Endeavour Petroleum – 1Q07 Results Exceed Meaningful Expectations

Endeavour - They said they beat estimates with $0.02 after adjustments. I show conensus of $0.03...which probably has the four guys who follow this thing all aflutter. I could care less. The quarter was excellent.

How about things that matter?

• Production: 10,144 Boepd (part of that outperformance is due to liftings being higher than production but I didn't get the feeling that it was a significant delta),

• Goldeneye Field still performing at peak rates: 4,800 Boepd net to END. This field was expected to begin declining at the time of the acquisition from (TLM) but hasn't occured yet. Don't know when it will begin declining. The field probably represents on the over of 60+% of their UK production and is nearly half of total.

• Brage Field (Norway) with its recent new well also beat plan.

• Annual Guidance: Reiterated at 8,800 to 9,200 Boepd. Despite the beat they're not raising in what is an excellent example of "under promise and over deliver" management. Of course, they'll probably have to raise guidance when 2Q volumes exceed those of 1Q.

• Enoch (UK)wasn't on in the quarter due to logistical delays. Expect it to add ~1,000 Boepd by the end of May. I had risked it to be a mid year for startup so I'm pleased.

• LOE under $12 /BOE (barrel of equivalent), below full year guidance of $12 to $13. Part of that's the impact of those liftings but it's still where you want it. Controlled.

• EBIDTA: $37 million. Hedges taken at the time of the TLM acquisition boosted realizations by $12 per BOE. I'm sticking to my ~$120 mm EBITDA target for 2007.

• Paid down $30 million on revolver in quarter, net debt to cap at a manageable 51%.

• They missed at the 5% swapped interest in Acer. Not so much an important item as I just needed to add it for disclosure.

• Reiterating $93 mm capex number and are able to do so despite the sharp decline in UK gas prices because of their strong hedges outlined in my original report.

• Underattended call: 3 sellside and 1 buyside. Listening to the sellside's questions here you can tell its a backburner name. Of course, these guys will study up if they hit Balgownie and the stock goes to $3. LOL. I'm in now.

Other Sexy Stuff That I Don't Count Until It's Hatched:

• Balgownie Prospect Could Double Company Reserves. 45% interest; 58 mm boe target with upside if it's succesful; 30 day well set to spud this weekend.
  • This is analogous to the prolific Janice field and your risk here is reservoir risk or as CEO Bill Transier put it, the target is quite a distance from the kitchen.
  • He put a one in three chance of success on it (which is actually pretty good).
  • If successful development would likely be accomplished via two subsea tiebacks to Janice FPU about 10 miles away. I'd bet on first production no sooner than a year and a half out (would model as mid 2009 in the event of success).
  • To my knowledge their prior interest here was 60% and I think selling it down shows discipline/good portfolio management. Either way it's still a swing for the fences.
  • When you put their interest up against their 2006 YE booked reserves of 29.6 million BOE you can see how significant this well is to the company. The stock could drift higher over the next month on anticipation. I think success gets you a quick trip to at least $2.50 if not $3. Failure and you're still an inexpensive stock with good growth via development projects and a strong prospect inventory probably trading no lower than $1.70 (but that's just a guess).

• Emu Prospect. 25% interest in an estimated 38 mm boe reserve target. Spuds on the heels of Balgownie and takes about 45 day to reach TD. It's a Johnston field analogue and development would be a multi well plan tied back to either nearby Babage or Johnston facilities. "A little higher risk than Balgownie."

• Columbus appraisal in 3Q, Cygus appraisal well by 1Q08.