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Endeavour International Corporation (NYSE:END)

Wall Street Analyst Forum's 20th Annual Institutional Investor Conference Transcript

March 26, 2009 10:30 am ET

Executives

Hellen Bard – Director of Client Services, The Wall Street Analyst Forum

Michael Kirksey – EVP and CFO

Hellen Bard

Everyone, my name Hellen Bard of the Wall Street Analyst Forum and I am your host in the room for today. At the registration desk we have Sydney Bard, who is able to assist you with any requests you may have or information on any of the presenting companies.

I would ask at this time if you have a cell phone, pager, and hand held device to switch it to either the off or silent position, so it not interrupt the presentation and it’s also in accordance with the rules of the University Club.

The next company we have presenting here this morning is Endeavour International Corporation. Endeavour International Corporation is an international oil and gas exploration and production company, focused on the acquisition, exploration and development of energy reserves in the North Sea and United States. For more information, please visit www.endeavourcorp.com. Presenting this morning is Mike Kirksey, the Chief Financial Officer.

Michael Kirksey

Thank you, good morning everyone. The oil and gas industry a while ago some one refer to as some sharks out there, we are not one of the sharks, we are one of the –

Unidentified Participant

They are swimming around near your rig.

Michael Kirksey

They are swimming around near our rigs sometimes, except in the winter when the North Sea is still volatile no one goes out there, but again, thank you for coming this morning and learning a little bit more about Endeavour.

Endeavour is a fully functioning E&P company. The Company is only about five years old; in fact March is our fifth anniversary. It is a well balanced, self-funding E&P company, that started in the North Sea five years ago and has now grown to be a very valuable and producing company that is a balanced E&P – about balanced E&P, I'll talk about that in just a second what we mean by balanced. We have significant organic growth opportunities, which I'll cover in just a second and a very valuable reserve holding.

We'll talk a little bit about North Sea gas today. North Sea gas, when you hear gas, you think the U.S. low price, Carrizo, people unloading properties. In the North Sea gas is a very valuable commodity, probably a couple of weeks ago you read about Russia-Ukraine controversies about pipelines and that so the U.K. Northern Europe utilities are very concerned about gas and gas supplies. So owning a large reserve of gas which we do is a very valuable commodity.

You're going to hear about a company that's only five years old but today is generating over 120 million of cash flow that we've reinvested in the North Sea over the past year with a very valuable reserve portfolio. And just this past year, we've started to diversify that into the U.S. to balance the cost cycle times that you see in the North Sea.

So, Endeavour today we released our earnings last week and they have been very favorably received, the stock is up a 100% since the beginning of the year but a long way to go we think in terms of achieving fair value. We generated a 121 million of cash flow and we manage our company based on discretionary cash flow. That's a cash flow available to invest in the business before capital, before CapEx.

We ended the year with about 60 million of cash and cash deposits. One of more important things I'll talk about is our hedge philosophy. In the presentation I made before, I had a slide towards the back that was a very unique slide of the picture of an oil rig with the lightning thunderstorm over it and a tornado next to it. And that's the market that we've been in over the last few months and hedging is the way to avoid such storms.

A lot of companies didn’t hedge but Endeavour has a philosophy of building the company over time securing cash flow, investing in our projects and resources and building the company. We are not – if you want to gamble on oil price go down the hall and find someone from Las Vegas. We are not about gambling on commodity prices and that has paid off for us very, very well over the last few months.

In 2008, we produced about 8,800 to 8,900 barrels a day. We’ve had a very successful exploration and appraisal process. We are not wild caters, we have a – we take a business like approach to drilling, exploration and appraisal wells. We’ve had 12 consecutive successes that kind of untouched in our industry. We’ll talk about that a little bit.

We've recently launched during 2008, our U.S. campaign. We grew up as a North Sea company from 2004, and the reason for that was both the UK and the Norway sectors have been very favorable regimes for new oil and gas companies. They're basically incentivizing new exploration in the North Sea so it was a very favorable regime for the company to start. We started there, built up and now we believe it’s time to balance ourselves. The North Sea is much longer cycle times, more costly, more regulation from a health and safety standpoint. And it takes three years to five years to turn a major project on production or in the U.S. and we did this in 2008. You can drill a well, hook it to the pipeline and turn it on in a matter of months. So we felt it was time to take some of the capital that we are generating from the North Sea and diversify our portfolio. We had a good year from reserve replacement, we’ve replaced reserves of 175%, 2P reserves are 32 million. We'll talk about that a little bit.

And the most important thing is we are as – we are a self-sustaining, self-funding business model. We are not betting on commodity prices, we are not relying on the debt markets, we are not relying on the capital markets, in fact we pay down debt every year as a company. So, Endeavour is a young company, well balanced oil and gas company, lots of organic growth opportunities and a good overall solid business model from which to grow from.

When I said balance, this is what I mean by balance. We are a company that produces oil and gas; we develop oil and gas properties organically. We have a great exploration program that’s had a lot of success and we do M&A transactions. The previous speaker talked about a lot of companies in distress that basically took on them and the banks decided that they could lever up based on higher oil prices and today the banks want their money back, imagine that.

But the – and so there is a lot of distressed assets out there now and we've done M&A transactions in the past, so that’s a part of the leg on our stool. So, we produce the oil and gas everyday. We have development teams and development engineers to bring stuff on. We have great exploration program and we will do deals in the right environment.

And finally in finance again, we have a view – maybe as a conservative view of some, but we’d layer in hedges as we think oil and gas prices reach levels that are attracted to us to lock in economics, lock in cash flow, allow us to build our company one step at a time.

The reserves today in Europe, they talk of reserves in the U.S., we talk of reserves as 1P reserves. In Europe they talk of them as 2P reserves and the banks actually loan on 2P reserves. So, we have as you can see on the right hand there 32.2 million barrels of 2P reserves as of the end of 2008. We produced about 3 million barrels last year and some change, so that’s a 175% replacement from the end of 2007 to the end of 2008. So there are some very good appraisal programs that we drilled during 2008 that added nicely to our reserves.

This is probably the most important graph that I am going to talk to you about today, so I want to spend a little time on it. This is what we have in our portfolio that represents organic growth opportunity, this not M&A, this is not anticipated exploration success, these are projects that we have, we own that we are involved in today that are moving toward production. You can see our base production load is indicated there, today we are running about 8,000 barrels a day on average we started our U.S. campaigns so we've layered in ways of U.S. activity.

I think there is the 'R' what we call the R Blocks, Cygnus and Columbus, these are three big development projects that we are involved in that are known, now appraised and working through what's called the field development plant process to be approved to bring on production. Those three projects the R Blocks, Rochelle is the biggest one its really Rochelle, Renee, Rubie, but Rochelle is by far the biggest one that was operator of Cygnus and Columbus. Well by the way all three are gas.

So as these come on we will be a priority of gas in our reserves or a majority of gas in our reserves, very valuable portfolio of gas reserves in the North Sea. So we'll talk about each of Rochelle, Cygnus and Columbus.

Rochelle was the operator of Rochelle we drilled an appraisal well in the fall, it actually came in on Christmas Day if you can – if you want to go see something interesting go to You Tube and Google SEDCO 704, that was the rig that drilled Rochelle for us and there's one of the rig hands standing on the platform on Christmas day with his bagpipe, this is the Scottish North Sea with his bagpipe playing Christmas music but that was our rig on our side on the day that it came on Christmas day.

So Rochelle was a big win for us. We carried it previously at 8 or 9 million barrels because that's all we could see. Our technology theme worked it very hard, looked at some of the neighboring fields and we feel very good about Rochelle and we and our partner Nexen drilled it and it's upwards of 30 million barrels. It is a game changer for us and that's why on the previous slide you see the blue wedge of production, such a dramatic wedge of production. So we are now in the development phase working through the engineering off take solutions in those things and we'll cover that in just a second. But it is a winner; Rochelle could be upwards of 15,000 barrels a day for us that nets our interest as it comes online.

Cygnus is the next one, probably the biggest gas finds in the North Sea in a long time. This is probably a 100 million barrels gas again in the Southern North Sea. GDF Gaz De France is the operator and we're 12.5% owner, but again it is coming on in phases, we'll cover that in a little bit of detail also.

Columbus is the third one; the Field Development Plan has been filed there. It is about 15 million barrels, so 25% net our interest about 4 million barrels. Just to summarize these three for you. These three are about 30 to 35million barrels net our interest gas. In the North Sea today that reserve base is worth about $0.5 billion. So these three projects would – if we were just to go sell the reserves today probably are worth $0.5 billion.

So we find them very attractive ones that we are really focused on and we are spending a lot of our effort in our capital going forward in the next couple of years we’ll be focused on bringing these three development projects on line. There is roughly 15,000 to 20,000 barrels a day net to our interest from these three projects. That’s in addition to the base load that we already have in the U.S. campaign that we just launched last year. So let’s talk about those three a little bit. First Rochelle, as I said we are 55% owner, Nexen 44. We've two good partners.

In the North Sea sometimes if you have too many partners you find one that don’t have the capital, not interested in pursuing things quickly can drag the partnership back. Rochelle is just us and Nexen if you go listen to Nexen’s conference calls or look at some of their published Rochelle is very high on their list. They have two partners very focused on bringing Rochelle online. You can see fourth quarter of next year 2010 is first production.

We actually, Rochelle is an example of how we manage exploration and appraisal risk when we view a block to having more risk, more cost we will farm it down to a lower interest. When we view a block is having very good potential and not as much risk we will maintain a higher percentage in that. And Rochelle was one were we had opportunities to sell it down. People were offering us nice money for Rochelle interest but we felt very good about Rochelle so we kept it at 55% and it turned out to be a game changer for us. So it’s just an example of how we manage risk and Rochelle is an example of that.

So it was – the appraisal well was drilled came in at Christmas. It’s been tested as there you can see 41 million a day and 2,300 barrels of fluids a day. That was the test out of the top third of the pay. So we believe that these wells can produce very, very robust gas production when they are brought on development. Just to give you a sense of the neighborhood on the slide here, Rochelle is what we call in a very good neighborhood.

You see Goldeneye to the west. We are part owners in Goldeneye. It has been a gas producer for years and years and years, and very robust producer you see Brodgar, and (inaudible) and Britannia to the east, again very robust gas producers. Rochelle is in as we call it the same neighborhood. It’s a stratigraphic trap along the same fold as those we carry it like I said now, right now there is little over 30 million barrels. It could be bigger than that, but that’s where we carry it today. But it's in a very good neighborhood which gives you a sense as to why we were not interested in farming it down. It's in a good neighborhood, had good seismic indications on it. We kept it and it turned out to be a very big hit for us. So, Rochelle is a game changer for Endeavour.

The next one is Cygnus. As you can see on the map, Cygnus is in the Southern North Sea. It’s a gas neighborhood. Cygnus is a multi-faceted reservoir. We've drilled and appraised Fault Block 1. We were drilling and appraising Fault Block 2 just after year end, we had a press release on that. That one came in better than we expected. We are now drilling Fault Block 3; you should expect the press release on that one in the next couple of weeks probably two weeks or three weeks. It also has very positive indications.

So, Cygnus is a very valuable gas discovery in the southern North Sea. I've heard of upwards in the TCF of gas in Cygnus as it all develops. We drilled 1, Fault Block 2 and Fault Block 3 and we have 4 and 5 yet to go. And each time we drill, it seems to be a little better than we expected, so Cygnus is expected to be a very valuable asset for Endeavour going forward, again expect first production in the fourth quarter of 2010 the FDP has been filed, we accept approval in the spring or early summer, so the gas deferrals the operator can start ordering leak materials steel and all that goes with bringing a project on production. So again, Cygnus very valuable for us.

Columbus is the third of the three development projects, it's probably 15 million barrels, 25% our interest, again gas, more in the Central North Sea. Serica is the operator; Endeavour and EOG manage this field. It is also had a FDP filed and so the team is working very hard to develop all the commercial activities and all tech solutions and all the engineering that goes with those.

So those three Rochelle, Cygnus and Columbus are very valuable probably worth $0.5 billion the three of them in terms of gas reserves owned by Endeavour that are organic projects coming on production in the next year and half to two years. So very big value opportunities for us both in organically grown, we drill them, we appraise them, we develop them and they are organically grown projects.

Let me talk a little bit about our exploration strategy. Everybody knows that E&P companies drill dry holes from time to time but there is methodologies – there are methodologies to manage that risk and we do that as a part of exploration strategy. We've become better and better at this over the last few years to where we really try to define areas that we understand, areas that we know the geology and we are comfortable with and we use what's called the Rose methodology. If you have been around the E&P Company before, the Rose methodology is basically a probability risk matrix as to how you think about accepting or rejecting risk based on geological attributes that you find.

So we use the Rose methodology and we balance the risk by using working interest versus risk. So, as I said earlier a higher risk well and that could be deeper, different kinds of geology, uncertain seismic information, all different kinds of things can make the well higher risk and if we find a well at a higher risk we will tend to form down to a lower interest so that we're not taking off as bigger bite of the apple as we would be if we had a higher working interest. Rochelle was the opposite, we saw it as lower risk, we understood it well, we didn’t feel that it was something that we considered higher risk so we kept the larger working interest to that.

So, that's how we run our exploration strategy. It's very interesting; one of the things we do is to rank all of our projects, when we start talking about drilling a project, we rank them just like you've heard in the past companies that force rank individuals from one to 100. We do that. Our exploration team sits around and basically puts our portfolio in a one to 100 ranking, most what I like the best, best payoff, lowest risk one and then rank them. And we drill out of the top third. The bottom third goes into the trash hopper and the middle third we look to see if can farm those out or trade them for something or do something different with those and try to always be moving projects into our portfolio that are in the top third.

So that is a way that we think about managing risks and hydrating our portfolio all the time. But we – the takeaway here is that we run exploration like a business. We have a target every year of the reserves that we want to find, how much money we want to spend and if you look at our – we just finished a five year audit of our exploration program if you look at it. We are spot on what we call the pre-drill mean reserves. So when before you drill a well, the geologists say this is like we expect.

We expect to find on average X number of barrels in this reservoir and we do that for every well we drill. And over the five years, we are right on that number. Some are more, some are less but what you try to do as a portfolio is to hit that mean barrels discovered number overtime and we are spot on that which means that our exploration program in terms of managing risk, evaluating risk, picking wells out of the portfolio are working as we would expect it to work.

So we think of exploration as a business and that’s the way we run it. They have dollar budget, they are charged to buying so many barrels of reserves with those dollars. And we’ve been hitting on all seven rigs, seven successes in a row in 2008. In our last Board meeting, our CEO told the Board that our exploration team was batting 1000 and we expect them to continue to do that at which point they started coughing and trying to make the statement that one out of two which is our historical record is above industry average and very good. Hitting every time is not going to happen for ever but so far we have been very, very good at our exploration program. We make every effort to balance that risk as we continue.

Here is what we drilled in 2008 in the North Sea. We drilled five assets, two in Norway the Njord field and the Brage field and in the Rochelle appraisal well that came in Christmas that I talked about. We drilled five – we got five assets those were six well holes and all of them were, I am sorry seven wells and all of them were successful. The Njord field we drilled two the Galvort and Noatun C and we sidetracked both of those. And all four were successful. Brage we drilled one called the Knockandoo, don’t ask me where they come up with these names. But we drilled the Knockandoo prospect, it was also a discovery and the Rochelle appraisal we talked about came in on Christmas day.

So 2008 was a very good year for us hitting on all cylinders and finding successful commercial reserves every time we drilled in the North Sea. We started our – our campaign in the U.S. in 2008. We had been projecting that to the market for over a year. During 2008, a lot of projects came to the forefront that we were contacted about participating in. So, our exploration team has grown up in the – in South Texas and had a lot of good contacts and so we were contacted about participating in two that we found very attractive. One is called the Garwood prospect and one is called the Alligator Bayou.

The Garwood prospect we drilled successful, put it on production in just a couple of months which is exactly what we were trying to do with our U.S. campaign. So, we drilled the Cochran #1 well and found a gas reserves there and it is on production. The Alligator Bayou well we started in 2008, it's not finished yet, it's actually in the testing phase now. It is a very deep onshore gas well, something like 23,000 feet. The theory or the geology behind this one is that if you remember if you are familiar with the Gulf of Mexico at all, Okay, there are a lot of wells in the Gulf of Mexico, it’s a 10-12,000 foot in shallower range, same thing onshore.

But the philosophy was, what oil and gas doesn’t know where the shoreline is, it just knows where it is and so as you look deeper in the Gulf of Mexico, we’re starting to find oil and gas reserves in the 20,000 foot level, why isn’t there some of those onshore, because oil and gas doesn’t know where this beach is, okay and so all along South Texas now, you see plays developing deep gas onshore Texas. And Alligator Bayou is one of those. The first one we drilled is down 300 feet of net pay, it's now in the testing process and if that works there are a lot of opportunities along the Texas Gulf Coast for deep gas plays just like you read about in the offshore, in the offshore market.

So Alligator Bayou was the first one that we participated in. El Paso is the operator and we will be in with El Paso and all of those as that play unfolds, but our strategy – we were always known as the North Sea Company, always, we generated capital there, we made acquisitions there all our production was there, but it takes a long time in the North Sea to turn production on, generate cash flow, go through all of the processes.

So as the company grew, we decided that the best thing for our shareholders and the company was to diversify our capital deployment to balance that – balance the long lead time higher cost to the North Sea, with shortly timed less expensive operations in the U.S. primarily gas focused and so we had that opportunity and we started that in 2008.

So what you now have Endeavour as we work to balance our portfolio is redeploying some of our capital from the North Sea into the U.S. but we're also bringing U.S. company, we also have a large U.S. NOL – tax NOL that we've generated overtime and so all the U.S. production is tax free to us. So that’s an economic benefit of doing what we do, so we've identified plays, we are now participating in the U.S. we've got one more signed up already for 2009. So you'll see us Endeavour work to balance the cost capital deployment returns between the North Sea and the U.S. overtime.

Now that is a stated strategy of ours, its one that we think balances the company, you heard someone in earlier say that well a 5 to $6 million well was an expensive well, 5 to $6 million in the North Sea is a drop in the bucket, to drill a well, the appraisal well lack of a shale was 40 to $50 million. Some of the deep wells in the North Sea are $100 million. So when you talk about deploying capital, when you deploy it in the North Sea offshore, it is expensive. You end up with a lot of issues of weather in the North Sea during the winter time in North Sea is a bad place to be. But the rigs continue working out there. So we had moved now to diversify ourselves into the U.S., lower costs, quicker cycle times, quicker to production assets.

Our 2009 program is off and running. We have three appraisal wells that are on the board. Cygnus, remember Cygnus the gas reservoir that we talked about Fault Block 2, that one started in '08 and finished in the first quarter of '09. We've had a press release on that one. Again, better than we expected. Cygnus is going to be a very valuable gas asset for the long-term. The rig right after finishing Fault Block 2, turned to Fault Block 3. It's now a total debt in Fault Block 3 and we're starting the evaluation of programs. So, that one also looks very good.

Then we turned to our Norwegian sector, Cyclops as a prospect in the Norwegian sector, where we had two discoveries already existing in a reservoir and Cyclops is the third well in that reservoir. It's drilling in order to prove commercial quantities in that reservoir. So it is an important well for us probably in the summer time for that well. There have been six other exploration wells; Alligator Bayou I spoke about in onshore Texas is a carry-in from 2008. It's now at depth and in the testing phase. Mon and Gygrid and Aegis are Norwegian exploration wells. Actually Aegis and Gygrid are at zero cost interest to us.

These are an example of where we thought of higher risk, we started farming out and we were successful at farming out where we kept a small interest but were carried. So we have no cost but we’ll participate in the upside. Tesla is another one of those; we had a 25% interest. We thought it was a little risky we farmed it down to 15. It is deep high pressure, high temperature wells as you can see in the U.K sector that actually will probably spurt in April sometime.

So again an example of managing risk using working interest versus risk prospects and Dow Winnie [ph] is onshore of Texas. Again I mentioned we've signed into one prospect so far for U.S in 2009 it’s called Dow Winnie [ph], that one will probably drill start drilling during the late spring summer sometimes. So lots of news flow happening; for us you can expect a press release on Cygnus Fault Block 3 over the next few weeks. Alligator Bayou will come in after that and then these exploration wells mostly drilled, most all of these were drilled before September.

So a very active 2009 program for Endeavour. This is our guidance, we had our yearend press release two weeks ago today, this is the guidance that we gave people as we look to 2009 for production – price differentials and lease operating expense.

To give you a flavor of 2008, 2008 was a record year for us. A lot of oil and gas companies couldn't say that just because of the price of oil but for us we generated record revenue, record discretionary cash flow that we could invest in the business. We had a budget of about 90 million of capital for 2008, in the North Sea sometimes it’s hard to spend all your capital depending on partner issues and rig delays and weather and all of that, so we actually spend about 66 million of our 90 million budget. Some of that roll over into 2009 but discretionary cash flow of about a $121 million.

So, out of $121 million we ran our capital program both exploration and development program. We paid down debt about $32 million. So that is how Endeavour worked with hedges that support that cash flow, pay down debt, build your capital program and your development programs for the future.

G&A is a number that we watch all the time. You can see it's been flat for two years. 2009 budget is again thought to be flat. Endeavour's model from the beginning was to build a full fledged E&P company with exploration team, development team, production team and then use that platform to grow the company. So, G&A really hasn’t changed as we build the company going forward. We only expect that it will change.

In terms of the balance sheet, Endeavour has a very what I call quiet capital structure and it's been very helpful for us. Sometimes in Europe people think our capital structure is complex. But in the U.S. its very normal but in North Sea their comment is, we'll just sell a bunch of shares and take pay off debt. Well that’s not very good for my shareholders just to do that. We need to have a right capital structure. So, we think we have a very quiet capital structure. We have a senior revolver that’s LIBOR plus 130. It's at a 113 million, we'll probably pay down 10 to 15 of that over the next quarter or so. That’s our normal process to do that.

We have a note of 81 million, again 2012, so we don’t have anything in our capital structure that’s heavy covenants or pressing us in terms of building the company going forward, our debt to cap we consider it very normal, you saw on the previous slide that debt to adjusted EBITDA was 1.2. So we are not levered, in fact there are as the previous presenter mentioned there are lot of companies in the oil and gas business that use that cheap senior revolver to fund their company, that all was really fun when oil was at 75 to $100 a barrel, now the banks want their money back and it’s a very difficult scenario where a more layered capital structure like ours has proven to be much more quite and easy to manage than some that have been out there.

Acquisitions what comes with turmoil like you see in some of the markets now are assets that are available. We continue to get a call a week about things that we might be interested in if we look at those. We've made two acquisitions in our history, you can see on the slide here a group of assets from Talisman in 2006 and then our starting position with the Norwegian company back in 2005 and you can see the cash flow that we've generated from that. So the Norway acquisition has paid off very, very nicely over the last five years and their assets we brought in 2006 have been very higher return assets for us at 65%.

So we have been very good at picking assets, making acquisitions, running those acquisitions with our team and generating good returns for that and there are opportunities out there today to do that and as I said people with cash flow and capital like Endeavour we get a call a week from somebody wanting us to take a look at things. So we are continually looking at opportunities that arise. I mentioned hedging and our next of the last slide is on hedging. We – I have some investors that come to me and say well I don't want you to hedge because I'm – I want to play the oil price. Well, I'll tell them well, that's all really good, why don't you just buy a contract – a oil contract if you want to do that, because we're trying to build a company here over time and so we use hedging to balance our cash flow as we look out in to the future. Back in the spring, April-May timeframe we sold 75% of our '09 oil at 100 bucks.

So during '09, we're collecting basically a 100 bucks a barrel on our oil production and we're more bullish on gas than oil so we've hedged about 50% of our gas, but 75% of our oil for '09. So, our cash flow for '09 will be in that kind of 90 to $100 million range and you almost can't do anything with the oil price in order to hurt that. We actually ran some sensitivity scenarios and with our hedging package you can run the lowest oil price you can think of or the highest oil price you can think of and it doesn’t move my cash flow around more than about $5 million.

So, we feel very good about where we are in terms of our capital program for '09 going forward and paying down some debt. But we continue to use hedging as an insurance tool if you want to think of it like that, to balance Endeavour as we go forward. Some companies don't do this and I'll give you some personal philosophy here. I grew up in the oil patch I grew up in Houston, Texas, so I've been around in oil patch for a long time and I remember the days when oil would go from $8 to 15 and down to 9 and then up to 20 and it would roll. I call it rolling. It would go up in the late 70s, early 80s, it was 40s and 50s and we thought everything was wonderful, until it dropped back to 10 again. Okay.

And so – but it rolled. Oil prices rolled. In today's world the oil commodity prices are what I call violent. They don't roll anymore. There is this peak – the peaks and truss are very dramatic and they are very short when oil was a $147 in June people were asking me why did you hedge your '09 oil at a 100 bucks. Okay, and so I was saying well look I am building a company for the long term. I'm not trying to find the peak or the valley. Then when it was down at 40, people were saying boy how did you know to sell that oil at a $100 a barrel. So I said I didn’t know if it was going up or down I just knew it was going to be volatile and I was trying to lock in my economics, lock in my cash flow to build the company over the long term. That's what Endeavour is about.

When we've got some $70 hedges for up 10 and 11 and if we see the price moving back towards where we lock it, you will see us layering in a little more in order to allow us to continue to grow the company and remember that $0.5 billion of projects that I talked to you about that are in our organic growth model. We are going to be able to fund those without going out and levering up the company and taking a bunch of risks and doing things that would make the company unstable.

So that’s the philosophy in Endeavour is to build the company overtime. If you've watched Endeavour you've seen the share price run over the last few weeks. I think people have understood from our yearend results that our strategy of a stable, growing company organic growth, M&A growth, development projects is the way with hedging as an insurance is a great business model to take advantage of the future. So Endeavour is very well-positioned for the next leg-up.

A lot of people asked me where we think oil prices are, I was at a conference in Edinburgh a couple of weeks ago and I went around the table and we said where do you think oil will be one year from now. Well, the range was everywhere from 50 to a 100, so I am not for sure where oil will be a year from now. We think it will be up. There is a lot of talk in the U.S. – if you watch the news and in the UK too where I spent half of my time about demand destruction. What people don't think about is supply destruction.

OPEC has been fairly successful in shutting in production on a barrels per day basis. There were some articles the other day where in the U.S. In the U.S., I don’t think people understand that we are in a very rapid what I call squirrel [ph] cage in the U.S. We have to drill stuff and turn it on, drill stuff and turn it on, drill stuff and turn it on to keep the production at levels that we would need. But there are lot of rigs being laid down these days and so supply destruction is something you don't hear much about and all it takes is a little uptick in demand that I think you are going to see again some violence in the oil prices. So, we're bullish on oil, we are very bullish on North Sea gas, so we would invite you to pay close attention to Endeavour as we go through the next phases here where we see oil and gas starting to back to North.

In conclusion again Endeavour is a balanced company. We are not a one trick pony. We got several legs on our stool. We have a very experienced team. Our management team we're all bunch of old guys like me who have been around this industry for a long time who wanted to do something new and build a unique company and that’s what Endeavour is.

We've got multiple growth channels, development of projects that are in-house, exploration opportunities and M&A of accretive deals. There are lot of those out there these days for a lot of people who are trying to sell positions of invaluable assets. We had good cash flow. We are self funded; don’t have any strains on us in terms of our working capital or capital structure.

So, we think Endeavour is a very balanced, very de-risked model to enjoy the oil and gas business. There was conversation this morning about geothermal and ethanol and all of that, but I will tell you oil and gas is here to stay. Looking around this audience, as long as any of us are around, oil and gas is going to be the core of our energy business and Endeavour has a very valuable portfolio of oil and gas assets. Thank you very much for your time. I'll be happy to answer your questions. Yes sir.

Question-and-Answer Session

Unidentified Participant

You have been publicly traded company for a number of years now. You're starting all this over the discount from the net asset value and as time is going on the discounts have got even deeper than it was? I mean do you appreciate that that you want to grow some of your business, but why wouldn't it be better for stockholder value (inaudible)?

Michael Kirksey

Well, the opportunity to build the company is still there. Okay. I will tell you the stock price that you can go look at a lot of companies in the stock price is …

Unidentified Participant

All down.

Michael Kirksey

It's all down. Some one mentioned Sanders Morris Harris in their last presentation Don Sanders is a very close friend of mine. He called me the other day and he said Mike he owns, he and his funds probably own more of our shares than anybody else, so he calls me every week to complain about something. But he called me the other day and said Mike, I am going to quit calling you. He said if you and I had sit together a year ago and we had picked the most conservative strongest portfolio we could have picked, we would have picked Exxon and Pfizer and Caterpillar and Bank of America and 3M and we would be down 55%. Okay. So I can't fight that trend as a company. All I know is we can build a valuable company. I will tell you that –

Unidentified Participant

But you haven't been unable to you know –

Michael Kirksey

Well we haven't – it's been difficult in the last couple of years because of where we found the market but Endeavour is at a cross roads right now in terms of changing the company and redeploying our capital. The reserves we have, the idea that you…

Unidentified Participant

(inaudible).

Michael Kirksey

We have those conversations all the time. We don't have dates certain for those kinds of things, but we know we have very valuable assets. We know that the share prices – in most of the North Sea companies, share prices are below their net asset value right now. Our stock has been performing very well now of late and we think you're going to start to continue to see that. But it is not lost on us that the asset that we own are more valuable than the stock price. I mean our hedge portfolio, just the hedge book that we run at yearend was worth $30 million, I mean that's $0.25 a share, just the hedge book and then we had 60 million of cash on the books. So we had almost – we had $0.75 to $1 a share of just cash and hedge value on the books at yearend. So that tells you something about where we think the value can be and that doesn't even include these valuable assets that we own. So, your point is a very well known, we focus on it all the time. That's one of the reasons that we started deploying some more capital in the U.S. Okay.

One of the things I think that Endeavour has struggled with a little bit is that we're a U.S. company, we trade on the U.S. exchange, but we're all North Sea. Okay. So sometimes I think maybe we're a little bit of fish out of water in terms of the way people think about us. North Sea investors tend to like U.K. exchanges to invest in and U.S. investors tend to think about U.S. metrics and U.S. oil and gas prices. Okay. So that's why – that's why you see a shifting a little bit towards the U.S. to more balance the portfolio as we go forward. But believe me, the value of our underlying assets compared to the stock price are not lost on us. It is a regular conversation in the company, but we do not have a date certain that says by this date this is going to happen and we're going to do that. Okay?

Unidentified Participant

Yes.

Michael Kirksey

Yes. Yes sir.

Unidentified Participant

(inaudible).

Michael Kirksey

Yes sir.

Unidentified Participant

Do these hedges come to you during the course of the year, every month or –

Michael Kirksey

They are usually monthly.

Unidentified Participant

Monthly?

Michael Kirksey

They are segregated into monthly pieces because our production is usually pretty flat. So –

Unidentified Participant

And what percentage is that I'll call in really on per round. What percentage of that is your production, your estimated production for 2009?

Michael Kirksey

75%.

Unidentified Participant

75%? So –

Michael Kirksey

That’s why I said earlier about 75% of our oil production is hedged and the average hedge is $80.40. There are some at a 100, there are some at 70.

Unidentified Participant

You are not looking against those; you are cashing them in and so –

Michael Kirksey

It’s a financial swap. We get the oil and it gets sold and then we settle the hedge contract.

Unidentified Participant

Is this hedged on the New York mark or is it over the U.K. somewhere?

Michael Kirksey

There are two hedges there. They are both financial hedges, one is BNP Paribas which is our lead bank and one is with Goldman Sachs or Warren Buffet depending on which way you look at it. But they are financial hedges with counterparties, those two counterparties.

Unidentified Participant

And the integrity of the contracts is good, irrespective of the contracts.

Michael Kirksey

Very good contracts. The reason we picked those two counterparties is we are very cognitive of counterparty risk. Before middle of 2008 nobody ever asked about counterparty risk, now everybody ask about counterparty risk. But ours is a very solid hedge.

Unidentified Participant

While they are the agents. Are they balanced from the other side, I don't expect their business.

Michael Kirksey

Well you know, you know they are – both BNP Paribas and Goldman are not in the businesses of speculating on hedges so they balance their book on the other side. I have asked before who was on the other side of these hedges. Well obviously they have a big book long and a big book of short. The other side is probably utility company or somebody like that needs wants to lock oil or gas prices for sometime.

Unidentified Participant

Okay. Since they are at $50 there, do you think you know the (inaudible), back this year but I'm sure it's the only one of the contract they have. It's certainly its more of a macro situation. You mentioned about the utilities in Northern Europe, what – with production in the North Sea yourself and others. Do you foresee a decline in demand from Russia, I mean is that going to be replaced natural gas in the North Sea. So does depends upon the winds of Russia and talk a little bit about.

Michael Kirksey

The question was for those on the webcast or how do we view gas supply in the Northern Europe vis-à-vis all the stories you read about Russia, okay? The reason utilities in Northern Europe are sole focused on gas and if you go and look at transactions in the North Sea you will find almost to (inaudible) utilities buying gas reserves. If you think about it, they are long on their need and they are short on supply, okay? So utilities are very focused on gas reserves and they are buying equity gas. Just recently you read about the Russian, Ukraine dispute.

Unidentified Participant

Right.

Michael Kirksey

It's a very well known and great publicized fact that Gazprom is under investing, that the pipelines from Russia are not being maintained the way they should, that the gas supply from Russia which Europe relies on is on a decline. And they don't know where the replacement will come from. So utilities are very concerned about gas. The likely replacement is LNG. Okay? And when you see gas starting to become short, LNG fills the gap and it becomes the marginal price for gas. So we have seen gas and in the U.K they price it at pence per therm. We've seen gas at 60 plus pence per therm, okay? That's 10 bucks at Mcf. Just to think about it like that. Last year in Asia, LNG sold for 15 bucks to 20 bucks at Mcf. So that LNG filling the gap, if Russia doesn't continue to deliver and the North Sea continues to be on decline which the all major basins are on decline including in the Middle East. Okay? There is going to be a gas shortfall in the North Sea. Okay? That's why we are so bullish on gas and LNG is likely the filler, okay, which will be priced somewhere probably overtime between 15 bucks and 20 bucks in Mcf.

Unidentified Participant

When you talk about LNG, talking about of course other than the North Sea…

Michael Kirksey

Yes I'm talking about shipments coming from the Middle East and other places where right now those shipments because of the price in Asia, they are going to Asia. Okay? They are not coming to the North Sea; they are not coming to the U.S. in any amount of money. But for a very small amount of money that ship can be turned to another port and North Sea is one of those places that probably come next as the gas supplies –.

Unidentified Participant

This is going through a pipeline to where? Who's buying it?

Michael Kirksey

Ours going through a pipeline on to the U.K. or the Norwegian coast and then the distribution system is taking it from there.

Unidentified Participant

Okay so what are you – are you selling the dollar and pounds…

Michael Kirksey

Gas trades for sterling – pound sterling in the U.K. Okay? And in Norway I think its Krone in Norway.

Unidentified Participant

Everywhere or what?

Michael Kirksey

Not right now. We are pretty balanced in terms of our outgo of currency and our incoming currency is pretty balanced because we had development projects like Rochelle and Cygnus. Some of that's in dollars, and some of them in sterling while our gas is collected in sterling. So, our currency portfolio is fairly balanced right now, same in Norway – same in Norway.

Unidentified Participant

Who's buying your gas?

Michael Kirksey

Shale Marketing takes a lot of our gas off from Goldeneye and where it goes from there into the systems – into the system.

Unidentified Participant

To your dear customers?

Michael Kirksey

Yes.

Unidentified Participant

And it is verified once?

Michael Kirksey

No, it is – look I am not so sure which pipeline it is that’s taking the (inaudible) several fields that are producing with the infrastructure in the North Sea is very developed over time, so I don't remember which pipeline exactly Goldeneye is going through. Yes sir.

Unidentified Participant

(inaudible).

Michael Kirksey

Right. That's a very good question, but all the – I'll give you two points. All the analysis I have seen rightly as they have been successful at raining you won't help the road players in and successfully carrying that production I haven't seen whether its been Saudi Arabia doing it all, but generally production is down about 2 million barrels a day from that group, okay, which was close to their target. So they have been able to cut it and it looks like from the things I have seen most of the players are acting fairly well disciplined, okay, so that’s one part.

The other thing that is interesting is I sort of announced about a year ago and the analysis suggested that $50 oil was the lowest sustainable number for States and it was an interesting and I have never seen it done this quite before but when they did Russia, Saudi some other Middle East countries and including there was like Exxon and Shale and others and what they did was in this analysis was they look at where the oil revenue is going what is being spent for and in some countries its social programs, schools, hospitals I mean you name it. Okay. Venezuela was in this system. In Exxon, it was dividend, share buyback, CapEx those things that you can never really cut if you are a U.S public company and Shell it was similar. And when you lay that all out, the government – I am sorry, the social program spending that was required by Russia, by Saudi, by Venezuela and the all programs I would say off programs but off mainstream programs by major international companies, share buyback, dividends, all of it suggested that lower than 50 bucks, all those programs cannot be sustained. And so there was a motivation for world suppliers of oil that 50 bucks was kind of a number that below which a lot of programs and social things would have to stop. And we've seen that when oil was down into 40s and even dropped into 30s a bit. You saw things like Venezuela defaulting on loan payments and up even in the Middle-East over certain things. So I think there is a price now, maybe it’s 50 bucks. That it may go below but there is a price now that most everybody that these major suppliers realize is a baseline price for them to keep things rolling the way they expect them to roll and below that doesn't work very well. So I don’t know all the answers to your question but those two things seem to work in my mind.

Unidentified Participant

I guess the third thing if you read about these ships that are off the coast and (inaudible) and they're not delivering but we have only a temporary thing, there is only so many ships that –

Michael Kirksey

That’s just the supply pipeline as always. You think that there is only still much of that. Alright?

Unidentified Participant

(inaudible).

Michael Kirksey

I know what that supply is but what is it a week, two weeks for the supply that are maybe out there on the boats. I've seen traders who actually have bulk oil put it on a boat, it’s floating out in the Gulf somewhere and they are waiting for the right price to unload it. And they have done the math, it says that the haulage and storage cost on this boat is X number of cents, so when oil gets to Y, I am offloading it, so – and that will happen. That will be a blip along the way here as we work through the supply chain. Yes madam.

Unidentified Participant

(inaudible).

Michael Kirksey

Yes.

Unidentified Participant

Do you do it on a monthly basis?

Michael Kirksey

It is the – you can see in our slide on page 20 that there is about a 1.097 million barrels hedged, if you divide that by 12, its X number of barrels per month than we settled the contract (inaudible). Okay, so if you assume that's 1.2 million barrels, it’s a 100,000 barrels a month that we settle up on the contract. Okay. It's just about – that's why they write the contracts in per barrels per month and so we settle it more on a barrel per month basis. The question was how are the hedges broken up into parts during the year.

Anything else? Thank you very much for your time today.

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