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Endeavour International Corporation (NYSE:END)

Q4 2008 Earnings Call

March 12, 2009 10:00 am ET

Executives

J. Michael Kirksey – Executive Vice President & Chief Financial Officer

William L. Transier – Chairman & Chief Executive Officer

John G. Williams – Executive Vice President & Exploration Officer

Bruce H. Stover – Executive Vice President & Business Development Officer

Analysts

Irene Haas - Canaccord Adams

Peter Nicol - Tristone Capital

Ed [Adhusen] – Private Investor

David [Merzi – Highstone Capital]

Operator

Good day and welcome to this Endeavour International Corporation’s 2008 fourth quarter and year end earnings release conference call. Today’s conference is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to Executive Vice President and Chief Financial Officer, Mr. Mike Kirksey. Please go ahead sir.

J. Michael Kirksey

Welcome everyone to our conference call today. Our management team is here in London this afternoon and we’d like to welcome you to this call. With me today is Bill Transier, our Chairman and Chief Executive Officer; also John Williams, our Executive Vice President and Exploration Officer; as well as Bruce Stover, our Executive Vice President and Business Development Officer.

Let me remind you today that this presentation contains our best and most readable estimates. However, a number of factors can cause actual results to differ materially from what we present today. For the risk factors associated with our business you should read our full disclosures in our 10-K and 10-Qs. Our 2008 10-K will be filed this weekend.

With that, I’ll turn it over to Bill for our opening comments.

William L. Transier

Thank you Mike. Let me also add my thanks for everybody being here with us today. I think its common sense and logic that we’ve had historic and unprecedented events in the world that have created now the volatility both in the energy business and the financial markets. Fortunately for Endeavour we were able to build a business model that’s sustainable and watch these events really from a distance.

Many companies in our peer group have been forced to curtail their activities or deal with the financial institutions, while Endeavour enjoyed a very busy and probably a hugely successful year. Let me talk just briefly a overview of 2008 performance. Our combination of strong and reliable production from prior acquisitions provided for us record cash flows to fund our exploration and appraisal drilling, still allowing us to continue to pay down debt. Almost 15% of our debt was paid down this year.

We launched a pretty active drilling campaign and really had uncommon success by E&P standards with 100% success ratio in 2008. And if you go back to the leadership changes we made in October of 2007, we’ve had 12 successive successes in our exploration and appraisal efforts to date.

Our technical capabilities and disciplined process in exploration have begun to reap real benefits and are showing up in reserve editions. John Williams will discuss the significant successes at both Rochelle and Cygnus later in more detail, but I’d like to point out what we said in our press release this morning, that we had 175% reserve replacement ratio and that does not include Cygnus Fault Block 2b, which we announced last month.

We also launched a drilling campaign in the U.S. Many of you have asked me questions about that but that was designed really to balance the longer cycle times and higher costs in the North Sea with what would be shorter cycle times and lower costs. And also importantly to unlock an unrecognized tax benefit that is a significant asset to our shareholders. We will continue down that path and John will talk more about that in a few minutes.

Endeavour today now has three major development projects in process. That’s Rochelle, Cygnus and Columbus that, when on production we hope all three of them will be by the end of 2010 or early 2011, will more than double our existing production today. We’ve already filed field development plans for Cygnus and Columbus and we plan to file our field development plan for Rochelle as soon as possible this year.

Production has held basically flat during 2008 compared with 2007. This was actually a major accomplishment inviting off normal decline from the assets and down time some expected and some had planned. As you can see from our guidance we expect normal declines in 2009. However, our hedging activity assures us good cash flow to continue to prosecute our development, appraisal and exploration activities.

Just another comment about cycle times. We had two projects this year, one Knockandoo in Norway that was drilled, tested and put on production during 2008. And then our Garwood project in south Texas which was spudded in October and was flowing production before year end. Although these are small, they have added to our production and they show our ability to offset normal declines with shorter cycle time projects and we will continue to focus on those as we move forward and put on our major development projects.

A couple of other comments. The leadership additions and changes we made in late 2007 and in 2008 have added a great deal of strength in both the financial, exploration and operation areas. Our company performed really well in all metrics important to a developing small cap E&P company. Our production was as forecasted. In fact it was at the high end of the range. We had strong cash flow underpinned by an intelligent hedging strategy. We had improved operating metrics. As I said a minute ago we had really uncommon drilling success. Our reserve replacement ratio was very commendable at reasonable costs. And we have a strong foundation for future growth in the company.

With those words now let me turn it over to Mike to talk about our financial results followed by John talking about our drilling program. Then I’ll return with some final comments before we take the Q&A. Michael.

J. Michael Kirksey

Thank you Bill. Thank you everyone again for joining us. I’d like to take just a few minutes to walk you through some of the financial aspects of our release this morning.

You’ll notice that production for the year totaled 3.2 million barrels or approximately 8,800 barrels per day. This is basically flat with 2007 with over performance coming primarily from the Njord and Brage fields, both of which have outperformed forecasts during 2008.

On the pricing front, we all know that it was a very volatile year, especially in the last quarter of the year. Endeavour’s average realized price for the year was approximately $72 a barrel of oil equivalent including our hedging impacts. That’s for the year. And $61 during the fourth quarter. Revenue was $260 million compared to $176 million in 2007. By record combining excellent production and strong prices during the year.

As we reported, net income for the year was approximately $46 million or $0.32 per diluted share. For the fourth quarter that income was $56 million or $0.29 per diluted share. If you exclude the one time, non-cash charge for oil and gas impairments, which I’ll cover in more detail in just a minute, earnings would have been $18 million higher or $64 million and $0.42 per share.

Cash provided from operations was $133 million and discretionary cash flow was $121 million. Current tax expense reduces discretionary cash flow in our calculation and due to a delay in capital spending right at year end, current taxes in the fourth quarter were higher than we forecast. This capital is now planned for 2009 when the tax deduction will be realized. Otherwise, discretionary cash flow and cash flow from operations would have been about the same at $133 million.

As is evident in the results of operation, the mark to market losses we all talked about early in the year completely reversed themselves in the last half of the year, especially in the fourth quarter where our hedging contracts created significant protection going forward. I’ve had many calls of late praising our hedging strategy and I think our approach has now proved its value unquestionably.

Turning to G&A, G&A was flat for 2008 compared to 2007 at $19 million. We continue to work hard to keep G&A flat. We were successful in that effort in 2008 and continue to hold that goal for 2009. What you have seen is Endeavour continuing to build the company without adding additional G&A headcount.

Let me spend a minute on the impairment charge of oil and gas properties. We recorded a non-cash charge of $37 million at year end but I think it’s informative to understand the underpinning mechanics of this. Under U.S. generally accepted accounting principle, the requirement exists to monitor asset balances for impairment. The test is based on a discounted cash flow model of crude reserves only, valued at the closing price at the end of the year. At December 31 this price was approximately $36 for Brent, the lowest of the year. This single point price is used in the calculation and the resulting future cash flows is measured against recorded property values including previous dry [oil] costs.

Contrary to what you would think, under the rules Endeavour is precluded from using its hedging contracts in the calculation of future cash flows even though they are an integral part of how we run our business. In addition, since Rochelle and Cygnus Fault Block 2 were not fully tested until after year end, these reserves were not allowed in the computation. So under this prescribed methodology, not many North Sea companies with its costs and cycle times could have avoided an impairment charge at $36 oil. In fact, one might expect a larger charge if not for the crude reserves added this year for Cygnus Fault Block 1 and Columbus.

In our case, at $36 year end oil price, with no hedging benefit allowed, resulted in the non-cash impairment charge reflected in our results. If our hedges or Rochelle and Cygnus Fault Block 2 had been allowed, very little if any impairment would have resulted. On that arresting note, the rules governing this test have recently been revised for future years, allowing companies to use the average price for the year and not the year end spot price. If these rules had been in effect for 2008 no charge would have been necessary. It should be noted that this impact reduces our DD&A rate going forward by $3 to $4 per barrel.

Turning to the balance sheet, Endeavour continues to run our business model with a focus on reducing debt and generating consistent cash flows. During 2008 we reduced debt by $32 million and expect that trend to continue. We are sometimes questioned about our capital structure and its various components, some labeling it as complex. The various components of our capital structure have also helped during this violent period as it contains layers that are overall less restrictive than some.

We ended the year with about $59 million in cash and cash on deposit. All of this is available in 2009 for capital projects and other ongoing needs of the company. The deposit was for funding the Rochelle well that was ongoing early in 2009 that is now finished.

A few words about our hedging position, as we have said before our hedging strategy is a key part of our overall business model. In the fourth quarter our hedging position added about $8 to our average realized oil price, providing protection against the drop in prices. In 2009 this will be even more dramatic if oil prices remain at current levels. For 2009 about 75% of our expected oil production is hedged at an average of $80 and about 40% of our gas production is also hedged at $0.59 a therm or about $8.50 at year end exchange rates. Hedging continues to be an important part of our management tactics and you will see us continue this in the future.

Now let me turn to 2009 guidance. As you can see in the press release, production guidance for 2009 is a range of 6,500 to 7,500 barrels of oil equivalent per day. This is based primarily on our current North Sea assets. U.S. activities could impact this but it’s too early to know. Year-to-date in 2009 we have averaged 8,500 barrels of oil equivalent per day, but we believe we’ll start to see the expected decline rates later in the year and when combined with planned maintenance and the inevitable mechanical interruptions, we believe this range of 6,500 to 7,500 to be a good working assumption.

Our approved capital budget for 2009 is approximately $90 million. This is the same as it was in 2008. We manage our capital expenditures to be within our cash flow, to allow for debt reduction as is our normal practice. In 2008 we had a budget of $90 million per capital; however, we only spent $66 million because of delays in rigs and other issues. Spending less than our budget has been the norm for the last several years, and based on what we are hearing from [barkers] we would expect 2009 to be another year when our capital budget is not entirely spent. All in all, our business model for 2009 is to continue to progress our company, especially our internal development projects; and pay down debt, all within our expected cash flow.

Now I’ll turn it over to John for exploration.

John G. Williams

Thanks Mike. I’d like to start off with talking about the wells that Endeavour’s drilled or spudded since January 1, 2008. There have been eight in total, both exploration and appraisal. In the UK we’ve spudded three wells. They’re all appraisal wells. Two of these have been successful, Rochelle and Cygnus Fault Block 2, and one is in progress. That’s Cygnus Fault Block 3.

In Norway we had three successful near-field exploration wells, the Galtvort and Noatun C wells near the Njord producing fields. Both of those had successful appraisal side tracks. And we also drilled the Knockandoo prospect. It’s now producing from the Brent into the Brage facilities.

In the U.S. we drilled two exploration wells, the Garwood well that’s now producing as Bill had mentioned, and also the Alligator Bayou well that is currently testing.

I’d like to talk about two of these wells, results of which are probably the most significant in terms of Endeavour’s future. The first one is the Cygnus Fault Block 2 appraisal well. We have 12.5% equity in the field where well was carried into 2009. We found gas in the Carboniferous cache sandstones and float tested at a rate of over 30 million cubic feet of gas per day. Estimated reserves are between 100 and 130 bcf gross. That’s incremental to Fault Block 1 and it wasn’t counted in our 2008 year end reserves.

The second asset that’s probably made the biggest difference is the Rochelle well that we drilled. It was up dipped to the Discovery well. We have 55.615% equity in this. We’re the operator. Our partner, Nexen, is the only other partner or the only partner we have. We found gas and oil in the lower Cretaceous, the same as the Discovery well had. The reservoir parameters were better than expected and our best technical case shows that we have reserves in excess of 30 million barrels of equivalent gross. So this I would deem is the major exploration accomplishment of the year.

We formed a drill stem test in the upper 20 feet of a 77 foot column of oil and gas, and the rates we tested were 40 million cubic feet of gas per day. Our engineers calculate that if we were to open up the entire interval we could get rates of 80 cubic feet of gas per day. And lastly, we plan about three production wells in the gas leg and up to two wells in the oil leg.

I’d now like to turn my attention to the wells that we’re going to spud in the remainder of 2009. In the UK we have one well called Tesla. We are going to drill that at 15% cross interest. This is a high temperature, high pressure well in the central North Sea. In Norway we have four exploration wells, two of which are at no cost because we’ve been managing our risk and we’re able to [farm] down a levered farm out. And in the U.S. we have one onshore Texas well added to the portfolio to date.

So in the UK I’ve mentioned Tesla, in Norway we’re going to drill Gygrid. It’s a near-field exploration well near the Njord field. We’re going to drill Aegis and Mon, two prospects. Aegis is 0% cost interest, and Aegis and Monn are Tertiary and Jurassic prospect targets in Quad 25 in Norway. And the last well in Norway is the Cyclops appraisal well in the Agat Block 35/3. This is a key well for us trying to move our gas project forward. And then the last well in the U.S. of the six is [Dow Winning]. We have a 20% working interest in this. It’s our first well in Wharton County and we’re pretty excited about this six well program.

Now I’d like to turn my attention to an exploration look back that I did for Endeavour, and this covers the period from inception to today. In all we’ve drilled 18 exploration and appraisal wells, of which we’ve had 9 successes. That equals a 50% success rate. Our pre-drill [peating] risk prediction has been matched by our actual post-drill peating result. And our key successes, I’ve mentioned two of them, Columbus and Cygnus – I’m sorry, Rochelle and Cygnus. And we also, the third one was Columbus. Those are the three that really will make the biggest difference to us. All three of those are heading toward production as Bill mentioned.

And then the last thing I’d like to say is just finishing about the state of exploration, our portfolio management seems to be working and it’s demonstrating Endeavour’s discipline, CapEx allocation and prioritization as Bill mentioned. We continue to manage risk and cost interests in our wells, being successful in 2008 with several farm outs. And we’re treating exploration like a business as we previously stated we were going to do.

So with that I’ll turn over to Bill.

William L. Transier

Thanks John. It’s been almost five years since a couple of us had the idea to fund a small cap independent focused in the North Sea. We’ve now developed into a stable E&P company that’s operating at a very high level with a strong management team as you can tell. We will remain disciplined in our approach to allocating capital as John mentioned and spend less this year than our cash flow that is underpinned by a strong hedge position and continue to pay down debt as Mike talked about.

Managing our portfolio assets will always be a high priority. We continue to pursue acquisitions and look at the dislocation of asset values in the North Sea versus the distressed equity values that we all have today. Our primary focus on acquisitions will be relative value transactions that would be accretive or additive to our business model. I continue to be stunned and disappointed at the reluctance and lack of understanding of companies particularly in Europe to explore these possibilities while their own companies suffer significant constraints by their banks and in some cases they have even been forced into bankruptcy.

With that said, we will remain patient and look for the right opportunities, primarily focused in the North Sea and the U.S. of being open to deals that meet very specific metrics for our companies.

Let me just at this point, Patrick, turn it over for questions and answers from the management team.

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions) Your first question comes from Irene Haas - Canaccord Adams.

Irene Haas - Canaccord Adams

You know, your Gulf Coast strategy, you know, is it sort of out [manting] your main core area in the North Sea or do you have ideas of growing it? And then secondary just sort of debt pay down for 2009.

William L. Transier

Irene, I’ll take the first one and turn the second one over to Mike. Our U.S. strategy is as I alluded to earlier is really to balance out some of the long cycle times that we see in the North Sea, plus when equity values have gotten down to where they’re at the NOL we have in the U.S. is actually a significant asset to our shareholders, and we felt an obligation to try and unlock that value. To your question if – because asset values and equity values in the U.S. have come down to a spot where you look at that on a per boe or per mcfe basis it makes sense for us to look at the opportunity to add to our overall portfolio with maybe a U.S. position.

What we’ve talked about and what John talked about is kind of a program for drilling in south Texas, an area that gives us some exposure. It’s obviously not enough to call a real business for ourself and if we’re going to do something in the United States we’d probably have to make some sort of acquisition, assets or some sort of company going forward. We would love to build a big enough position but our focus really has to remain in the North Sea. These three large development projects, you know, they could actually represent a very significant amount of production.

We’ve talked about 2x production but John talked about the productivity of the wells in Rochelle alone. If we had three producing wells there you could produce up to almost 22,000 boes a day net to our interest, if it worked that way. Now we’re not counting on that. We talked about something a lot more risk adjusted than that, so we have to stay focused on the North Sea and move those assets forward. If the U.S. comes along and we can do some things to balance the portfolio, add some production to offset some of the declines we see, we will do that.

Mike, do you want to talk about the debt?

J. Michael Kirksey

Yes. Irene you asked about the debt. As has been typical, if you look back, we paid $40 million off in 2007 debt and we paid another $32 million off this past year. I expect that this year will be much the same, probably in the $20 to $25 million range. It depends as we go through the year how the capital projects stack up and what gets delayed and what doesn’t get delayed. But I think you can expect us to continue in the $20 million plus range this year.

Operator

Your next question comes from Peter Nicol - Tristone Capital.

Peter Nicol - Tristone Capital

I assume that part of the booking you’ve made and the proved reserves, just moving away from the [p50] for a second, includes both Cygnus Fault Block 1 and Columbus, but I was interested in quite why there’d been such a sharp decline in the liquids reserves, particularly the proved develops? And you know is that sort of impacting on to your decline profile for production for this year and should be that for them be extrapolating that through 2010, 2011 until the new projects come on?

Bruce H. Stover

Peter, this is Bruce Stover. The year end reserves are SEC case reserves which as you know are priced at year end, but year end was – what was it Mike? $37 a barrel? $37.50? So a lot of our assets were truncated by that fact. We don’t see that as being the case long term, so it gives you an unusual sort of view and we think an unrealistic view of the reserves in these fields and you shouldn’t extrapolate that into anticipated declines.

Peter Nicol - Tristone Capital

Just sort of carrying along that line, sort of I think it was Mike’s comment sort of saying you don’t foresee [much] to stave off the declines but now you’re projecting more sort of natural declines going forward. And sort of looking at the production profiles, you’re using it [inaudible] a month ago, I mean your guidance for this year seems to have come down from what you were presenting a month ago, so again just wanting to work out if there’s been a change in the performance of the assets.

Bruce H. Stover

Peter, I think that the honest answer to this is we, you know, the biggest asset we have is Goldeneye and we have been expecting that to go on decline almost since the day on which we purchased it. We’ve fought that off. The last year we had some issues with the operator and it being shut down for maintenance for almost two months of the year. We have been fairly consistent with this portfolio, talking about kind of a 15% decline in production, we estimated from the start. And that’s about where you see it this year. And I think even last year when we were sitting here we were producing at over 10,000 boes a day and we were forecasting the rate that we came in right on. So we’re trying to be realistic about the production and we’re trying to not disappoint you or anybody in the marketplace with what we come up with.

A lot of this depends on some things that are kind of out of our control in terms of maintenance, sometimes unplanned maintenance, and we’re going to work hard to offset some of that with some of our U.S. stuff.

But I think the question that you’re getting at that I want to respond to is that yes, we will expect declines, both now and in 2010, offset by U.S. productions. But because of our hedging and because of our cash flow, we are very confident that we can get ourselves to the point where we turn on Rochelle and Cygnus and start having that production ramp back up towards the end of 2010. And we do have a lot of confidence about that, particularly with Rochelle, because we’re the operator and we know Nexen as a good partner and they have the same motivations we do. And the same is really true at Cygnus where you just have three of us, Gaz de France, Venture and us, all of which are trying to push this thing along as quickly as we can.

So it’s the issue that smaller cap E&P companies have, as you’ve heard me talk about before, and that scope and scale issue we’d love to have 20 or 30,000 boes a day, but until we find the right kind of consolidating partner we’re not going to be able to do that. But we’ve got hedging in place, we’ve got production in place. We do expect declines, but we have enough cash and availability to get ourselves to new production.

Peter Nicol - Tristone Capital

Just obviously fantastic success on Cygnus Fault Block 2, when should we expect a result from the current drilling on Fault Block 3?

Bruce H. Stover

We’re currently at about 9,000 feet on the well and we’re targeting about 12,000 feet for the [inaudible] and the Carboniferous reservoirs. So we’re looking at, I’m going to guess within the next couple of weeks we should be down. And then we probably won’t make a press release until we do testing. So that could be another couple of weeks more. But the well’s on schedule. We’re right on the pre-drill target on cost and days, so things are going very well.

William L. Transier

Expect 30 to 45 days, just with the way things work in the North Sea, Peter.

Peter Nicol - Tristone Capital

The last one was with the recent successes, are you able to sort of use those reserves and particularly the ones you’ve just filed fuel development to increase the boring base of the company if you want to?

William L. Transier

Peter, that’s true. Our facility allows us to add those in. We expect probably a couple of FDP approvals during the year and come kind of the fall timeframe we’ll look to do exactly that.

J. Michael Kirksey

Yes, Peter, I think you asked a question that’s on everybody’s mind. We have upside in our borrowing base and now downside like so many others have. So we feel pretty good about it but we have to work hard to get these FDP’s approved.

Operator

Your next question comes from Ed [Adhusen]. He’s a private investor.

Ed Adhusen – Private Investor

Good morning gentlemen. Can you tell me what you expect your DD&A rate to be for next year? For ’09?

J. Michael Kirksey

Ed, I think it will be probably around $20, $20 to $21. It’s been higher than that but with the impairment charge it’ll probably come down about $4.

Ed Adhusen – Private Investor

Okay. Thank you. And let me jump back to a debt issue for a second. I see that you show $13 million for a short term debt, but it was my understanding that at least as of the end of third quarter none of your debt was going to be due for well over a year. What – can you describe the nature of this $13 million?

J. Michael Kirksey

Yes. I mean, it’s just a calculation that GAAP requires us to make, Ed. It really doesn’t drive our debt payment strategy. It’s just a calculation that we go through underneath U.S. GAAP.

Ed Adhusen – Private Investor

Okay.

J. Michael Kirksey

I think, Ed, we’ve moved another quarter forward and you know at 9/30 it was more than 12 months and now it looks like best calculations is that we’ll pay $13 million. But Mike said our goal was actually to pay closer to $20 million plus this year in debt repayment. This is not dissimilar to what we were talking about last year. I don’t think we had anything in current but we ended up paying $32 million of our debt back, so we’ll continue to try to pay down the debt and keep our balance sheet in good shape.

Ed Adhusen – Private Investor

The particular obligation that that relates to is your revolver?

J. Michael Kirksey

Yes.

Ed Adhusen – Private Investor

Okay. Thank you. And then can you give me an idea of when you expect or hope to file your field development plan for Rochelle?

William L. Transier

Ed, this is Bill. We hope – in fact, our plan is to file our field development plan as soon as possible, but it’s probably going to be in the second half of the year. We just have some work to do based upon the Discovery well and that takes a little bit of time to put that together and go file it. But if we’re going to get production on like we promised ourselves by the end of 2010, we’re going to need to get that FDP in the DECC’s hands before year end and it will take them several months to get there and then we’ll move forward, turn it on production.

Ed Adhusen – Private Investor

And then the last question is on the exploration for the timing of the next round of wells I’m more interested in UK and Norway rather than U.S., the last presentation you gave seemed to indicate that most of those were going to be coming in around the third quarter of ’09. Is that still a reasonable expectation?

Bruce H. Stover

No. Last year we had quite a bit of slippage in our well schedule and we had promised to drill nine wells by the end of the year. We were a little bit under that. I think we drilled seven roughly. Some of those slipped into 2009 and really the first part of the year, so what we have now is we have – last year we had a back loaded exploration appraisal drilling plan. This year we have pretty much a front loaded exploration and appraisal drilling plan. And it’s fairly evenly balanced by each quarter. So it looks a lot healthier this year than it looked last year.

Ed Adhusen – Private Investor

Okay. Great. Thank you very much folks.

Operator

Your next question comes from David [Merzi – Highstone Capital].

David Merzi – Highstone Capital

Just a couple of quick questions for you. First is on your [rough ex]. You’ve given guidance for next year of between $11 and $13 a barrel lease operating expense. I calculate your 2008 LOE at $14.40 and is there any reason why this OpEx is coming down or is it just cheaper production from particular fields?

J. Michael Kirksey

It’s two things, but primarily the impairment as I said takes some of the asset base off the balance sheet which will reduce the DD&A rate but I think you asked about the LOE rate, if I understood you correctly.

David Merzi – Highstone Capital

Yes.

J. Michael Kirksey

Some of the fields – a couple in particular had some high costs during the last half of the year and those costs have been removed early or during the spring time of 2009. So the overall costs will come down.

William L. Transier

David, that’s primarily the [AHOO1] and Ivanhoe Rob Roy field. We are going to shut that down and suspend that and redevelop those fields as part of the Rochelle and it means a minor amount of production to us, but those costs per barrel on that AHOO1 were affecting our overall operating costs. So when Mike talked about that, that goes away and I can’t remember the number, it’s huge in terms of the op costs per barrel of production, because the production for the entire AHOO1 it dropped off fairly dramatically. So that has an impact on us in a very positive way going forward. So I think last year we guided $12 to $14 a boe and this year it’s $11 to $13, if I remember. And we feel good about those estimates.

David Merzi – Highstone Capital

My second question was just on your Cygnus discovery, given the success you’ve had so far to date, are the partners fully behind a phased department? Is there alignment between the three of you or would there be any advantage to assessing the full resource base before you made a decision on development?

John G. Williams

Yes. This is John. I’ll answer that. The field development plan that was filed was for just Fault Block 1 but with the success we’ve had in Fault Block 2 and we’ve soon to have hopefully a result in Fault Block 3, we can modify the FDP and add more to it. In terms of the partner alignment, as Bill said, it’s very aligned. We’re down to three companies and the two companies who were potentially slowing us up before have sold to a replacement company and now that’s no longer an issue. So I think we’re very aligned as a partnership and we’re going forward.

William L. Transier

David, to your question, as you know the biggest owner in Cygnus is Venture. I can promise you they have the same motivation we do. And frankly we’ve come a long way. As we studied, the frustrating thing for us at Endeavour, we studied for almost two-and-a-half years before we got to Fault Block 2 appraisal well, but I think GDF and Venture and us are all as John said on the same plane to get this thing moved along and get production turned on. It’s an exciting field and I think there’s going to be a lot of work to be done as time goes on.

Operator

And we have no additional questions at this time. I’d like to turn the conference back to Mr. Transier for any closing remarks.

William L. Transier

Let me just thank everybody for joining us today. This was a tremendous year for Endeavour. Hopefully it sets up for a lot of good things to come. We’re going to work real hard to maintain your confidence and your support for us as we go forward. So I hope everybody has a good day and we appreciate you joining in.

Operator

This concludes today’s conference. We thank everyone for their participation.

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Source: Endeavour International Corporation Q4 2008 Earnings Call Transcript
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