimated on the date of grant using a Monte Carlo simulation model.
The status of the performance-based share awards as of March 31, 2014 are presented below:
| | | | | | |
| | | | | | |
| | | | | | Weighted |
| | | | | | Average Grant |
| | | | | | Date Fair |
| | Number of | | | | Value per |
| | Shares | | | | Share |
Balance outstanding - January 1, 2014 | | 707 | | | $ | 11.01 |
Granted | | 516 | | | | 8.29 |
Forfeited | | (86) | | | | 10.36 |
| | | | | | |
Balance outstanding - March 31, 2014 | | 1,137 | | | $ | 9.83 |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Note 11 – 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:
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| |
| March 31, |
| 2014 | | | 2013 |
| | | | |
Warrants, options and stock-based compensation | 9,055 | | | 3,915 |
Convertible debt | 15,933 | | | 11,654 |
Convertible preferred stock | 4,229 | | | 4,229 |
| 29,217 | | | 19,798 |
Note 12 – Fair Value Measurements
We measure the fair value of financial assets and liabilities on a recurring basis, defining fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value is based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. This includes not only the credit standing of counterparties involved and the impact of credit enhancements but also the impact of our own nonperformance risk on our liabilities. 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
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
instrument, 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.
We apply fair value measurements to certain assets and liabilities including commodity derivative instruments 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 inputs and minimize the use of unobservable inputs when measuring fair value.
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 financial instruments by pricing levels as of March 31, 2014 and December 31, 2013:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Quoted Market Prices | | Significant Other | | Significant | | | |
| in Active Markets - | | Observable Inputs - | | Unobservable Inputs | Total |
| Level 1 | | Level 2 | | Level - 3 | Fair Value |
Embedded derivative liabilities: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
As of March 31, 2014 | | $ | - | | | $ | - | | | $ | (8,166) | | $ | (8,166) |
| | | | | | | | | | | | | | |
As of December 31, 2013 | | $ | - | | | $ | - | | | $ | (9,245) | | $ | (9,245) |
We use a derivative valuation model to derive the value of our embedded derivatives. Key inputs into this valuation model are our current stock price, risk-free interest rates, the stock volatility and our implied credit spread. The first two aforementioned inputs are based on observable market data and are considered Level 2 inputs while the last two aforementioned inputs are unobservable and thus require management’s judgment and are considered Level 3 inputs. A 5% decrease or increase in the stock volatility has an inverse effect to the change in the liability and would result in an approximately $0.3 million decrease or increase, respectively.
The following is a reconciliation of changes in fair value of net derivative assets and liabilities classified as Level 3:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | |
| | | | |
| Three Months Ended |
| March 31, |
| | 2014 | | 2013 |
Balance at beginning of period | $ | (9,245) | $ | (7,402) |
Derivative issuance | | (1,580) | | - |
Realized and unrealized gains included in earnings | | 2,659 | | 1,580 |
Balance at end of period | $ | (8,166) | $ | (5,822) |
| | | | |
Changes in unrealized gains relating to derivatives assets and liabilities | | | | |
still held at the end of the period | $ | 2,659 | $ | 1,580 |
Note 13 – Derivative Instruments
We had embedded derivatives related to debt and equity instruments at March 31, 2014.
The fair market value of these derivative instruments is included in our balance sheet as follows for the periods indicated:
| | | | | |
| | | | | |
| | March 31, | | | December 31, |
| | 2014 | | | 2013 |
Derivatives not designated as hedges: | | | | | |
Embedded derivatives related to debt and equity instrument: | | | | | |
Liabilities: | | | | | |
Other liabilities - current | $ | (580) | | $ | - |
Other liabilities - long-term | | (7,586) | | | (9,245) |
The effect of the derivatives not designated as hedges on our results of operations was as follows:
| | | | | | | |
| | | | | | | |
| Three Months Ended |
| | | March 31, |
| | | 2014 | | 2013 |
Unrealized gains on embedded derivatives | | | | | |
related to debt and equity instruments | $ | 2,659 | | $ | 1,580 |
Note 14 – Supplemental Cash Flow Information
Cash paid (refunded) during the period for interest and income taxes was as follows:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
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(Amounts in tables in thousands, except per unit data)
| | | | | |
| | | | | |
| | Three Months Ended March 31, |
| | 2014 | | | 2013 |
| | | | | |
Interest paid | $ | 47,814 | | $ | 40,701 |
| | | | | |
Income taxes paid (refunded) | $ | (14,002) | | $ | 2,121 |
Note 15 – Commitments and Contingencies
Commitments Related to Asset Retirement Obligations
We have several agreements related to abandonment liabilities for certain of our U.K. oil and gas properties. Under these agreements, unaffiliated third parties pledged cash to secure letters of credit covering certain of our abandonment liabilities and we agreed to reimburse the pledged cash in the event that the letters of credit are drawn and pledged cash is utilized to satisfy the commitment. We have no cash collateral associated with these agreements and the commitments under the agreements are not recorded as liabilities. The associated abandonment obligations are recorded in other long-term liabilities as part of our asset retirement obligations. Fees and expenses related to these agreements are included in “Letter of credit fees” in other expenses on our condensed consolidated statement of operations.
Decommissioning Security Agreements
Procurement Agreements
Combined Procurement Agreement
On January 24, 2014, we also entered into a letter of credit procurement agreement (the “Combined Procurement Agreement”) with an unaffiliated third party (Payee), where we agreed to reimburse the Payee for any expense incurred by it in connection with the posting of cash collateral to secure letters of credit issued for our account in the amount of approximately £78 million (approximately $130 million as of January 24, 2014, subsequently reduced to $90 million as discussed below). The letters of credit secure decommissioning obligations in connection with certain of our U.K. licences. The Combined Procurement Agreement was entered into to replace the Alba Reimbursement Agreement and the LOC Procurement Agreement.
Due to a change in the U.K. tax treatment for decommissioning, we have amended our Decommissioning Securities Agreement for the Alba field. The new tax law, which allows companies to treat decommissioning on an after-tax basis (including PRT), enabled us to reduce
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
our current letter of credit amount on the Alba field from $120 million to approximately $55 million, resulting in an aggregate $90 million in outstanding letters of credit securing decommissioning obligations under the Combined Procurement Agreement.
Under the Combined Procurement Agreement, we agreed to pay a quarterly fee computed at a rate of LIBOR plus 7.00% per year (provided that LIBOR shall equal at least 1.25% per year) on the aggregate balance of posted cash collateral.
The Combined Procurement Agreement matures on the earlier of (a) November 30, 2017 and (b) the date 91 days prior to the maturity of the Company’s 5.5% convertible senior notes due 2016 and 11.5% convertible notes due 2016, if such notes have not been converted, cancelled, extinguished, extended or refinanced in full prior to such date, with a resulting maturity date not earlier than March 1, 2018. The Combined Procurement Agreement contains customary representations, warranties, covenants and provisions with respect to events of default that are substantially similar to the covenants in the Term Loan Facility. Our obligations under the Combined Procurement Agreement are unconditionally guaranteed by us and each of our current and future restricted subsidiaries and secured by substantially all of our assets and the assets of our current and future restricted subsidiaries.
As of March 31, 2014, we do not expect to begin decommissioning activities for the Alba field for many years. The timing of decommissioning activities will be determined by the ultimate performance and life of the reservoir, which is not expected to occur until 2029 or later.
LOC Procurement Agreement
On January 9, 2013, we entered into a LOC Procurement agreement (the “LOC Procurement Agreement”) with an unaffiliated third party entity, which matures on July 9, 2014. The LOC Procurement Agreement was entered into in connection with the unaffiliated third party’s entry into a credit support arrangement with a providing bank. Pursuant to this credit support arrangement, the third party pledged cash, contributed by one of our shareholders, to secure letters of credit in the amount of $33.0 million for the support of decommissioning obligations in connection with certain of our U.K. license agreements.
Concurrent with our entry into the Combined Procurement Agreement on January 24, 2014, the LOC Procurement Agreement was terminated, and we paid all outstanding and accrued fees totaling approximately $0.2 million.
Alba Reimbursement Agreement
During the second quarter of 2012, we entered into a reimbursement agreement covering approximately $120 million related to our decommissioning obligations for the Alba field (the “Alba Reimbursement Agreement”). We paid a fee of 13% per year, payable quarterly,
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
computed based on the outstanding amount of each letter of credit. In addition, our obligations under the reimbursement agreement are secured on a pari passu basis with our obligations under the Revolving Credit Facility by a first lien on substantially all of our assets.
With the execution of the Combined Procurement Agreement, on January 24, 2014, we terminated the Alba Reimbursement Agreement and paid all outstanding and accrued fees totaling approximately $122 million.
Terminated Acquisition of Marcellus Assets
On July 17, 2011, we entered into agreements with SM Energy Company and certain other sellers named therein (“SM Energy”) for the purchase of oil and gas leases, producing properties, geophysical data, a pipeline and related assets in the Marcellus shale play in Pennsylvania for aggregate consideration of approximately $110 million (the “SM Purchase Agreements”). We terminated the agreements on December 14, 2011, based on our conclusion that (i) the title defects we identified, after analyzing SM Energy’s responses to the notice of defects and valuation of the defects; and (ii) the condition of the pipeline was not in compliance with applicable regulatory standards.
SM Energy filed a lawsuit against us in Texas state court on December 20, 2011 alleging that we breached the SM Purchase Agreements by terminating them and refusing to close on the transactions.
On April 16, 2014, we reached an agreement with SM Energy to settle and dismiss the litigation. In accordance with the settlement agreement, we will:
| · | | forfeit our $6 million deposit; |
| · | | pay SM Energy $5 million; |
| · | | pay an additional $4.5 million in three graduated payments, beginning in twelve months; and |
| · | | issue warrants to purchase 2.1 million shares of our common stock. |
We recorded $19 million in total settlement expense in connection with the settlement, including a $6 million deposit that was paid to SM Energy prior to the execution of the agreements in 2011.
Note 16 – Guarantor Subsidiaries
Certain of our wholly-owned domestic subsidiaries have, jointly and severally, fully and unconditionally guaranteed the Senior Notes. Pursuant to Securities and Exchange Commission (“SEC”) regulations, we have presented in columnar format the condensed consolidating
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
financial information for Endeavour International Corporation, the guarantor subsidiaries on a combined basis, and all non-guarantor subsidiaries on a combined basis.
The subsidiary guarantees are unsecured obligations of each subsidiary guarantor and rank equally in right of payment with all senior indebtedness of that subsidiary guarantor and senior in right of payment to all subordinated indebtedness of that subsidiary guarantor. The subsidiary guarantees are effectively subordinated to any secured indebtedness of the subsidiary guarantor with respect to the assets securing the indebtedness. In addition, the subsidiary guarantees may be released in certain customary circumstances, including (i) the sale of all or substantially all of the properties or assets or a guarantor, (ii) the sale of the capital stock of a guarantor, (iii) the designation of a guarantor as an “Unrestricted Subsidiary,” (iv) upon legal defeasance of the Senior Notes or satisfaction and discharge of the indentures governing the Senior Notes, (v) upon the liquidation or dissolution of the guarantor or (vi) if the guarantor ceases to guarantee other of our indebtedness and ceases to be a material subsidiary, each of which is subject to important limitations in the indentures governing the Senior Notes.
Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor subsidiaries are presented in the following tables:
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
| | | | | | | | | | |
As of March 31, 2014 |
| Endeavour International Corporation | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations | Consolidated |
Cash and cash equivalents | $ | - | $ | 28,753 | $ | 26,737 | $ | - | $ | 55,490 |
Accounts receivable | | - | | 2,273 | | 45,944 | | - | | 48,217 |
Current receivables due from affiliates | | 850,227 | | 6,704 | | 49,036 | | (905,967) | | - |
Prepaid expenses and other | | - | | 813 | | 82,083 | | - | | 82,896 |
Current Assets | | 850,227 | | 38,543 | | 203,800 | | (905,967) | | 186,603 |
| | | | | | | | | | |
Property, plant and equipment, net | | - | | 88,421 | | 965,354 | | - | | 1,053,775 |
Goodwill | | - | | - | | 259,238 | | - | | 259,238 |
Long-term receivables due from affiliates | | - | | 500,000 | | - | | (500,000) | | - |
Investments in subsidiaries | | 57,662 | | 219,058 | | - | | (276,720) | | - |
Other assets | | 19,619 | | 56 | | 13,322 | | - | | 32,997 |
Total Assets | $ | 927,508 | $ | 846,078 | $ | 1,441,714 | $ | (1,682,687) | $ | 1,532,613 |
| | | | | | | | | | |
Accounts payable | $ | - | $ | 10,094 | $ | 46,105 | $ | - | $ | 56,199 |
Current maturities of debt | | - | | - | | 2,140 | | - | | 2,140 |
Deferred revenue | | - | | - | | 2,152 | | - | | 2,152 |
Monetary production payment, current portion | - | | - | | 120,833 | | - | | 120,833 |
Current liabilities due to affiliates | | 648 | | 899,237 | | 6,082 | | (905,967) | | - |
Accrued expenses and other | | 10,655 | | 6,345 | | 62,219 | | - | | 79,219 |
Current Liabilities | | 11,303 | | 915,676 | | 239,531 | | (905,967) | | 260,543 |
| | | | | | | | | | |
Long-term debt | | 691,483 | | - | | 200,346 | | - | | 891,829 |
Long-term liabilities due to affiliates | | - | | - | | 500,000 | | (500,000) | | - |
Deferred taxes | | - | | - | | 173,847 | | - | | 173,847 |
Monetary production payment, long-term portion | | - | | - | | 40,833 | | - | | 40,833 |
Other liabilities | | 4,065 | | 5,077 | | 118,647 | | - | | 127,789 |
Total Liabilities | | 706,851 | | 920,753 | | 1,273,204 | | (1,405,967) | | 1,494,841 |
| | | | | | | | | | |
Series C convertible preferred stock | | 43,703 | | - | | - | | - | | 43,703 |
Stockholders' equity | | 176,954 | | (74,675) | | 168,510 | | (276,720) | | (5,931) |
Total Liabilities and Equity | $ | 927,508 | $ | 846,078 | $ | 1,441,714 | $ | (1,682,687) | $ | 1,532,613 |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
| | | | | | | | | | |
As of December 31, 2013 |
| Endeavour International Corporation | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations | Consolidated |
Cash and cash equivalents | $ | - | $ | 2,417 | $ | 32,325 | $ | - | $ | 34,742 |
Accounts receivable | | - | | 1,832 | | 63,339 | | - | | 65,171 |
Current receivables due from affiliates | | 853,900 | | 20,783 | | 45,982 | | (920,665) | | - |
Prepaid expenses and other | | - | | 594 | | 59,724 | | - | | 60,318 |
Current Assets | | 853,900 | | 25,626 | | 201,370 | | (920,665) | | 160,231 |
| | | | | | | | | | |
Property, plant and equipment, net | | - | | 87,313 | | 984,838 | | - | | 1,072,151 |
Goodwill | | - | | - | | 259,238 | | - | | 259,238 |
Long-term receivables due from affiliates | | - | | 500,000 | | 8 | | (500,008) | | - |
Investments in subsidiaries | | 57,662 | | 219,066 | | - | | (276,728) | | - |
Other assets | | 20,518 | | 6,056 | | 6,648 | | - | | 33,222 |
Total Assets | $ | 932,080 | $ | 838,061 | $ | 1,452,102 | $ | (1,697,401) | $ | 1,524,842 |
| | | | | | | | | | |
Accounts payable | $ | - | $ | 1,214 | $ | 36,819 | $ | - | $ | 38,033 |
Current maturities of debt | | - | | - | | - | | - | | - |
Deferred revenue | | - | | - | | 20,965 | | - | | 20,965 |
Monetary production payment deposit | | - | | - | | 74,167 | | - | | 74,167 |
Current liabilities due to affiliates | | 648 | | 899,853 | | 20,172 | | (920,673) | | - |
Accrued expenses and other | | 27,474 | | 3,353 | | 57,798 | | - | | 88,625 |
Current Liabilities | | 28,122 | | 904,420 | | 209,921 | | (920,673) | | 221,790 |
| | | | | | | | | | |
Long-term debt | | 678,850 | | - | | 192,028 | | - | | 870,878 |
Long-term liabilities due to affiliates | | - | | - | | 500,000 | | (500,000) | | - |
Deferred taxes | | - | | - | | 146,213 | | - | | 146,213 |
Monetary production payment, long-term portion | | - | | - | | 92,500 | | - | | 92,500 |
Other liabilities | | 3,535 | | 601 | | 127,234 | | - | | 131,370 |
Total Liabilities | | 710,507 | | 905,021 | | 1,267,896 | | (1,420,673) | | 1,462,751 |
| | | | | | | | | | |
Series C convertible preferred stock | | 43,703 | | - | | - | | - | | 43,703 |
Stockholders' equity | | 177,870 | | (66,960) | | 184,206 | | (276,728) | | 18,388 |
Total Liabilities and Equity | $ | 932,080 | $ | 838,061 | $ | 1,452,102 | $ | (1,697,401) | $ | 1,524,842 |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
| | | | | | | | | | |
For the Three Months Ended March 31, 2014 | | | | | | | | | | |
| Endeavour International Corporation | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | |
Revenue | $ | - | $ | 1,947 | $ | 92,216 | $ | - | $ | 94,163 |
Operating expenses | | - | | 1,181 | | 25,989 | | - | | 27,170 |
DD&A expense | | - | | 721 | | 44,247 | | - | | 44,968 |
Impairment of oil and gas properties | | - | | - | | - | | - | | - |
General and administrative | | 995 | | 3,709 | | 145 | | - | | 4,849 |
Income (loss) from Operations | | (995) | | (3,664) | | 21,835 | | - | | 17,176 |
| | | | | | | | | | |
Other Income (Expense): | | | | | | | | | | |
Unrealized gains on derivatives | | 469 | | - | | 2,190 | | - | | 2,659 |
Interest expense | | (20,620) | | 578 | | (26,435) | | 15,000 | | (31,477) |
Letter of credit fees | | - | | - | | (3,789) | | - | | (3,789) |
Loss on early extinguishment of debt | | - | | - | | (3,543) | | - | | (3,543) |
Litigation settlement expense | | - | | (19,034) | | - | | - | | (19,034) |
Unrealized foreign currency gains (losses) | | - | | - | | (1,273) | | - | | (1,273) |
Other income (expense) | | (322) | | 14,406 | | (1,104) | | (15,000) | | (2,020) |
Loss Before Income Taxes | | (21,468) | | (7,714) | | (12,119) | | - | | (41,301) |
Petroleum Revenue Tax ("PRT") Expense | | - | | - | | 1,725 | | - | | 1,725 |
Corporate Tax Expense | | - | | - | | 1,844 | | - | | 1,844 |
Total tax expense | | - | | - | | 3,569 | | - | | 3,569 |
Net loss | | (21,468) | | (7,714) | | (15,688) | | - | | (44,870) |
Preferred stock dividends | | 456 | | - | | - | | - | | 456 |
Net loss to common shareholders | $ | (21,924) | $ | (7,714) | $ | (15,688) | $ | - | $ | (45,326) |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
For the Three Months Ended March 31, 2013 | | | | | | | | | | |
| Endeavour International Corporation | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | |
Revenue | $ | - | $ | 2,536 | $ | 55,136 | $ | - | $ | 57,672 |
Operating expenses | | - | | 3,615 | | 13,875 | | - | | 17,490 |
DD&A expense | | - | | 1,139 | | 21,808 | | - | | 22,947 |
Impairment of oil and gas properties | | - | | 3,534 | | - | | - | | 3,534 |
General and administrative | | 732 | | 2,611 | | 2,139 | | - | | 5,482 |
Income (loss) from Operations | | (732) | | (8,363) | | 17,314 | | - | | 8,219 |
| | | | | | | | | | |
Other Income (Expense): | | | | | | | | | | |
Unrealized gains (losses) on derivatives | | (700) | | - | | 2,280 | | - | | 1,580 |
Interest expense | | (20,160) | | 603 | | (16,881) | | 15,000 | | (21,438) |
Letter of credit fees | | - | | - | | (11,380) | | - | | (11,380) |
Loss on early extinguishment of debt | | - | | - | | - | | - | | - |
Litigation settlement expense | | - | | - | | - | | - | | - |
Unrealized foreign currency gains (losses) | | - | | (1) | - | 9,761 | - | - | - | 9,760 |
Other income (expense) | | 1 | | 14,478 | | 643 | | (15,000) | | 122 |
Income (Loss) Before Income Taxes | | (21,591) | | 6,717 | | 1,737 | | - | | (13,137) |
Petroleum Revenue Tax ("PRT") Expense | | - | | - | | 628 | | - | | 628 |
Corporate Tax Expense | | - | | - | | 281 | | - | | 281 |
Total tax expense | | - | | - | | 909 | | - | | 909 |
Net income (loss) | | (21,591) | | 6,717 | | 828 | | - | | (14,046) |
Preferred stock dividends | | 456 | | - | | - | | - | | 456 |
Net income (loss) to common shareholders | $ | (22,047) | $ | 6,717 | $ | 828 | $ | - | $ | (14,502) |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
| | | | | | | | | | |
For the Three Months Ended March 31, 2014 |
| Endeavour International Corporation | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations | Consolidated |
Cash Flows from Operating Activities: | | | | | | | | | | |
Net loss | $ | (21,468) | $ | (7,714) | $ | (15,688) | $ | - | $ | (44,870) |
Adjustments to reconcile net loss to | | | | | | | | | | |
net cash provided by (used in) operations | | | | | | | | | | |
Depreciation, depletion and amortization | | - | | 721 | | 44,247 | | - | | 44,968 |
Deferred tax expense (benefit) | | - | | - | | 1,969 | | - | | 1,969 |
Unrealized (gains) losses on derivatives | | (469) | | - | | (2,190) | | - | | (2,659) |
Amortization of non-cash compensation | | 162 | | - | | - | | 809 | | 971 |
Amortization of loan costs and discount | | 2,049 | | - | | 4,656 | | - | | 6,705 |
Non-cash interest expense | | - | | - | | 1,883 | | - | | 1,883 |
Loss on early extinguishment of debt | | - | | - | | 6,856 | | - | | 6,856 |
Litigation settlement expense | | | | 19,034 | | - | | - | | 19,034 |
Other | | - | | (4) | | 1,851 | | - | | 1,847 |
Changes in operating assets and liabilities: | | | | | | | | | | |
(Increase) decrease in receivables | | - | | (852) | | 19,853 | | - | | 19,001 |
(Increase) decrease in other current assets | | - | | (238) | | (4,818) | | - | | (5,056) |
Increase (decrease) in liabilities | | (17,438) | | 20,381 | | (23,658) | | (2,385) | | (23,100) |
Net Cash Provided by (Used in) | | | | | | | | | | |
Operating Activities | | (37,164) | | 31,328 | | 34,961 | | (1,576) | | 27,549 |
| | | | | | | | | | |
Cash Flows From Investing Activities: | | | | | | | | | | |
Capital expenditures | | - | | (15,328) | | (15,093) | | 1,576 | | (28,845) |
Proceeds from sales, net of cash | | - | | 1,352 | | - | | - | | 1,352 |
Increase in restricted cash | | - | | - | | (2,457) | | - | | (2,457) |
Net Cash Used in Investing Activities | | - | | (13,976) | | (17,550) | | 1,576 | | (29,950) |
| | | | | | | | | | |
Cash Flows From Financing Activities: | | | | | | | | | | |
Repayments of borrowings | | - | | - | | (115,163) | | - | | (115,163) |
Borrowings under debt agreements, net | | | | | | | | | | |
of debt discount | | 17,500 | | - | | 123,125 | | - | | 140,625 |
Proceeds from issuance of common stock | | 12,376 | | - | | - | | - | | 12,376 |
Repayments of MPP | | - | | - | | (5,000) | | | | (5,000) |
Financing costs paid | | (456) | | - | | (8,817) | | - | | (9,273) |
Intercompany cash management | | 8,160 | | 8,984 | | (17,144) | | - | | - |
Other financing | �� | (416) | | - | | - | | - | | (416) |
Net Cash Provided by (Used in) | | | | | | | | | | |
Financing Activities | | 37,164 | | 8,984 | | (22,999) | | - | | 23,149 |
| | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | - | | 26,336 | | (5,588) | | - | | 20,748 |
Cash and Cash Equivalents, Beginning | | | | | | | | | | |
of Period | | - | | 2,417 | | 32,325 | | - | | 34,742 |
Cash and Cash Equivalents, End of Period | $ | - | $ | 28,753 | $ | 26,737 | $ | - | $ | 55,490 |
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
| | | | | | | | | | |
| | | | | | | | | | |
For the Three Months Ended March 31, 2013 |
| Endeavour International Corporation | Combined Guarantor Subsidiaries | Combined Non-Guarantor Subsidiaries | Eliminations | Consolidated |
Cash Flows from Operating Activities: | | | | | | | | | | |
Net loss | $ | (21,591) | $ | 6,717 | $ | 828 | $ | | $ | (14,046) |
Adjustments to reconcile net loss to | | | | | | | | | | |
net cash provided by (used in) operations | | | | | | | | | | |
Depreciation, depletion and amortization | | - | | 1,139 | | 21,808 | | - | | 22,947 |
Impairment of oil and gas properties | | - | | 3,534 | | - | | - | | 3,534 |
Deferred tax expense (benefit) | | - | | - | | 128 | | - | | 128 |
Unrealized (gains) losses on derivatives | | 700 | | - | | (2,280) | | - | | (1,580) |
Amortization of non-cash compensation | | 163 | | - | | - | | 669 | | 832 |
Amortization of loan costs and discount | | 1,951 | | - | | 1,488 | | - | | 3,439 |
Non-cash interest expense | | - | | - | | 2,274 | | - | | 2,274 |
Other | | 43 | | (4) | | (4,762) | | - | | (4,723) |
Changes in operating assets and liabilities: | | | | | | | | | | |
(Increase) decrease in receivables | | - | | 275 | | 15,554 | | - | | 15,829 |
(Increase) decrease in other current assets | | 3,643 | | (15,057) | | 55 | | - | | (11,359) |
Increase (decrease) in liabilities | | (17,112) | | 52 | | 48,059 | | (669) | | 30,330 |
Net Cash Provided by (Used in) | | | | | | | | | | |
Operating Activities | | (32,203) | | (3,344) | | 83,152 | | - | | 47,605 |
| | | | | | | | | | |
Cash Flows From Investing Activities: | | | | | | | | | | |
Capital expenditures | | - | | (2,532) | | (56,542) | | - | | (59,074) |
Net Cash Used in Investing Activities | | - | | (2,532) | | (56,542) | | - | | (59,074) |
| | | | | | | | | | |
Cash Flows From Financing Activities: | | | | | | | | | | |
Proceeds from issuance of MPP | | - | | - | | 43,000 | | - | | 43,000 |
Intercompany cash management | | 32,794 | | (19,399) | | (13,395) | | - | | - |
Financing costs paid | | (591) | | - | | (9,344) | | - | | (9,935) |
Net Cash Provided by (Used in) | | | | | | | | | | |
Financing Activities | | 32,203 | | (19,399) | | 20,261 | | - | | 33,065 |
| | | | | | | | | | |
Net Change in Cash and Cash Equivalents | | - | | (25,275) | | 46,871 | | - | | 21,596 |
Cash and Cash Equivalents, Beginning | | | | | | | | | | |
of Period | | - | | 27,800 | | 31,385 | | - | | 59,185 |
Cash and Cash Equivalents, End of Period | $ | - | $ | 2,525 | $ | 78,256 | $ | - | $ | 80,781 |
Table Of Contents
Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in tables in thousands, except per unit data)
Item 2: Management’s 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 independent oil and gas company engaged in the production, exploration, development and acquisition of crude oil and natural gas in the U.K. North Sea and U.S. onshore. Our U.K. operations have been focused on development projects and acquisition, while capital spending by our U.S. operations is primarily related to strategic positioning and proof-of-concept in the Marcellus and Niobrara play areas as we monitor U.S. gas prices.
In the last two years, we have incurred substantial capital expenditures and acquisition costs as we advanced development projects at Bacchus and Rochelle and completed acquisitions. We also experienced delays in the timing of first production from our Bacchus and Rochelle developments, a slowing of production from our U.S. drilling operations as we curtailed the U.S. drilling program in response to declining U.S. gas prices, increased capital costs due to the production delays at our Bacchus and Rochelle projects and increased debt service costs required to finance our drilling and acquisition program. The production delays and increased capital costs and debt service costs placed a strain on our cash flow from operations and our ability to reduce our debt leverage.
During 2013, we completed several transactions to improve our liquidity, extend the maturities of some of our debt and reimbursement agreements and effectively hedged a portion of production from our U.K. North Sea assets by locking in pricing. These transactions include:
| · | | extended or replaced reimbursement agreements covering certain of our abandonment liabilities in the U.K. which would have matured in 2013; |
| · | | entered into a first forward sale agreement for a payment of approximately $22.5 million in return for a specified volume of crude oil in excess of 200,000 barrels from our U.K. North Sea production, that was fully delivered by June 30, 2013; |
| · | | entered into a second forward sale agreement for a payment of approximately $22.5 million in return for a specified volume of crude oil in excess of 200,000 barrels from our U.K. North Sea production, to be delivered over a six month delivery period; |
| · | | entered into monetary production payments for $175 million; and |
| · | | entered into a purchase and sale agreement for the joint exploration, development, and operation of certain oil and gas properties in Pennsylvania. |
These transactions are discussed in the Notes to our condensed consolidated financial statements.
2014 Liquidity and Capital Resources
During 2014, our primary focus for our financial resources is expected to be:
| · | | our drilling activities, principally at our Alba, Bacchus and Rochelle fields in the U.K.; |
| · | | refinancing of existing credit facilities and reimbursement/procurement agreements with lower cost facilities while continuing to cover our abandonment obligations, which was accomplished in the first quarter of 2014; and |
| · | | continued pursuit of a non-speculative hedging policy to minimize exposure to commodity price risk and reduce cash volatility. |
As of March 31, 2014, we had $856.7 million in outstanding indebtedness, net of $55.5 million in cash. Being highly leveraged, servicing our debt and other long-term obligations will continue to require a significant portion of our cash flow from operations and available cash on hand. We are primarily dependent upon our three significant fields in the U.K. – Alba, Bacchus and Rochelle – for our cash flows from operations. If we incur delays in production, such as those resulting from the mechanical issues experienced at the Rochelle field and the subsequent unplanned shutdown at the Scott platform discussed in “Liquidity and Capital Resources,” it will negatively impact our cash flows, results of operations and financial condition.
Since year-end 2013, our liquidity has been an area of concern. Although we have met our debt service obligations and we have completed several transactions to improve our liquidity position, including extending the maturities of some of our debt and other obligations. These recent financing activities are designed offset the loss of cash flows due to the interruption in production at Rochelle during the first and second quarters of 2014. These transactions include:
| · | | replaced our Revolving Credit Facility and letter of credit reimbursement agreements covering certain of our abandonment liabilities in the U.K. which would have expired in 2014 with new facilities with later expiration dates; |
| · | | issued $12.5 million in common stock and warrants; |
| · | | issued $17.5 million in 6.5% Convertible Notes; and |
| · | | reduced our letter of credit relating to the abandonment obligations at the Alba field from $120 million to $55 million due to changes in the tax treatment thereof. |
Although these transactions have contributed to our liquidity, liquidity will remain an area of focus for us during the remainder of 2014. If we are unable to meet any short-term liquidity needs out of cash on hand, we would attempt to refinance debt, sell assets, issue equity, delay discretionary capital expenditures, decline to participate in non-operated drilling or pursue other alternatives. No assurance can be given however that we could successfully consummate any of these alternatives.
Results of Operations
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 means a small variation in supply or demand can significantly impact the market prices for these commodities. Our realized price per BOE, before derivatives, increased from $89.17 per BOE in 2013 to $93.97 per BOE in 2014. Our revenues increased from $57.7 million for the quarter ended March 31, 2013 to $94.2 million for 2014 primarily as a result of increased sales from our Alba field and first liquids sales at the Rochelle field.
Net loss to common stockholders for the three months ended months ended March 31, 2014 was $45.3 million, or $0.91 per share, compared to $14.5 million, or $0.31 per share, for the same period in 2013. The change in the net loss to common stockholders for these periods was primarily due to higher gains on unrealized foreign currency exchange in 2013, increased operating expenses and depreciation, depletion and amortization (“DD&A”) related to the increased volumes at Alba and Rochelle and the litigation settlement expense in 2014, partially offset by increased revenues related to our Alba and Rochelle fields, lower impairments of oil and gas properties and decreased expenses related to reimbursement agreements covering certain of our abandonment liabilities.
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 commodity derivatives, impairment of oil and gas properties, and currency impact of long-term liabilities and deferred taxes. Excluding these non-cash items, Net Loss as Adjusted for the first quarter 2014 was $27.3 million as compared to Net Loss as Adjusted of $12.1 million for the same period in 2013. The increase in Net Loss as Adjusted is primarily due to losses incurred on the early extinguishment of financing arrangements, and an increase in litigation settlement expense partially offset by increased revenue and reduced expense related to our reimbursement agreements covering certain of our abandonment liabilities.
Adjusted EBITDA increased to $58.8 for the three months ended March 31, 2014 from $44.6 million for the same period in 2013. The increase in Adjusted EBITDA was due to increased revenues related to the Alba field, initial production from the Rochelle field and decreased expenses related to reimbursement agreements covering certain of our abandonment liabilities partially offset by increased operating expenses.
Our cash flows provided by operating activities decreased to $27.5 million for the three months ended months ended March 31, 2014 as compared to cash flows provided by operating activities of $47.6 million for the same period in 2013. The change was primarily due to increased payments for abandonment obligations and the timing of receipts related to increased revenues partially offset by increased operating expenses and interest expense.
For definitions of Net Loss as Adjusted and Adjusted EBITDA, and a reconciliation of each to the nearest comparable GAAP measure, please see “Reconciliation of Non-GAAP Measures.”
Revenue and Sales Volume
Our physical daily production was 9,440 BOE and 9,385 BOE for the first quarter of 2014 and 2013, respectively. For the first quarter of 2014 and 2013, we had sales volume of 11,134 BOE per day and 7,186 BOE per day, respectively. Our revenues increased from $57.7 million during the three months ended March 31, 2013 to $94.2 million in the same period in 2014. The increase in sales volumes and revenue is a result of higher liftings at Alba and the initial lifting at Rochelle.
We record oil revenues when deliveries have occurred and legal ownership of the oil transfers to the customer. While certain of our U.K. oil fields produce into pipelines and thereby allow us to record revenue each month, the remaining fields, including the Alba field, are dependent upon tanker liftings to deliver oil production to the buyers. For certain of our U.K. fields, including the Alba field, we sell production on a monthly basis, although the production remains in the field’s storage tanks until the tanker lifting. The inventory associated with these sales remains on our balance sheet and the revenue is deferred until the production is delivered out of our storage tanks. While the timing of tanker liftings affect when we record revenue from Alba, physical production and cash receipts are unaffected.
We may utilize financial commodity derivatives, negotiated pricing in our marketing contracts and forward sales to achieve a more predictable cash flow by reducing our exposure to price fluctuations. At March 31, 2014, we had the following floors and ceilings embedded within our marketing contracts and forward sales:
| | | | | | |
| | Second | | Third | | Fourth |
| | Quarter | | Quarter | | Quarter |
Oil: | 2014 | | 2014 | | 2014 |
Volumes (Mbbl) | | 360 | | 368 | | 368 |
Weighted Average Ceiling Price ($/Barrel) | $ | 109.75 | $ | 109.00 | $ | 107.50 |
Weighted Average Floor Price ($/Barrel) | | 102.50 | | 102.50 | | 102.50 |
In addition, we are negotiating another forward sale for similar terms to our previous forward sales during the second quarter of 2014.
The following table shows our average sales volumes and realized sales prices for our operations for the periods presented.
| | | | | | |
| | | | | | |
| | Three Months Ended | |
| | March 31, | |
| | 2014 | | | 2013 | |
Sales volume: (1) | | | | | | |
Oil and condensate sales (Mbbls): | | | | | | |
United Kingdom | | 833 | | | 508 | |
United States | | - | | | - | |
Total | | 833 | | | 508 | |
| | | | | | |
Gas sales (MMcf): | | | | | | |
United Kingdom | | 586 | | | 11 | |
United States | | 431 | | | 821 | |
Total | | 1,017 | | | 832 | |
| | | | | | |
Oil equivalent sales (MBOE): | | | | | | |
United Kingdom | | 930 | | | 510 | |
United States | | 72 | | | 137 | |
Total | | 1,002 | | | 647 | |
| | | | | | |
Total BOE per day | | 11,134 | | | 7,186 | |
| | | | | | |
Physical production volume (BOE per day): (1) | | | | | | |
United Kingdom | | 8,604 | | | 7,862 | |
United States | | 836 | | | 1,523 | |
Total | | 9,440 | | | 9,385 | |
| | | | | | |
Realized Price, before and after derivatives : | | | | | | |
United Kingdom: | | | | | | |
Oil and condensate price ($ per Bbl) | $ | 103.54 | | $ | 108.40 | |
Gas price ($ per Mcf) | $ | 10.25 | | $ | 7.89 | |
Equivalent oil price ($ per BOE) | $ | 99.12 | | $ | 108.17 | |
| | | | | | |
United States: | | | | | | |
Oil and condensate price ($ per Bbl) | $ | 140.50 | | $ | 96.77 | |
Gas price ($ per Mcf) | $ | 4.52 | | $ | 3.07 | |
Equivalent oil price ($ per BOE) | $ | 27.14 | | $ | 18.50 | |
| | | | | | |
Total: | | | | | | |
Oil and condensate price ($ per Bbl) | $ | 103.54 | | $ | 108.40 | |
Gas price ($ per Mcf) | $ | 7.82 | | $ | 3.13 | |
Equivalent oil price ($ per BOE) | $ | 93.97 | | $ | 89.17 | |
| (1) | | We record oil revenues when production is transported by pipeline or production is shipped out of our storage tanks and legal ownership has passed to the purchaser. We use the entitlements method to account for sales of gas production. Physical production may |
differ from sales volumes based on the timing of tanker liftings for our international sales. |
Our revenues, profitability and cash flow depend substantially upon the prices and demand for oil and gas and are subject to numerous operational and financial risks, some of which are beyond our control. The markets for these commodities are volatile, and even relatively modest drops in prices can significantly affect our financial results and impede our growth.
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. The U.S. gas market is heavily impacted by the increased supply from shale drilling, which has served to depress natural gas prices relative to the U.K. market.
Expenses
For the first quarter of 2014, operating expenses increased to $27.2 million as compared to $17.5 million for the same period in 2013. This increase was primarily the result of operating expenses associated with initial production at Rochelle and higher lifting volumes at Alba. Even with the increase in operating expenses, operating costs per BOE increased only slightly from $27.04 per BOE for the first quarter of 2013 to $27.11 per BOE for the same period in 2014.
DD&A expense increased to $45.0 million from $22.9 million for the first quarter of 2014 and 2013, respectively, primarily due to increased sales volumes and accretion expense during the first quarter and an increase in the DD&A rate per BOE due to increased depletable costs.
For the first quarter of 2014, the prices used in the full cost ceiling test for our U.S. properties were $98.43 per barrel for oil and $3.99 per Mcf for gas, resulting in no impairment related to our U.S. properties for the period. For the first quarter of 2013, we recorded a pre-tax impairment of $3.5 million related to our U.S. oil and gas properties through the application of the full cost ceiling test at the end of the quarter. The impairment was primarily due to the decline in U.S. gas prices. The prices used to determine the impairment for our U.S. properties for the first quarter of 2013 were $92.63 per barrel for oil and $2.97 per Mcf for gas.
For the first quarter of 2014, the prices used in the full cost ceiling test for our U.K. properties were $107.06 per barrel for oil and $10.57 per Mcf for gas. We have not recorded any impairment related to our U.K. properties.
The risk that we will be required to record additional impairments of our oil and gas properties, through the application of the full cost ceiling test in subsequent periods, increases when oil and gas prices are low or volatile. If U.S. gas prices continue to face the adverse effects of high gas
supply or other factors, we may experience further ceiling test write-downs or other impairments in the future.
General and administrative (“G&A”) expenses decreased to $4.8 million for the first quarter of 2014 as compared to $5.5 million for the corresponding period in 2013 as a result of a decrease in employee compensation expense resulting from the organizational changes and closure of our London offices that occurred in late 2013. Components of G&A expenses for these periods are as follows:
| | | | | |
| | | | | |
(Amounts in thousands) | | Three Months Ended |
| | March 31, |
| | 2014 | | | 2013 |
Compensation | $ | 3,912 | | $ | 6,391 |
Consulting, legal and accounting fees | | 2,414 | | | 2,569 |
Amounts recovered from joint interest partners | | 16 | | | (1,087) |
Other expenses | | 482 | | | 974 |
Total gross cash G&A expenses | | 6,824 | | | 8,847 |
| | | | | |
Non-cash stock-based compensation | | 1,134 | | | 1,690 |
Gross G&A expenses | | 7,958 | | | 10,537 |
Less: capitalized G&A expenses | | (3,109) | | | (5,055) |
Net G&A expenses | $ | 4,849 | | $ | 5,482 |
As discussed in “Liquidity and Capital Resources,” we completed several financing transactions during the first quarter that have had a significant impact on our interest expense. Interest expense increased to $31.5 million for the first quarter of 2014 as compared to $21.4 million for the corresponding period in 2013, primarily due to additional interest resulting from the issuance of the Monetary Production Payment in mid-2013 and lower capitalized interest in 2014 as our significant development projects have been completed, partially offset by the lower interest rate from the Term Loan Facility versus the Revolving Credit Facility. We capitalize a portion of interest as a result of our drilling activity. As the development work at Bacchus and Rochelle has been completed, the amount of interest we capitalize related to these projects has decreased. The components of interest expense are as follows:
| | | | | | | | |
| | | | | | | | |
(Amounts in thousands) | Three Months Ended | |
| | | March 31, | |
| | | 2014 | | 2013 | |
| | | | | | | | |
Interest expense on debt outstanding | $ | 27,331 | | $ | 24,172 | |
Amortization of loan costs and discount | | 6,705 | | | 3,439 | |
Gross interest expense | | 34,036 | | | 27,611 | |
| | | | | | | | |
Less: capitalized interest | | (2,559) | | | (6,173) | |
| | | | | | | | |
Net interest expense | $ | 31,477 | | $ | 21,438 | |
For the three months ended March 31, 2014 and 2013, we had non-cash interest expense, including amortization of loan costs and discount, of $8.6 million and $5.7 million, respectively.
Letter of credit fees were $3.8 million and $11.4 million for the first quarter of 2014 and 2013, respectively. The letter of credit fees are expenses related to our reimbursement agreements covering certain of our abandonment liabilities. The decrease in the letter of credit fees was primarily due to the lower rates and financing costs of our Combined Procurement Agreement versus the previous agreements.
As part of the repayment of the Revolving Credit Facility, we paid an early termination fee of approximately $2.5 million and wrote off the remaining deferred financing costs of $2.1 million.
The unrealized gains (losses) on foreign currency exchange are primarily attributable to the effects of foreign currency fluctuations on our abandonment liabilities which are predominantly denominated in pounds sterling.
We recorded $19.0 million in total settlement expense in connection with the settlement, including a $6 million deposit that was paid to SM Energy prior to the execution of the agreements in 2011. See Note 15 for additional discussion.
Other income (expense) decreased to $(2.0) million during the three months ended March 31, 2014 as compared to $0.1 million for the corresponding period in 2013. The changes in other income (expense) are primarily attributable to transaction costs related to our litigation with SM Energy.
Income Taxes
The following summarizes the components of tax expense (benefit):
| | | | | | | | | | | |
| | | | | | | | | | | |
(amounts in thousands) | U.K. | | U.S. | | Other | | Total |
Three Months Ended March 31, 2014: | | | | | | | | | | | |
Net loss before taxes | $ | (12,112) | | $ | (29,183) | | $ | (6) | | $ | (41,301) |
| | | | | | | | | | | |
PRT tax current expense | | 4,799 | | | - | | | - | | | 4,799 |
PRT tax deferred benefit | | (3,074) | | | - | | | - | | | (3,074) |
PRT tax expense | | 1,725 | | | - | | | - | | | 1,725 |
| | | | | | | | | | | |
Corporate current expense | | (126) | | | - | | | - | | | (126) |
Corporate deferred benefit | | 1,970 | | | - | | | - | | | 1,970 |
Corporate tax expense (benefit) | | 1,844 | | | - | | | - | | | 1,844 |
| | | | | | | | | | | |
Total tax expense | | 3,569 | | | - | | | - | | | 3,569 |
Net loss | $ | (15,681) | | $ | (29,183) | | $ | (6) | | $ | (44,870) |
| | | | | | | | | | | |
Three Months Ended March 31, 2013: | | | | | | | | | | | |
Net income (loss) before taxes | $ | 1,341 | | $ | (14,874) | | $ | 396 | | $ | (13,137) |
| | | | | | | | | | | |
PRT tax current expense | | 781 | | | - | | | - | | | 781 |
PRT tax deferred benefit | | (153) | | | - | | | - | | | (153) |
PRT tax expense | | 628 | | | - | | | - | | | 628 |
| | | | | | | | | | | |
Corporate current expense | | - | | | - | | | - | | | - |
Corporate deferred benefit | | 281 | | | - | | | - | | | 281 |
Corporate tax expense (benefit) | | 281 | | | - | | | - | | | 281 |
| | | | | | | | | | | |
Total tax expense | | 909 | | | - | | | - | | | 909 |
Net income (loss) | $ | 432 | | $ | (14,874) | | $ | 396 | | $ | (14,046) |
| (1) | | The current tax expense (benefit) in both 2014 and 2013 is related to Petroleum Revenue Tax on our Alba field in the U.K. |
The change in income tax expense (benefit) from $0.9 million to $3.6 million for the three months ended months ended March 31, 2013 and 2014, respectively, was primarily the result of increased income in the U.K. due to the initial production from Rochelle and greater liftings and revenues at Alba.
In the first quarter of 2014 and 2013, 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 against the 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, such as net income (loss) as adjusted and Adjusted EBITDA, 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. We define “net income (loss), as adjusted” as net income (loss), without the effect of impairments, derivative transactions and currency impacts of deferred taxes. We define “Adjusted EBITDA” as net income (loss) before interest, taxes, depreciation, depletion and amortization adjusted for the early termination of commodity derivatives and income (loss) from discontinued operations. These measures are internal, supplemental measures of our performance that are not required by, or presented in accordance with GAAP. The calculations of these non-GAAP measures and the reconciliation of net income (loss) to these non-GAAP measures are provided below.
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.
Because net income (loss) as adjusted and Adjusted EBITDA are not measures determined in accordance with GAAP and thus are susceptible to varying calculations, they may not be comparable to similarly titled measures of other companies. Net income (loss) as adjusted and Adjusted EBITDA 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 condensed consolidated financial statements as reported under GAAP.
Provided below are reconciliations of net loss to Net Loss as Adjusted and Adjusted EBITDA:
| | | | | |
| | | | | |
(Amounts in thousands) | Three Months Ended |
| March 31, |
| 2014 | | 2013 |
Net loss | $ | (44,870) | | $ | (14,046) |
Impairment of oil and gas properties (net of tax) (1) | | - | | | 3,534 |
Unrealized gains on derivatives (net of tax) (2) | | (2,659) | | | (1,580) |
Loss on early extinguishment of financing agreements (net of tax) (3) | | 1,220 | | | - |
Litigation settlement expense (net of tax) (1) | | 19,034 | | | - |
| | | | | |
Net Loss as Adjusted | $ | (27,275) | | $ | (12,092) |
| | | | | |
Net loss | $ | (44,870) | | $ | (14,046) |
Unrealized gains on derivatives | | (2,659) | | | (1,580) |
Net interest expense | | 31,466 | | | 21,422 |
Letter of credit fees | | 3,789 | | | 11,380 |
Depreciation, depletion and amortization | | 44,968 | | | 22,947 |
Impairment of oil and gas properties | | - | | | 3,534 |
Loss on early extinguishment of financing agreements | | 3,543 | | | - |
Litigation settlement expense | | 19,034 | | | - |
Income tax expense | | 3,569 | | | 909 |
| | | | | |
Adjusted EBITDA | $ | 58,840 | | $ | 44,566 |
| (1) | | We recognized no tax benefits as there was no assurance that we could generate any U.S. taxable earnings. |
| (2) | | Since the unrealized gains on derivatives were related to liabilities other than the U.K., we recognized no tax benefits as there was no assurance that we could generate any taxable earnings. |
| (3) | | Net of tax expense of $2,323 and none, respectively. |
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.
| | | | | |
| | | | | |
(amounts in thousands) | Three Months Ended March 31, |
| | 2014 | | | 2013 |
| | | | | |
Net cash provided by operating activities | $ | 27,549 | | $ | 47,605 |
Net cash used in investing activities | $ | (29,950) | | $ | (59,074) |
Net cash provided by financing activities | $ | 23,149 | | $ | 33,065 |
The net cash flows used in operating activities are primarily impacted by the earnings from our business activities. The cash flows provided by operating activities were $27.5 million for the three months ended months ended March 31, 2014 as compared to $47.6 million provided by operating activities for the three months ended months ended March 31, 2013, primarily due to increased payments for abandonment obligations and the timing of receipts related to increased revenues partially offset by increased operating expenses and interest expense.
Our debt facilities, letters of credit, reimbursement agreements, monetary production payment and related transactions for 2014 and 2013 are as follows:
| · | | Securities Purchase Agreement: In February 2014, we entered into a securities purchase agreement which is related to the issuance of up to $55 million in common stock, warrants and convertible notes. We issued $12.5 million in common stock and warrants and $17.5 million in convertible notes under the Securities Purchase Agreement during the first quarter of 2014. |
| · | | Term Loan Facility: In January 2014, we entered into a $125 million Term Loan Facility and used the proceeds to repay the outstanding amounts under the Revolving Credit Facility. Subsequent to the repayment, the Revolving Credit Facility was terminated and all the associated liens on our collateral obligations were released. |
| · | | Combined Procurement Agreement: In January 2014, we entered into a letter of credit procurement agreement with an unaffiliated third party whereby we secured letters of credit for our account of approximately $130 million and agreed to reimburse the third party any expense incurred with posted cash collateral. The letters of credit secure decommissioning obligations in connection with our U.K. licenses. The Combined Procurement Agreement replaces the reimbursement agreements. |
| · | | Monetary Production Payments: In March 2013, we entered into a Production Payment Agreement for $125 million, which was subsequently increased to $175 million. |
| · | | Forward Sale Agreements: In February and September 2013, we entered into forward sale agreements with one of our established purchasers of approximately $22.5 million each in return for a specified volume of crude oil in excess of 200,000 barrels from our U.K. North Sea production. The first forward sale commitment was fulfilled in June 2013; the second forward sale commitment was fulfilled by the end of the first quarter of 2014. |
| · | | Procurement Agreement: In January 2013, we entered into a Procurement Agreement with an unaffiliated third party, under which cash was pledged to secure letters of credit in the amount of $33.0 million related to decommissioning obligations in connection with certain of our U.K. license agreements. Third parties have cash collateral associated with the commitments under the Procurement Agreement and we have not recorded the Procurement Agreement as a liability. The Procurement Agreement was terminated and replaced by the Combined Procurement Agreement in January 2014. |
Our equity issuances for the first quarter of 2014 were as follows:
| · | | February 2014: an issuance of 2.9 million shares of our common stock and 0.7 million of warrants, as related to the Securities Purchase Agreement. |
Certain of our outstanding debt instruments contain certain financial ratio covenants. We were in compliance with all financial covenants in our debt obligations as of March 31, 2014 and December 31, 2013.
Drilling Program
Our capital expenditures were as follows:
| | | | | |
| | | | | |
| | Three Months Ended |
| | March 31, |
(Amounts in thousands) | | 2014 | 2013 |
| | | | | |
Direct Oil & Gas Capital Expenditures: | | | | | |
U.K. | | $ | 10,219 | $ | 33,156 |
U.S | | | 1,124 | | 614 |
| | | 11,343 | | 33,770 |
| | | | | |
Capitalized G&A, Interest and Other | | | 5,668 | | 11,373 |
| | | | | |
Asset Retirement Obligations | | | 4,788 | | 4,771 |
| | | | | |
Total Capital Expenditures and Acquisitions | | $ | 21,799 | $ | 49,914 |
| | | | | |
Asset Retirement Obligations Paid | | $ | 16,548 | $ | 4,886 |
United Kingdom Capital Program
During 2013, our capital program was focused on two large projects in the North Sea, the Bacchus and Rochelle fields, as well as infill drilling at Alba. With the completion of the development projects, our 2014 capital expenditures will be shifting to maintenance, infill drilling and water injection drilling as discussed below.
Alba
In April 2013, operations commenced on a three-well infill drilling program at the Alba field. The first two development wells were completed by August 2013, just prior to the shutdown for the planned maintenance program from mid-August to mid-September 2013. Following the shutdown, the operator identified that the water injection pipeline supplying pressure to the southern area of the field had ruptured, causing a portion of the southern region to be shut-in. The Alba 2013 exit rate was 18,500 barrels per day gross, below the levels expected from the field. Remedial action is currently being taken to reinstate partial water injection to offset some of the reduced production. This is expected to be operational in the second quarter of 2014. The permanent replacement of the pipeline is expected in late 2014. The 2013 infill drilling campaign recommenced in November 2013 with an additional well that began producing in April 2014. The next development well is currently being drilled with first production expected in the third quarter of 2014. An additional development well is also scheduled to be drilled during 2014.
Bacchus
Drilling of the third well at Bacchus began in April 2013 and was completed in July 2013. The 2013 production exit rate at the field was over 10,000 barrels per day gross. During the third quarter of 2013, a new 3D seismic survey was shot over the Bacchus field to gain additional understanding of field performance and identify additional Bacchus development opportunities. Consistent with the original development plans, the first well drilled is expected to be turned into a water injector during the second quarter of 2014. This will provide pressure support to help sustain the field's production rate and increase its overall recovery. Production from the field is expected to continue to decline in line with our field estimates until additional development opportunities can be undertaken.
Rochelle
At the Rochelle field, in February 2013, following a severe storm lasting several days, we performed a routine inspection of the conductor, wellhead and blow out preventer systems which revealed that a non-uniform hole had been formed around the conductor. As a result of this finding, the East Rochelle E1 was plugged and abandoned in August 2013. We have made an insurance claim to recover certain abandonment and redrill costs; however, no assurance can be given that we can successfully recover any costs.
Drilling began on the West Rochelle W1 well in the first quarter of 2013 and it was completed and flow tested in June 2013. Following the Scott Platform shutdown from July 11 to September 5, 2013, first production from Rochelle started on October 23, 2013 from the West Rochelle W1 well. Production was ramped up to 65-70 MMcf of gas per day with an additional 2,500-3,000 barrels per day of liquids, 6,000-7,000 BOE net to our working interest in the field.
By January 2014, both the E2 and W1 development wells at Rochelle were fully completed and tied-in to the production manifolds. As part of the final installation and start-up of the E2 well, the W1 well was shut-in. During the well start-up procedure, a valve on the outlet side of the
East Rochelle production manifold was stuck in the “shut” position. An attempt to open the valve manually was unsuccessful and the operator secured an intervention vessel to open the valve. The valve was successfully opened in February 2014. The E2 well commenced production on February 28, 2014 and was ramped up to 65 MMscf/d with 2,500 to 3,000 barrels per day of liquids. The W1 well remained shut-in for reservoir management purposes to balance offtake from East and West Rochelle.
In late March 2014, Rochelle production was shut-in due to an unplanned shutdown of the Scott platform, Rochelle’s offtake solution. This is being addressed and Rochelle production resumed by the end of April 2014. This unanticipated downtime will negatively affect our daily production rates, revenue and results of operations for the first and second quarter of 2014, as well as our near-term liquidity. When both E2 and W1 wells are on production, we expect the production from the Rochelle field to be capable of exceeding the available production capacity at the Scott platform.
United States Capital Program
We have both producing and exploration acreage in U.S. onshore unconventional oil and gas shale developments targeting reserve and production growth. Our ongoing U.S. program and expenditures have been tailored based on drilling results and the decline in U.S. gas prices over the last several years. We have limited capital expenditures to those necessary to fulfill drilling commitments and maintain acreage positions.
In the Pennsylvania Marcellus, Endeavour successfully completed hydraulic fracture stimulations of the C-14 and C-20 horizontal wells. The operation included more than double the number of frac stages on the longest laterals to date, relative to previous wells. The Endeavour operated activity went smoothly and according to specifications. The third C-13 well is scheduled for stimulation in mid-June using the same completion design. The wells will be tied into a new third-party pipeline being constructed by EQT Corporation that allows firm capacity of up to 10 MMCF/D, with potential for future expansion.
In the Piceance Basin Rim play in Northwest Colorado, Endeavour has two projects targeting liquids-rich Niobrara and Frontier objectives. The Company has formed two federal units and has plans to drill initial horizontal tests in the Niobrara target zone by late summer/early fall. Endeavour has leasehold and drilling options on 40,000 gross acres and 27,000 net acres.
Outlook
2014 Planned Capital Expenditures
We expect that our total capital expenditure budget for 2014 will be approximately $70 million, of which we expect to spend approximately $45 million in the U.K., primarily on drilling at Alba. We expect to spend the remainder of our 2014 capital budget in the U.S. to maintain our acreage positions and to fulfill minor drilling commitments. Our 2014 capital expenditure budget is subject to change depending on a number of factors, including the availability and costs of drilling and completion equipment, crews, economic and industry conditions, prevailing and
anticipated prices for oil and gas, the availability of sufficient capital resources, drilling success and other normal factors affecting the oil and gas industry.
| | |
| | |
| | Preliminary Capital Budget |
United Kingdom: | | |
Drilling and completions | | $35 million to $50 million |
Exploration, seismic and other | | $5 million |
Total U.K. | | $40 million to $55 million |
United States: | | $20 million to $25 million |
Total direct oil and gas capital | | $60 million to $80 million |
We intend to fund our 2014 capital expenditures primarily through cash on hand, cash flow generated from operations and our financing activities in early 2014.
Decommissioning Expenditures
Production from each of our Ivanhoe, Rob Roy, Hamish (collectively, “IVRRH”), Renee, Rubie and Goldeneye fields has ceased and we have performed maintenance and decommissioning activities over the last several years. We expect to incur approximately $50 million in decommissioning charges during 2014. For the three months ended months ended March 31, 2014, we spent $16.5 million in decommissioning costs.
Second Quarter Production Guidance
Considering the unanticipated downtime at the Rochelle field and continued restricted rates at Alba, average daily production volumes are expected to be in the range of 9,000-10,000 boepd during the second quarter of 2014.
Disclosures About Contractual Obligations and Commercial Commitments
The following table sets forth our obligations and commitments to make future payments under our lease agreements and other long-term obligations as of March 31, 2014:
| | | | | | | | | | |
(Amounts in thousands) | | Payments due by Period |
| | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years |
Long-term debt (1): | | | | | | | | | | |
Principal | $ | 912,192 | $ | 2,140 | $ | 237,480 | $ | 672,572 | $ | - |
Interest (2) | | 302,987 | | 75,219 | | 155,698 | | 72,070 | | - |
Monetary production payment (1): | | | | | | | | | | |
Principal | | 161,666 | | 120,833 | | 40,833 | | - | | - |
Effective interest | | 19,371 | | 17,382 | | 1,989 | | - | | - |
Asset retirement obligations | | 164,664 | | 49,113 | | 79,735 | | 142 | | 35,674 |
Letter of credit fees (1) | | 27,143 | | 7,380 | | 14,761 | | 5,002 | | - |
Leases for offices and equipment | | 2,955 | | 1,050 | | 1,778 | | 127 | | - |
| | | | | | | | | | |
Total Contractual Obligations | $ | 1,590,979 | $ | 273,117 | $ | 532,274 | $ | 749,913 | $ | 35,674 |
| (1) | | Our debt, monetary production payment and letter of credit fees reflect the amounts outstanding as of March 31, 2014. |
| (2) | | Interest on out 11.5% convertible bonds is added to the outstanding principal balance each quarter and reflected as due upon maturity. |
Off-Balance Sheet Arrangements
Our reimbursement agreements related to abandonment liabilities are off-balance sheet arrangements and cover $89 million of our abandonment liabilities for certain of our U.K. oil and gas properties. Under these agreements, unaffiliated third parties pledged cash to secure letters of credit covering certain of our abandonment liabilities and we agreed to reimburse the pledged cash in the event that the letters of credit are drawn and pledged cash is utilized to satisfy the commitment. We have no cash collateral associated with the reimbursement agreements and the commitments under the reimbursement agreements are not recorded as liabilities. The associated abandonment obligations are recorded in other long-term liabilities as part of our asset retirement obligations. Fees and expenses related to the reimbursement agreements are included in other expenses on our condensed consolidated statement of operations.
Cautionary Statement Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include statements that express a belief, expectation, or intention, as well as those that are not statements of historical fact, and may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are
generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. We caution you not to rely on them unduly. In particular, this Annual Report on Form 10-K contains forward-looking statements pertaining to the following:
| · | | our future financial position; |
| · | | success refinancing our debt; |
| · | | projected costs, savings and plans; |
| · | | objectives of management for future operations; |
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties, which may not be exhaustive, relate to, among other matters, the following:
| · | | 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; |
| · | | our high level of indebtedness and debt service costs; |
| · | | adverse weather conditions; |
| · | | uncertainties related to drilling and production operations; |
| · | | timing and amount of future production of oil and gas; |
| · | | ability to flow our production through aging infrastructure that is owned by others; |
| · | | 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; |
| · | | 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; |
| · | | cost and access to natural gas gathering, treatment and pipeline facilities; |
| · | | outcome of legal disputes; |
| · | | environmental hazards, such as natural gas leaks, oil spills and discharges of toxic gases; |
| · | | business strategy and the availability of acquisition opportunities; and |
| · | | factors not known to us at this time. |
Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. The forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. In addition, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be incorrect. They can be affected by inaccurate assumptions we might make or by known risks and uncertainties, as mentioned in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2013. Except as required by law, we undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
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. We may engage in oil and gas hedging activities to realize commodity prices which we consider favorable.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act we have evaluated, under the supervision and with the participation of our management, including our chief executive officer (the “CEO”) and chief financial officer (the “CFO”), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. 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 Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) is 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 March 31, 2014. |
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 Exchange Act), 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 in our Annual Report on Form 10-K for the year ended December 31, 2013 under Item 1A “Risk Factors,” which could materially adversely affect our business, financial condition and results of operations. 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
| | |
Exhibit Number | | Description |
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 of our Current Report on Form 8-K (Commission File No. 001-32212) filed on June 3, 2010). |
3.1(d) | | Amendment to Articles of Incorporation, dated November 17, 2010 (Incorporated by reference to Exhibit 3.1(d) of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2010). |
3.1(e) | | Amendment to Amended and Restated Articles of Incorporation, dated May 24, 2012 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K (Commission File No. 001-32212) filed on May 29, 2012). |
3.2(a) | | Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2012). |
3.2(b) | | Amendment to Amended and Restated Bylaws dated May 22, 2013 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K (Commission File No. 001-32212) filed on May 23, 2013). |
| 4.1 | | Indenture dated as of March 3, 2014 among Endeavour International Corporation, the Guarantors named therein and Wilmington Savings Fund Society, FSB, as trustee. (Incorporated by reference to Exhibit 4.15 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 4.2 | | Registration Rights Agreement, dated as of February 28, 2014, between Endeavour International Corporation and certain affiliates of Whitebox Advisors LLC. (Incorporated by reference to Exhibit 4.16 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 4.3 | | Form of 6.5% Convertible Senior Note. (Incorporated by reference to Exhibit 4.17 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 4.4 | | Form of Warrant. (Incorporated by reference to Exhibit 4.18 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 10.1 | | Change in Control Termination Benefits Agreement between the Company and Catherine L. Stubbs (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 6, 2014). |
| 10.2 | | Credit Agreement, dated as of January 24, 2014, among Endeavour International Corporation, Endeavour International Holdings B.V., End Finco LLC and Credit Suisse AG, as administrative agent and as collateral agent, and certain lenders party thereto. (Incorporated by reference to Exhibit 10.38 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 10.3 | | LC Procurement Agreement, dated as of January 24, 2014, among Endeavour International Corporation, Endeavour Energy UK Limited, LC Finco S.à r.l. and Credit Suisse AG, as collateral agent. (Incorporated by reference to Exhibit 10.39 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 10.4 | | Securities Purchase Agreement, dated February 28, 2014, between Endeavour International Corporation, the Guarantors and certain affiliates of Whitebox Advisors LLC. (Incorporated by reference to Exhibit 10.40 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 10.5 | | Warrant Agreement for the Purchase of Shares of Common Stock, dated February 28, 2014, between Endeavour International Corporation and certain affiliates of Whitebox Advisors LLC. (Incorporated by reference to Exhibit 10.41 of our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2013.) |
| 10.6 | | First Amendment to Change in Control Termination Benefits Agreement between the Company and James J. Emme (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 6, 2014). |
| 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 Catherine L. Stubbs, 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 Catherine L. Stubbs, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | * | XBRL Instance Document. |
101.SCH | * | XBRL Taxonomy Extension Schema Document. |
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase. |
101.DEF | * | XBRL Taxonomy Extension Definition Linkbase. |
101.LAB | * | XBRL Taxonomy Extension Label Linkbase. |
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase. |
| | |
* | | Filed or furnished (in the case of Exhibits 32.1 and 32.2) with this Form 10-Q. |
† | | Management contracts and compensatory plans or arrangements. |
