Endeavour International (END) Addresses Decline, Raises Guidance, Gets Pop it Was Fishing For

Joel Anderson |

For shareholders of Endeavour International Corporation (END) , the Houston-based independent oil and gas company, the end of this current downturn couldn’t come soon enough. Well, those shareholders got their wish Tuesday as the stock exploded for a more-than 60% gain following a press release specifically addressing the company’s recent stock declines and issuing new, higher guidance for production during Q2.

“Hey Stock Markets, Why Are You Being So Mean?”

The massive gain appears to come as a direct result of a press release from the company that was responding to the recent losses. The company appeared to remain coy as to why its stock was in decline (here’s a hint, it probably had something to do with the May 7 earnings report that included a $27.3 million net loss in Q1 of 2014 and a sharp drop in revenues from the previous quarter), but it appeared to decide to do something about it by upping guidance for the current quarter.

Noting that the company has “received numerous calls from analysts and investors making inquiries regarding recent market activity in the Company’s stock,” management stated that it was “unaware of any reason why recent trading of the stock has resulted in a significant decrease in its price over the last few days."

"Endeavour remains committed to generating value for its shareholders through exploitation of our assets, operational efficiencies and managing the capital structure,” said Chairman, President, and CEO William L. Transier in the statement. “Since our last update to the market in early May, our three large U.K. assets have been online and producing at consistent rates. As a result, we are revising our second quarter production guidance to 10,500-11,500 barrels of oil equivalent per day (‘boepd’) up from our previous guidance of 9,000-10,000 boepd.”

“Regarding liquidity, we have executed another Forward Sale for $22.5 million and have settled an insurance claim for the Rochelle E1 well, damaged in early 2013, for £7.5 million (approximately $12.6 million),” he continued. “The insurance claim is expected to be paid before the end of this month."

“See? See? We’re Cool!”

The statement has to be viewed as somewhat bizarre as it’s relatively rare, even in the micro-cap market, to see a company specifically address its falling share price while simultaneously boosting guidance in what could easily be interpreted as a transparent effort to shore up said stock. All the more strange given that declining share prices would appear to rather specifically be related to the company’s earnings slump in Q1.

Since the release of that earnings report, Endeavour stock declined nearly 70% to yesterday. And that’s just a continuation of a longer trend. Since a late-January peak that followed the company’s strong rebound in its Q4 2013 earnings report, the stock has declined close to 85%.

However, the strategy appears to be working, at least in the short term. The stock gapped up over 30% to $1.36 at the opening bell, and then continued to climb with strength to an intraday high of $1.95 a share by 11:30 am EDT. The stock back off sharply from that 87.5% gain and dropped to around $1.50 a share by 1:30 pm EDT, but it started to rally again heading into the afternoon, ultimately climbing back over $6.85 a share headed into the trading day's final hour.

Gains came on very heavy volume, with nearly 18.25 million shares trading hands heading into the final two hours of trading against an average daily volume of just 1.32 million.

Technical Factors Point to Endeavour Stock Being Oiled Up and Ready to Go

While the boosted guidance was clearly the spark that lit this fire, Endeavour was also a stock ready to take off based on its technical data. The six-month plummet in share price resulted in the 50-day SMA crossing the 200-day SMA from above in early April and only picked up momentum after the weak earnings report in early May. However, the stock had been showing signs of wading deep into oversold territory for almost a month.

Endeavour has been trading with a 14-day RSI below 30.0, the traditional barrier indicating a stock is oversold, since the May 7 earnings report touched off the second kick for the lengthy sell-off. And that was mirrored in the 14-day stochastic RSI which, despite a hearty jump in late May, has spent most of the last month at 0.00.

As such, Endeavour was clearly a stock in search of any good news to help it bust out of this slump, making it relatively unsurprising that a rally of this strength could have been touched off by news that’s relatively modest.

Hitting Guidance Will Determine Endeavour’s Future

However, this should also raise some concerns as to just how strong Endeavour’s stock remains. The company has a number of producing properties in both the United States and the United Kingdom, and if it hits its new guidance numbers that should certainly help solidify any gains. But Q2 earnings aren’t due until early August, and the press release Tuesday could raise a red flag for some.

It’s notable that the company’s management felt the need to address its stock price, not something that’s at all typical. Raising Q2 guidance alone was probably all that was necessary to temporarily short up the company’s stock, and any gains made now will be given back and then some should Endeavour fail to hit these new numbers. On the whole, the move seems somewhat short-sighted.

That said, it’s all just noise until the markets see results. If anything, Endeavour is setting itself up for a hard rebound if it can meet or exceed the new guidance, or an even-more dramatic fall if it misses. But today’s news does seem to focus that much more attention on those results scheduled for an August 5 release.

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