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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K



|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2008



| ̈ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------

For the transition period from  to

Commission
file number: 001-32212

Endeavour International Corporation

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Nevada                                                        |  | 88-0448389                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)

1001 Fannin Street, Suite 1600, Houston, Texas 77002

(Address of principal executive offices) (Zip code)

(713) 307-8700

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



|                                          |  |                                          
|----------------------------------------- |  | -----------------------------------------
|Title of Each Class of Stock              |  | Name of Each Exchange on Which Registered
|Common Stock - $0.001 par value per share |  | NYSE Alternext US                        

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.

 ̈  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ̈  Yes    x  No

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

x  Yes     ̈  No

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer     ̈            Accelerated filer  x            Non-accelerated
filer   ̈            Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 ̈  Yes    x  No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $247.2 million computed by reference to the closing
sale price of the registrants common stock on the NYSE Alternext on June 30, 2008, the last business day of the registrants most recently completed second fiscal quarter.

As of March 9, 2009, 130,111,882 shares of the registrants common stock were outstanding.

Documents Incorporated By Reference:

Portions of the registrants definitive proxy statement relating to the
2009 Annual Meeting of Stockholders, which will be filed within 120 days of December 31, 2008, are incorporated by reference into Part III of this Form 10-K.









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Table of Contents



|                                                                                                                      |  |    
|--------------------------------------------------------------------------------------------------------------------- |  | ---
|Part I                                                                                                                |  | 1  
|Item 1. Business                                                                                                      |  | 1  
|Item 1A. Risk Factors                                                                                                 |  | 9  
|Item 1B. Unresolved Staff Comments                                                                                    |  | 22 
|Item 2. Properties                                                                                                    |  | 22 
|Item 3. Legal Proceedings                                                                                             |  | 24 
|Item 4. Submission of Matters to a Vote of Security Holders                                                           |  | 24 
|Part II                                                                                                               |  | 24 
|Item 
5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 24 
|Item 6. Selected Financial Data                                                                                       |  | 25 
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 26 
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 49 
|Item 8. Financial Statements and Supplementary Data                                                                   |  | 52 
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 100
|Item 9A. Controls and Procedures                                                                                      |  | 100
|Item 9B. Other Information                                                                                            |  | 104
|Part III                                                                                                              |  | 104
|Item 10. Directors, Executive Officers and Corporate Governance of the Registrant                                     |  | 104
|Item 11. Executive Compensation                                                                                       |  | 104
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters              |  | 104
|Item 13. Certain Relationships and Related Transactions, and Director Independence                                    |  | 104
|Item 14. Principal Accounting Fees and Services                                                                       |  | 105
|Part IV                                                                                                               |  | 105
|Item 15. Exhibits and Financial Statement Schedules                                                                   |  | 105
|SIGNATURES                                                                                                            |  | 106

Quantities of natural gas are expressed in this report in terms of thousand cubic feet (Mcf) and million cubic
feet (MMcf). Oil is quantified in terms of barrels (Bbls) and thousands of barrels (Mbbls). Natural gas is compared to oil in terms of barrels of oil equivalent (BOE), thousand barrels of oil equivalent (MBOE) or million barrels of oil equivalent
(MMBOE). One barrel of oil is the energy equivalent of six Mcf of natural gas. With respect to information relating to our working interest in wells or acreage, net oil and gas wells or acreage is determined by multiplying gross wells or
acreage by our working interest therein.

References to GAAP refer to U.S. generally accepted accounting principles.



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Part I



|Item 1. | Business
|------- | --------

Endeavour International Corporation is an independent oil
and gas company engaged in the acquisition, exploration and development of energy reserves. Unless the context otherwise requires, references to Endeavour, we, us or our mean Endeavour International
Corporation and our consolidated subsidiaries.

General

In 2004, we founded Endeavour with three things  an experienced team of professionals, a large seismic database and a strategy to take of advantage of changes we saw developing in the North Sea. Our ultimate goal was to create value
for our investors by increasing reserves, production and cash flow utilizing a balanced approach between exploration, exploitation and acquisitions. Combined with sound financial discipline, this balanced approach enabled us to manage risk while
building an achievable and sustainable business plan which would increase shareholder value over the long term.

Now five years later, we have utilized
this disciplined approach to create a sustainable business. With producing assets in the UK and Norway, we generated significant cash flow during 2008 which allowed us to repay $32 million in debt while continuing our capital program. This capital
program had exploration successes in Norway and continued appraisal drilling and development plan review at our Columbus, Cygnus and Rochelle projects. Subsequent to year-end, we announced the results of our successful testing at Cygnus and
Rochelle. We also continued to participate in the licensing round process in both the UK and Norway and pursued various farm-in and license transfer opportunities to further our exploration acreage and potential.

Not content with the long lead times for moving a North Sea project from exploration prospect to actual production, we have used the fiscal success of our business model
this year to pursue opportunities outside of the North Sea. We have sought to identify opportunities that would shorten lead times and provide cash flow while still fitting into our balanced, disciplined approach. To that end, we participated in two
exploration wells in the United States in 2008 and announced our first sales in the U.S. in January 2009. The U.S. projects allow us to receive the benefits of a more rapid progression from initial drilling to first production while utilizing
existing tax NOLs to effectively eliminate most U.S. taxes that would be due on these new operations.

With the unprecedented swings in commodity prices in
2008 and growing concerns over the state of the worlds economy and financial markets, we believe more than ever that the key to success is a balanced approach with sound financial discipline. We intend to continue to build upon our North Sea
successes  pushing forward development/appraisal programs at Columbus, Cygnus and Rochelle; exploiting



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existing producing fields and pursuing exploration acreage and potential. Our rapid success in the U.S. leads us to search for other opportunities, both in
the U.S. and elsewhere, that could add to our sustainable business model. These new opportunities will not be undertaken without adherence to the financial discipline that we have applied since our foundation.

Our biggest disappointment has been the performance of our stock price. Despite adding reserves, production, cash flow and a consistent debt repayment philosophy, our
stock price has not kept pace with the overall success of our business strategy over the last five years. We believe the reasons for this erosion of value are multi-faceted. Key contributing factors include the recession and market uncertainty of
2008 and early 2009, the unprecedented volatility of commodity prices in 2008, length of our North Sea cycle times, and our initial lack of exploration drilling success. We strongly believe that our business model will ultimately lead to value
creation for our shareholders. We use many metrics internally to monitor our progress  reserves, production, drilling achievements, exploration potential and potential, cash flow, debt management and earnings to name the principal ones 
and have shown improvements in these metrics since our foundation. While the worldwide financial and equity markets appear to face a difficult year ahead, we expect the consistent application of our business strategy will allow us to continue our
drive forward and position us to take advantage of opportunities.

Summary Financial Information

The increases in revenues, operating profit (loss) and daily production during 2008 reflect the contributions of our acquisitions and exploitation efforts. The following
table sets forth some of our historical consolidated financial data.



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|                                              |  |                         |         |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- | ---- |  | - | ------- | -
|Summary Financial Information (1)             | 
|                                              |  | Year Ended December 31, |        
|(Amounts in thousands, except per share data) |  | 2008                    |         | 2007 |   |         | 2006 | 
|Revenues                                      |  | $                       | 260,441 |      | $ | 176,064 |      |  | $ | 54,131  |  
|Operating Profit (Loss)                       |  |                         | 75,525  |      |   | 38,292  |      |  |   | (4,374  | )
|Net Income (Loss) to Common Shareholders      |  |                         | 45,681  |      |   | (60,315 | )    |  |   | (8,829  | )
|Net Income (Loss) as Adjusted(2)              |  |                         | 5,714   |      |   | (10,907 | )    |  |   | (20,897 | )
|Net Loss Per Common Share  Basic             |  |                         | 0.36    |      |   | (0.49   | )    |  |   | (0.10   | )
|Net Loss Per Common Share  Diluted           |  |                         | 0.32    |      |   | (0.49   | )    |  |   | (0.10   | )
|Adjusted EBITDA(2)                            |  |                         | 176,558 |      |   | 124,155 |      |  |   | 9,233   |  
|Discretionary cash flow(2)                    |  |                         | 120,775 |      |   | 112,975 |      |  |   | 5,140   |  
|Daily Sales Volume (BOE)                      |  |                         | 8,835   |      |   | 8,969   |      |  |   | 2,760   |  
|Summary Balance Sheet Data:                   |  |                         |         |      |   |         |      |  |   |         |  
|Working Capital                               |  |                         | 22,902  |      |   | 37,198  |      |  |   | 47,431  |  
|Total Assets                                  |  |                         | 737,470 |      |   | 747,623 |      |  |   | 774,470 |  
|Debt                                          |  |                         | 227,855 |      |   | 266,250 |      |  |   | 306,250 |  
|Convertible Preferred Stock                   |  |                         | 125,000 |      |   | 125,000 |      |  |   | 125,000 |  
|Equity                                        |  |                         | 117,971 |      |   | 70,149  |      |  |   | 116,828 |  



|(1) | The above data should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included elsewhere herein.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Reconciliations of net income (loss) to net income as adjusted,
Adjusted EBITDA and discretionary cash flow are included in Non-GAAP Measures in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Throughout our growth over the last several years, we have continued to impose financial discipline on our operations. Cash flow provided by (used in) operations was
$133.2 million in 2008 versus $128.5 million in 2007 and $(14.1) million in 2006. Discretionary cash flow was $120.8 million in 2008 compared to $113.0 million and $5.1 million in 2007 and 2006, respectively. This increase in discretionary cash flow
allowed us to repay $32 million in debt while spending $66 million in capital expenditures in 2008. The increase in discretionary cash flow from 2007 to 2008 reflects the significant increase in commodity prices that occurred in mid 2008 offset by
an increase in current taxes. Current tax increases reflect increased revenues due to the higher commodity prices and lack of tax deductions as a result of a delay in capital spending as several of our projects did not begin drilling until late
2008.

Net income for 2008 was $ 45.7 million, or $0.32 per diluted share, reflecting the significant unrealized gain on the mark-to-market of
commodity derivatives and higher commodity prices during mid 2008. For 2007 and 2006, net loss was $60.3 million and $8.8 million, respectively, or $0.49 per share and $0.10 per share, respectively. The net income (loss) reflects a significant
unrealized gain (losses) on the application of mark-to-market accounting - effectively pulling forward into current periods the non-cash gains and losses from commodity price fluctuations relating to all future delivery



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periods. Net income as adjusted for 2008 would have been $5.7 million without the effect of impairments, derivative transactions and currency impacts of
deferred taxes. Net loss as adjusted for 2007 would have been $10.9 million as compared to net loss as adjusted of $20.9 million in 2006. Adjusted EBITDA increased to $176.6 million in 2008, as compared to $124.1 million in 2007 and $9.2 million in
2006.

Properties

At the end of 2008, our exploration
portfolio consists of production licenses in both the United Kingdom and Norway sectors of the North Sea and the United States. As of December 31, 2008, we had proved reserves of 32,797 MMcf of natural gas and 3,555 Mbbls of crude oil,
condensate and NGLs, for a combined 9,022 MBOE. Nearly 75 percent of our proved reserves are located in the UK at December 31, 2008.

The Goldeneye
field contributed approximately 40% of our 2008 production at 1,271 MBOE and 14% of our proved reserves, 1,228 MBOE, at the end of the year. Goldeneye is predominately a gas field and represented over 70% of our gas production in 2008. The Njord and
Brage fields each contributed approximately 17% of our 2008 production with 590 and 544 MBOE, respectively. These two fields had approximately 25% of our proved reserves at December 31, 2008 with 1,305 and 931 MBOE at Njord and Brage,
respectively.

We have three significant development projects underway, all in the UK. For both the Columbus and Cygnus projects, we submitted development
plans to the applicable authorities for approval during 2008 and anticipate receiving final approval in 2009. With these ongoing development activities, we recorded proved reserves on both Cygnus and Columbus at December 31, 2008. As a result,
they now represent nearly 45% of our proved reserves at year end. As Cygnus and Columbus reserves are predominately gas reserves, our total reserves are becoming increasingly weighted toward gas. In the first quarter of 2009, we announced the
successful drilling at our third project  Rochelle. As the well was not completed until 2009, our proved reserves at December 31, 2008 do not include any contribution from Rochelle, however, we expect the Rochelle project to be a significant
part of our operations and reserves as the development activities get underway.

Reserves

For 2008 and 2007, our proved oil and gas reserves were estimated by independent reserve engineers, Netherland, Sewell & Associates, Inc. For 2006, our proved
oil and gas reserves in the United Kingdom were also estimated by Netherland, Sewell & Associates, Inc. Our proved oil and gas reserves in Norway for 2006 were estimated by independent reserve engineers.

Our internal technical staff, or those of the operator, evaluate all technical data available on each field including production data, wells logs, pressure data,
petrophysical analysis, fluid properties, seismic data, mapping based on seismic interpretations and well control along with offset well data. We provide our analysis and data to our independent reservoir engineers for their independent estimates
using the Securities and Exchange Commission, or SEC, definitions of proved reserves. The independent engineers then perform their own analysis of the same raw data including analysis of all production data, pressure data, well logs, petrophysical
analysis, fluid analysis, seismic data and mapping based on that seismic data to determine their own reserves in place and ultimately estimate the quantity of proved oil and gas reserves attributable to a specific property.



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Our proved oil and gas reserves at December 31, 2008, 2007 and 2006 included the following:



|               |  |         |  |        |  |                
|-------------- |  | ------- |  | ------ |  | ---------------
|               |  | Oil     |  | Gas    |  | Oil Equivalents
|               |  | (MBbls) |  | (MMcf) |  | (MBOE)         
|2008:          |  |         |  |        |  |                
|United Kingdom |  | 2,131   |  | 27,130 |  | 6,653          
|Norway         |  | 1,406   |  | 4,977  |  | 2,236          
|United States  |  | 18      |  | 690    |  | 133            
|               |  |         |  |        |  |                
|               |  | 3,555   |  | 32,797 |  | 9,022          
|               |  |         |  |        |  |                
|2007:          |  |         |  |        |  |                
|United Kingdom |  | 3,284   |  | 11,812 |  | 5,252          
|Norway         |  | 2,056   |  | 8,434  |  | 3,461          
|               |  |         |  |        |  |                
|               |  | 5,340   |  | 20,246 |  | 8,713          
|               |  |         |  |        |  |                
|2006:          |  |         |  |        |  |                
|United Kingdom |  | 4,566   |  | 17,172 |  | 7,428          
|Norway         |  | 1,186   |  | 7,673  |  | 2,465          
|               |  |         |  |        |  |                
|               |  | 5,752   |  | 24,845 |  | 9,893          
|               |  |         |  |        |  |                

Planned Exploration and Development Expenditures

We anticipate spending approximately $90 million during 2009 to fund oil and gas exploration and development activities. Drilling activities at Cygnus, Rochelle and two
U.S. projects were started in 2008 and continued into 2009. We expect to continue development programs in both the UK and Norway. Our exploration program could also cover up to 19 wells throughout our focus areas. Approximately $12 million to $15
million is expected to be spent for development drilling and facilities improvements to maintain maximum production levels. We intend to fund these exploration and development activities through cash flow generated from operations.

The timing and order of this program will be determined by available capital, the completion of ongoing technical work, partner and governmental approvals and rig
scheduling for individual prospects. We may increase or decrease our planned activities for 2009 or prioritize our exploratory prospects, depending upon drilling results, potential acquisition candidates, product prices, the availability of capital
resources, and other factors affecting the economic viability of such activities.

Company History

Endeavour International Corporation (a Nevada corporation formed in 2000) is an independent oil and gas company engaged in the acquisition, exploration and development of
energy reserves.

During 2004, we significantly transformed the nature and scope of our business. On February 26, 2004, we completed a series of
transactions that provided:



| |  |  | a new management team;
| | - |  | ----------------------



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| |  |  | a new business strategy of exploration, exploitation and acquisition focused on the North Sea;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the acquisition of NSNV, Inc. which possessed the seismic data and management team that were central to our new strategy; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | a restructuring which resulted in the sale of all our then existing interests in U.S. oil and gas properties.
| | - |  | -------------------------------------------------------------------------------------------------------------

The transformed company, renamed Endeavour International Corporation, emerged with a business strategy focused on exploration, production and development in the North
Sea. Throughout 2004, we made significant strides in our goal to capitalize on opportunities in the North Sea. Throughout 2004 and 2005, we sold all remaining U.S. oil and gas properties and our partnership interests in Thailand, thereby optimizing
the assets of our predecessor company in support of our North Sea drilling plans and strategy.

In November 2004, we purchased a 76.66% majority interest
in OER oil AS (OER), a privately held Norwegian exploration and production company based in Oslo (the OER Acquisition). In January 2005, we purchased the remaining 23.34% interest in OER from the minority interest holders.
Through this acquisition, we hold working interests in the Agat, Brage and Njord fields.

In May 2006, we announced our largest acquisition to date 
the purchase of producing properties in the UK (the Talisman Acquisition). On November 1, 2006, we completed this acquisition of all the outstanding shares of Talisman Expro Limited for US $366 million, after purchase price
adjustments and expenses. As a result of the Talisman Acquisition, we acquired interests in eight fields in the United Kingdom sector of the North Sea and over seven million BOE of proved reserves as of the closing date.

In the second quarter of 2006, we purchased an eight percent interest in the Enoch Field in the North Sea for approximately $11.7 million. The field is one of the first
discoveries to be developed along the median line between the United Kingdom and Norway after the ratification of the UK/Norway Framework Treaty concerning cross-boundary petroleum cooperation.

While working to complete and integrate these acquisitions, we also moved forward in our drilling program. During 2004 and 2005, we gained approval in the UK and Norway
to act as an operator or licensee in both countries and began participating in the license round process. We continue to participate in the licensing rounds in both the UK and Norway. We have also pursued various farm-in and license transfer
opportunities to build acreage and exploration potential and spread the risk of exploration drilling among multiple prospects. Most notably, we have three significant development projects ongoing in the UK  Columbus, Cygnus and Rochelle. In
2008, we initiated operations in the United States and announced our first production there in January 2009.



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Environmental

Endeavour was established on a commitment to find and develop energy resources in a manner that protects the health and safety of people and preserves the quality of the environment. Adhering to high performance standards in the areas of
health, safety and the environment (HSE) is an integral part of our operations in our efforts to end each day injury and incident free.

Our operations in the UK portions of the North Sea are subject to numerous UK and European Union laws and regulations relating to environmental and safety. Environmental matters are addressed both before oil and gas production activities
commence and during the exploration and production activities. Before a UK licensing round begins, the Department of Energy and Climate Change (previously called the Department for Business, Enterprise & Regulatory Reform) will consult with
various public bodies that have responsibility for the environment. Applicants for production licenses are required to submit a statement of the general environmental policy of the operator in respect of the contemplated license activities, a
summary of its management systems for implementation of that policy and how those systems will be applied to the proposed work program. Additionally, the Offshore Petroleum Production and Pipelines (Assessment of Environmental Effects) Regulations
1999 require the Secretary of State to exercise his licensing powers under the UK Petroleum Act in such a way to ensure that an environmental assessment is undertaken and considered before consent is given to certain projects.

In the Norwegian portions of the North Sea, our operations are subject to the environmental and safety requirements of the Norwegian Petroleum Act 1996, as well as other
laws and regulations. Our production licenses in Norway incorporate the environmental and safety requirements provided in the Norwegian Petroleum Act, and failure to comply with such requirements can result in the imposition of fines and penalties
as well as the potential suspension or revocation of our authorizations to operate.

In the United States, various federal, state and local laws regulating
the discharge of materials into the environment, or otherwise relating to the protection of the environment, directly impact oil and gas exploration, development and production operations, and consequently may impact our operations and costs. These
regulations include, among others, (i) regulations by the Environmental Protection Agency and various state agencies regarding approved methods of disposal for certain hazardous and nonhazardous wastes; (ii) the Comprehensive Environmental
Response, Compensation, and Liability Act, Federal Resource Conservation and Recovery Act and analogous state laws that regulate the removal or remediation of previously disposed wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater contamination), and remedial plugging operations to prevent future contamination; (iii) the Clean Air Act and comparable state and local requirements, which may result in the gradual
imposition of certain pollution control requirements with respect to air emissions from our operations; (iv) the Oil Pollution Act of 1990, which contains numerous requirements relating to the prevention of and response to oil spills into
waters of the United States; (v) the Resource Conservation and Recovery Act, which is the principal federal statute governing the treatment, storage and disposal of hazardous wastes; and (vi) state regulations and statutes governing the
handling, treatment, storage and disposal of naturally occurring radioactive material.



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Regulation

The
exploration, production and sale of oil and gas are extensively regulated by governmental bodies. Applicable legislation is under constant review for amendment or expansion. Oil and gas mineral rights may be held by individuals, corporations or
governments having jurisdiction over the area in which such mineral rights are located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these mineral
rights. The terms of the leases and licenses are generally established to require timely development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains authority
over the manner of development of those rights.

Competition

The petroleum and natural gas industry is highly competitive. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas properties as well as for the
services of third party providers, such as drilling companies, upon which we rely. Petroleum and natural gas producers also compete with other suppliers of energy and fuel to industrial, commercial and individual customers. Competitive conditions
may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments and/or agencies thereof and other factors out of our control including, international political conditions,
overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.

Significant Customers

Our oil sales are to a limited number of customers, each of which accounts for more than 10% of revenue: Chevron North Sea Ltd;Shell U.K. Limited, and Esso
Exploration and Production. Our gas and natural gas liquids sales are to StatoilHydro, Shell UK Limited and Esso Exploration and Production UK Limited.

Employees

As of March 9, 2009, we have 66 full-time employees. We believe that we maintain good relationships with our employees, none
of whom are covered by a collective bargaining agreement.

Offices

Our principal executive offices are located at 1001 Fannin Street, Suite 1600, Houston, Texas 77002, and our telephone number is (713) 307-8700. Most of our executive officers are located in our offices at 114
St. Martins Lane, London WC2N 4BE England. We also have offices in Aberdeen, United Kingdom and Oslo, Norway.



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Available Information

We file annual and quarterly financial reports, as well as interim updates of a material nature to investors, with the SEC). The public may read and copy any materials that we file with the SEC at the SECs Public Reference Room at 100
F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC. We make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act on our internet website at www.endeavourcorp.com, as soon as reasonably practicable after we electronically file or furnish such material with or to
the SEC. Reports of beneficial ownership filed pursuant to the Exchange Act are also available on our website. Information contained on our website is not part of this annual report.

Financial Information about Segment and Geographical Areas

Our revenues and long-lived assets by geographic area is
included in Note 20 to our consolidated financial statements in Item 8 and incorporated herein by reference.

Average Sales Prices and Production
Costs by Geographical Area

Information on average sales prices and production costs by geographic area is included in Item 7 and incorporated
herein by reference.



|Item 1A. | Risk Factors
|-------- | ------------

The information contained in this Annual Report on
Form 10-K includes certain forward-looking statements. The words may, will, expect, anticipate, believe, continue, estimate, project, intend
and similar expressions used in this Form 10-K are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. You should not place undue reliance
on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made
or to reflect the occurrence of unanticipated events. You should also know that such statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize,
or should any of our assumptions prove incorrect, actual results may differ materially from those included within the forward-looking statements. The following material risk factors, among others, may affect our financial condition and results of
operations.



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Risks related to our business

Our ability to produce commercial quantities of oil and gas from our properties may be adversely affected by factors outside of our control. If we are unable to produce oil and gas from our properties in commercial
quantities, our operations will be severely affected.

Our business of exploring, developing and producing oil and gas involves a substantial risk of
investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that the wells, although productive, do not produce oil or gas in economic quantities. Other hazards, such as unusual or unexpected geological
formations, pressures, fires, blowouts, loss of circulation of drilling fluids, or other conditions may substantially delay or prevent completion of any well. This could result in a total loss of our investment in a particular property. Certain of
our operating areas are subject to severe weather conditions which could adversely impact our operations. A productive well may become uneconomic if water or other substances are encountered, which impair or prevent the production of oil and gas
from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. We cannot assure you that oil and gas will be produced from the properties in which we have interests, nor can
we assure the marketability of oil and gas that may be acquired or discovered. Numerous factors are beyond our control, including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes,
royalties, allowable production and environmental regulations. We cannot predict how these factors may affect our business.

We may not be able to
replace production with new reserves which could cause our production and reserves to decline.

Our future oil and gas production is highly dependent
upon our level of success in finding or acquiring additional reserves. In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our reserves will
decline unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities.

We have limited
control over the availability or cost of drilling rigs and other equipment and services which are essential to our operations, and market conditions or transportation impediments may hinder access to oil and gas markets or delay production.

We have limited control over the availability and cost of drilling rigs and other services and equipment which are necessary for us to carry out our
exploration and development activities. Procuring a sufficient number of drilling rigs is expensive and difficult as the market for such rigs is highly competitive. There is no assurance that we will be able to contract for such services or
equipment on a timely basis or that the cost of such services and equipment will remain at a satisfactory or affordable level. For example, the terminal facility servicing our IVRRH, Renee and Rubie fields has experienced significant increases in
operating costs in recent periods, causing the



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operator to cease operations at that facility. As a result, we expect to suspend production at these fields by the end of the first quarter 2009. We also
expect to incur approximately $10 million of abandonment costs for the facility, before salvage value, by mid-2010, however we cannot assure you that total abandonment costs will not exceed that amount. Shortages or the high cost of drilling rigs,
equipment, supplies or personnel could delay or adversely affect our exploration and development operations, which could have a material adverse effect on business, financial condition or results of operations.

Market conditions, the unavailability of satisfactory oil and natural gas transportation or the location of our drilling operations may hinder our access to oil and gas
markets, delay production or increase our expenses. The availability of a ready market for oil and gas production depends on a number of factors, including the demand for, and supply of, oil and gas and the proximity of reserves to pipelines and
terminal facilities.

Our debt level and terms of our debt agreements could negatively impact our financial condition, results of operations and
business prospects.

As of December 31, 2008, we had $228 million in outstanding indebtedness. Our level of indebtedness and the terms of our debt
agreements could have important consequences on our operations, including:



| |  |  | placing restrictions on certain operating activities;
| | - |  | -----------------------------------------------------



| |  |  | making it more difficult for us to satisfy our obligations under our indentures or the terms of our other debt and increasing the risk that we may default on our
debt obligations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requiring us to dedicate a substantial portion of our cash flow from operating activities to required payments on debt, thereby reducing the availability of cash
flow for working capital, capital expenditures and other general business activities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other general business activities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decreasing our ability to withstand a downturn in our business or the economy generally; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | placing us at a competitive disadvantage against other less leveraged or restricted competitors.
| | - |  | ------------------------------------------------------------------------------------------------

We may not have sufficient funds to repay our outstanding debt. If we are unable to repay our debt out of cash on hand, we could attempt to refinance such debt, sell
assets or repay such debt with the proceeds from an equity offering. We cannot assure you that we will be able to generate sufficient cash flow from operating activities to pay the interest on our debt or that future borrowings, equity financings or
proceeds from the sale of assets will be available to repay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock, a refinancing of our debt or a sale of assets include financial market
conditions, our market value and our operating performance at the time of such offering or other financing. We cannot assure you that any such offering, refinancing or sale of assets can be successfully completed. The inability to repay or refinance
our debt, could have a material adverse effect on our operations and negatively impact our capital program.



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We have outstanding $81.25 million of 6.00% convertible senior notes due 2012. Upon specified change of control
events, each holder of those notes may require us to purchase all or a portion of the holders notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, up to but excluding the date of purchase, plus in
certain circumstances, a makewhole premium. In early 2008, under a private offering, we issued $40 million of 11.5% guaranteed convertible bonds due 2014 to a company controlled by the Smedvig family office of Norway. If we undergo a change of
control the holders of these bonds also have the right, subject to certain conditions, to redeem the bonds and accrued interest.

At
December 31, 2008, we also have outstanding $113 million under a Secured Revolving Loan and a Letter of Credit Facility Agreement (together, the Debt Agreements). Upon specified change of control events, each lender under the Debt
Agreements may cancel the facility and declare outstanding loans, plus accrued and unpaid interest, outstanding letters of credit and other outstanding fees, if any, due and payable. We cannot assure you we would have sufficient financial resources
to purchase the notes for cash or repay the lenders under our Debt Agreements upon the occurrence of a change of control. In addition, events involving a change of control may result in an event of default under other debt we may incur in the
future.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.

Certain of our borrowings, primarily borrowings under our bank facilities, are at variable rates of interest and expose us to interest rate risk. If interest rates
increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income would decrease. A 0.25% change in interest rates would not result in a material change
in our annual interest expense.

Recent changes in the financial and credit markets may impact economic growth, and a sustained decline of oil and
natural gas prices can also affect our ability to obtain funding, obtain funding on acceptable terms or obtain funding under our current senior bank facility. This may hinder or prevent us from meeting our future capital needs.

Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. The credit and capital markets have become exceedingly
distressed. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions have made, and will likely continue to make, it difficult to obtain funding.

In addition, we may be unable to obtain adequate funding under our current senior bank facility because (i) our lending counterparties may be
unwilling or unable to meet their funding obligations or (ii) our borrowing base under our current senior bank facility is redetermined at least twice per year and may decrease as a result of lower oil or natural gas prices, operating
difficulties, declines in reserves, lending requirements or regulations, or for any other reason.



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Due to these factors, we cannot be certain that funding will be available if needed, and to the extent required, on
acceptable terms. If funding is not available as needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to implement our capital program, enhance our existing business,
complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our production, revenues and results of operations.

We will not be the operator of all of the interests we own or acquire, and therefore we may not be in a position to control the timing of development efforts, the
associated costs, or the rate of production of the reserves in respect of such interests.

A significant number of our interests, including several of
our producing fields, are located in blocks that we do not currently operate and as we carry out our planned drilling program, we will not serve as operator of all planned wells. As a result, we may have limited ability to exercise influence over
the operations of these interests or their associated costs. Dependence on the operator and other working interest owners for these projects, and limited ability to influence operations and associated costs could prevent the realization of expected
returns on capital in drilling or acquisition activities. The success and timing of development and exploitation activities on properties operated by others depend upon a number of factors that will be largely outside our control, including:



| |  |  | the timing and amount of their capital expenditures;
| | - |  | ----------------------------------------------------



| |  |  | the availability of suitable offshore drilling rigs, drilling equipment, support vessels, production and transportation infrastructure and qualified operating
personnel;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the operators expertise and financial resources;
| | - |  | -------------------------------------------------



| |  |  | approval of other participants and regulatory agencies to drill wells and implement other work programs;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | selection of technology; and
| | - |  | ----------------------------



| |  |  | the rate of production of the reserves.
| | - |  | ---------------------------------------

Our
inability to control the development efforts, costs and timing on the interests where we are not the operator could have a material adverse effect on our financial conditions, results of operations and business prospects.

If we are unable to obtain additional financing or generate sufficient operating cash flow, we may not be able to adequately fund our existing development and
exploration projects, acquire additional oil and gas interests or maintain our rights in such projects.

We expect to incur substantial expenditures in
connection with our oil and gas exploration, development and production activities, which may be in excess of operating cash flows and may require us to seek external sources of capital in the future. We may not have an adequate amount of financial
resources to adequately fund all of our development and exploration projects. In the past, we have relied on operating cash flows, credit facility borrowings and the sale of our debt and equity securities to fund the acquisition, exploration and
development of our petroleum



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properties. We may need to raise additional capital to continue funding projects. We cannot assure you that additional funding will be available to us for
exploration and development of our projects or to fulfill our obligations under any agreements. We also cannot assure you that we will be able to generate sufficient operating cash flow or obtain adequate financing in the future or that the terms of
any such financing will be acceptable to us. Failure to generate such additional operating cash flow or obtain such additional financing could result in delay, postponement or cancellation of further exploration and development of our projects or
the loss of our interest in our prospects.

Competition for oil and gas properties and prospects is intense and some of our competitors have larger
financial, technical and personnel resources that give them an advantage in evaluating, obtaining and developing properties and prospects.

We operate
in a highly competitive environment for reviewing prospects, acquiring properties, marketing oil and gas and securing trained personnel. Many of our competitors are major or independent oil and gas companies that have longer operating histories in
our areas of operation and employ superior financial resources which allow them to obtain substantially greater technical and personnel resources and which better enable them to acquire and develop the prospects that they have identified. We also
actively compete with other companies when acquiring new leases or oil and gas properties. Our relatively small size could adversely affect our ability to obtain new licenses in the future. Specifically, competitors with greater resources than our
own have certain advantages that are particularly important in reviewing prospects and purchasing properties. Competitors may be able to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel
resources permit. Competitors may also be able to pay more for productive oil and gas properties and exploratory prospects than we are able or willing to pay. If we are unable to compete successfully in these areas in the future, our future revenues
and growth may be diminished or restricted.

These competitors may also be better able to withstand sustained periods of unsuccessful drilling or downturns
in the economy, including decreases in the price of commodities as experienced in 2008. Larger competitors may be able to absorb the burden of any changes in laws and regulations more easily than we can, which would adversely affect our competitive
position. In addition, most of our competitors have been operating for a much longer time and have demonstrated the ability to operate through industry cycles.

If we are unable to identify additional oil and gas prospects in which we can acquire an interest at an affordable price, we may not be able to grow successfully.

One element of our strategy is to continue to grow through selected acquisitions of additional interests in oil and gas prospects. This strategy may not be successful, however, because:



| |  |  | we may not be able to identify additional desirable oil and gas prospects and acquire interests in such prospects;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | any acquisition of interests in oil and gas prospects may be found not to include prospects that contain proven oil or gas reserves;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | we may not have the ability to develop prospects that contain proven oil or gas reserves to the point of commercial production;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not have the financial ability to complete additional acquisitions of interests in oil and gas prospects or to develop the prospects that we acquire to the
point of production; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not be able to consummate additional acquisitions on terms favorable to us or at all.
| | - |  | --------------------------------------------------------------------------------------------

If we are unsuccessful at either identifying new oil and gas properties that are attractive to us, or are unable to acquire such properties at commercially acceptable
terms, our business prospects and ability to grow could be materially adversely affected.

Acquiring interests in properties for oil and natural gas
exploration is speculative in nature and may not result in operating revenues or profits.

We cannot assure you that we will discover oil and gas in
commercial quantities in our current properties or properties we may acquire in the future. Our success depends upon our ability to acquire working and revenue interests in properties upon which oil and gas reserves ultimately are discovered.

We face risks associated with our acquisition strategy.

As part of our growth strategy, we intend to pursue strategic acquisitions of new properties that expand our current asset base and potentially offer unexploited reserve potential. This strategy involves risks and we cannot assure you that:



| |  |  | we will be able to finance or consummate the transactions we select;
| | - |  | --------------------------------------------------------------------



| |  |  | any acquisitions will be profitable or be successfully integrated into our existing operations;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | we will be able to retain and motivate key personnel of acquired businesses;
| | - |  | ----------------------------------------------------------------------------



| |  |  | any acquisitions and integrations will not divert management resources; or
| | - |  | --------------------------------------------------------------------------



| |  |  | any acquisitions and integrations will not have an adverse effect on our results of operations or financial condition.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

Market fluctuations in the prices of oil and gas could adversely affect the price at which we can sell oil or gas discovered on our properties, and lower oil and gas
prices may cause us to record ceiling test write-downs.

In recent decades, there have been periods of both worldwide over-production and
underproduction of hydrocarbons, varying weather patterns and periods of both increased and relaxed energy conservation efforts. These conditions have resulted in periods of excess supply of, and reduced demand for, crude oil on a worldwide basis
and for natural gas on a regional basis. These periods historically have been followed by periods of short supply of, and increased demand for, crude oil and natural gas. The excess or short supply of oil and gas has placed pressures on prices and
has resulted in dramatic price fluctuations, even during relatively short periods of seasonal market demand. We cannot predict with any degree of certainty future oil and gas prices. Changes in oil and gas prices significantly affect our revenues,
operating results, profitability and the amount and value of our oil and gas reserves. Lower prices may reduce the amount of oil and gas that we can produce economically.



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We use the full cost method of accounting for our oil and gas operations. Accordingly, we capitalize the cost to
acquire, explore and develop oil and gas properties. Under full cost accounting rules, the net capitalized costs of oil and gas properties (net of related deferred taxes), including estimated capitalized abandonment costs, may not exceed a
ceiling limit, which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% and excluding cash flows related to estimated abandonment costs, plus the lower of cost or fair value of
unproved properties. If net capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings as an impairment charge. This is called a ceiling test write-down. This charge does not
impact cash flow from operating activities, but does reduce net income. The risk that we will be required to write down the carrying value of oil and gas properties increases when oil and natural gas prices are low. In addition, write-downs may
occur if we experience substantial downward adjustments to our estimated proved reserves. We cannot assure you that we will not experience ceiling test write-downs in the future.

Our results of operations could be adversely affected by goodwill impairments.

As a result of mergers and
acquisitions, at December 31, 2008 we had $285 million of goodwill on our balance sheet. Goodwill is not amortized, but instead must be tested at least annually for impairment by applying a fair-value-based test. Goodwill is deemed impaired to
the extent that its carrying amount exceeds the fair value of the reporting unit. Although our latest tests indicate that no goodwill impairment is currently required, future deterioration in market conditions could lead to goodwill impairments that
could have a substantial negative effect on our profitability.

Derivative transactions may limit our potential gains and involve other risks.

To manage our exposure to price risk with our production, we entered into commodity derivative contracts. We may also enter into other commodity
derivative contracts from time to time with respect to a portion of our future production to manage our exposure to price risk or exposure to interest rate risk. The goal of these derivative contracts is to limit volatility and increase the
predictability of cash flow. These transactions may limit our potential gains if oil and gas prices were to rise over, or interest rates fall below, the prices established by the derivative contracts. In addition, derivative contracts may expose us
to the risk of financial loss in certain circumstances, including instances in which:



| |  |  | our production is less than expected;
| | - |  | -------------------------------------



| |  |  | the counterparties to our contracts fail to perform under the contracts; or
| | - |  | ---------------------------------------------------------------------------



| |  |  | a sudden, unexpected event materially impacts oil or gas prices or interest rates.
| | - |  | ----------------------------------------------------------------------------------

The use of 3-D seismic is only an interpretive tool and we may be unable to recognize significant geological features.

The use of 3-D seismic is only an interpretive tool and we may be unable to recognize significant geological features due to errors in analysis of data, processing limitations or other factors. The use of seismic information does not
guarantee that the wells we drill will encounter hydrocarbons, or if we do encounter hydrocarbons, that they will be present in commercial quantities.



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We operate internationally and are subject to political, economic and other uncertainties.

We currently have operations in the United States, United Kingdom, Norway and the Netherlands. We may expand our operations to other countries or regions. International
operations are subject to political, economic and other uncertainties, including:



| |  |  | the risk of war, acts of terrorism, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, and import, export and
transportation regulations and tariffs;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | taxation policies, including royalty and tax increases and retroactive tax claims;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over our international operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | laws and policies of the U.S. affecting foreign trade, taxation and investment; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the possibility of being subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign
persons to the jurisdiction of courts in the United States.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The exploration, production and sale of oil and gas are extensively
regulated by governmental bodies. Applicable legislation is under constant review for amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and consequently an increase in the
cost of doing business and decrease in profitability. Numerous governmental departments and agencies are authorized to, and have, issued rules and regulations imposing additional burdens on the oil and gas industry that often are costly to comply
with and carry substantial penalties for failure to comply. Production operations are affected by changing tax and other laws relating to the petroleum industry, by constantly changing administrative regulations and possible interruptions or
termination by government authorities.

Oil and gas mineral rights may be held by individuals, corporations or governments having jurisdiction over the
area in which such mineral rights are located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these mineral rights. The terms of the leases and
licenses are generally established to require timely development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains authority over the manner of development of
those rights.

Our insurance may not protect us against all business and operating risks, including the potential that an operator of a prospect in
which we participate may fail to maintain or obtain adequate insurance.



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Oil and gas operations are subject to particular hazards incident to the drilling and production of oil and gas, such
as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and
equipment, pollution or environmental damage and suspension of operations. We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. If a significant accident or other event resulting in damage
to our operations, including severe weather, terrorist acts, war, civil disturbances, pollution or environmental damage, occurs and is not fully covered by insurance, it could adversely affect our financial condition and results of operations. We do
not currently operate all of our oil and gas properties. In the projects in which we own non-operating interests, the operator may maintain insurance of various types to cover our operations with policy limits and retention liability customary in
the industry. The occurrence of a significant adverse event that is not fully covered by insurance could result in the loss of our total investment in a particular prospect and additional liability for us, which could have a material adverse effect
on our financial condition and results of operations.

The cost of decommissioning is uncertain.

We expect to incur obligations to abandon and decommission certain structures associated with our producing properties. To date, the industry has little experience of
removing oil and gas structures from the North Sea. Few of the structures in the North Sea have been removed. Certain groups have been established to study issues relating to decommissioning and abandonment and how the costs will be borne. Because
experience is limited, we cannot precisely predict the costs of any future decommissions for which we might become obligated.

Reserve estimates depend
on many assumptions that may turn out to be inaccurate and any material inaccuracies in the reserve estimates or underlying assumptions of our assets will materially affect the quantities and present value of those reserves.

Estimating oil and gas reserves is complex and inherently imprecise. It requires interpretation of the available technical data and making many assumptions about future
conditions, including price and other economic factors. In preparing such estimates, projection of production rates, timing of development expenditures and available geological, geophysical, production and engineering data are analyzed. The extent,
quality and reliability of these data can vary. This process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. If our
interpretations or assumptions used in arriving at our reserve estimates prove to be inaccurate, the amount of oil and gas that will ultimately be recovered may differ materially from the estimated quantities and net present value of reserves owned
by us.

Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable
oil and gas reserves most likely will vary from estimates, perhaps significantly. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices
and other factors, many of which are beyond our control.



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If we are unable to fulfill commitments under any of our licenses, we will lose our interest, and our entire
investment, in such license.

Our ability to retain licenses in which we obtain an interest will depend on our ability to fulfill the commitments made
with respect to each license. We cannot assure you that we or the other participants in the projects will have the financial ability to fund these potential commitments. If we are unable to fulfill commitments under any of our licenses, we will lose
our interest, and our entire investment, in such license.

We are subject to environmental regulations that can have a significant impact on our
operations.

Our operations are subject to a variety of national, state, local and international laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental protection. Failure to comply with these laws and regulations can result in the imposition of substantial fines and penalties as well as potential orders suspending or terminating
our rights to operate. Some environmental laws to which we are subject to provide for strict liability for pollution damages, rendering a person liable without regard to negligence or fault on the part of such person. In addition, we may be subject
to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances such as oil and gas related products. Aquatic environments in which we operate are often particularly sensitive to environmental impacts,
which may expose us to greater potential liability than that associated with exploration, development and production at many onshore locations.

Changes in
environmental laws and regulations occur frequently, and any changes that result in more stringent or costly requirements for oil and gas exploration and production activities could require us, as well as others in our industry, to make significant
expenditures to attain and maintain compliance which could have a corresponding material adverse effect on our competitive position, financial condition or results of operations. We cannot provide assurance that we will be able to comply with future
laws and regulations to the same extent that we believe we have in the past. Similarly, we cannot always precisely predict the potential impact of environmental laws and regulations which may be adopted in the future, including whether any such laws
or regulations would restrict our operations in any area.

Current and future environmental regulations, including restrictions on greenhouse gases due to
concerns about climate change, could reduce the demand for our products. Our business, financial condition and results of operations could be materially and adversely affected if this were to occur.

Under certain environmental laws and regulations, we could be subject to liability arising out of the conduct of operations or conditions caused by others, or for
activities that were in compliance with all applicable laws at the time they were performed. Such liabilities can be significant, and if imposed could have a material adverse effect on our financial condition or results of operations.



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Governmental regulations to which we are subject could expose us to significant fines and/or penalties and our
cost of compliance with such regulations could be substantial.

Oil and gas exploration, development and production are subject to various types of
regulation by local, state and national agencies. Regulations and laws affecting the oil and gas industry are comprehensive and under constant review for amendment and expansion. These regulations and laws carry substantial penalties for failure to
comply. The regulatory burden on the oil and gas industry increases our cost of doing business and, consequently, adversely affects our profitability. In addition, competitive conditions may be substantially affected by various forms of energy
legislation and/or regulation considered from time to time by the governments and/or agencies thereof.

We are dependent on our executive officers and
need to attract and retain additional qualified personnel.

Our future success depends in large part on the service of our executive officers. The loss
of these executives could have a material adverse effect on our business. Although we have employment agreements with certain of our executive officers, there can be no assurance that we will have the ability to retain their services. Further, we do
not maintain key-person life insurance on any executive officers.

Our future success also depends upon our ability to attract, assimilate and retain
highly qualified technical and other management personnel, who are essential for the identification and development of our prospects. There can be no assurance that we will be able to attract, integrate and retain key personnel, and our failure to
do so would have a material adverse effect on our business.

Risks relating to our common stock

The trading price of our common stock may be volatile.

Smaller
capitalized companies like ours often experience substantial fluctuations in the trading price of their securities. The trading price of our common stock has fluctuated significantly and in the future may be subject to similar fluctuations. The
trading price may be affected by a number of factors, including those set forth elsewhere herein, as well as our operating results, financial condition, announcements or drilling activities, general conditions in the oil and gas exploration and
development industry, and other events or factors, some of which may be unrelated to our performance or prospects or to conditions in the industry as a whole.

There is a limited market for our common stock.

Our common stock is traded on the NYSE Alternext and the London Stock Exchange.
Historically, there has not been an active trading market for a significant volume of our common stock. We are not certain that an active trading market for our common stock will develop, or if such a market develops, that it will be sustained,
which may make it difficult for you to sell your shares of common stock in the future.



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If we, our existing stockholders or holders of our securities that are convertible into shares of our common stock
sell additional shares of our common stock, the market price of our common stock could significantly decline.

The market price of our common stock
could decline as a result of sales of a large number of shares of common stock in the public market or the perception that such sales could occur. These sales, or the possibility that these sales may occur, might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem appropriate.

As of March 13, 2009, we had approximately 130.1 million
shares of common stock outstanding. Of those shares, approximately 4.0 million shares are restricted shares subject to vesting periods of up to three years. The remainder of these shares is freely tradable.

In addition, approximately 4.1 million shares are issuable upon the exercise of presently outstanding stock options under our employee incentive plans and
0.9 million shares are issuable upon the exercise of presently outstanding options and warrants outside our employee incentive plans. Also 16.2 million shares are issuable upon the conversion of our convertible senior notes due 2012 and
50.0 million shares are issuable upon conversion of our Series C Preferred Stock, based upon the conversion price of $2.50, and 19.3 million shares are issuable upon conversion of our 11.5% convertible bonds, based on a conversion price of
$2.36.

Provisions in our articles of incorporation, bylaws and the Nevada Revised Statutes may discourage a change of control.

Certain provisions of our amended and restated articles of incorporation and amended and restated bylaws and the Nevada Revised Statutes (NRS) could delay or
make more difficult a change of control transaction or other business combination that may be beneficial to stockholders. These provisions include, but are not limited to, the ability of our board of directors to issue a series of preferred stock,
classification of our board of directors into three classes and limiting the ability of our stockholders to call a special meeting.

We are subject to the
Combinations With Interested Stockholders Statute and the Control Share Acquisition Statute of the NRS. The Combinations Statute provides that specified persons who, together with affiliates and associates, own, or within
three years did own, 10% or more of the outstanding voting stock of a corporation cannot engage in specified business combinations with the corporation for a period of three years after the date on which the person became an interested stockholder,
unless the combination or the transaction by which the person first became an interested stockholder is approved by the corporations board of directors before the person first became an interested stockholder.

The Control Share Acquisition Statute provides that persons who acquire a controlling interest as defined by the statute, in a company may only be given full
voting rights in their shares if such rights are conferred by the stockholders of the company at an annual or special meeting. However, any stockholder that does not



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vote in favor of granting such voting rights is entitled to demand that the company pay fair value for their shares if the acquiring person has acquired at
least a majority of all of the voting power of the company. As such, persons acquiring a controlling interest may not be able to vote their shares.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

Drilling Statistics

A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of oil or
gas. The information contained in the table should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or
economic value. The following table shows the results of the oil and gas wells in which we participated, drilled and tested during 2008, 2007 and 2006:



|               |  |                  |  |           |  |                   |  |      |  |       |  |     
|-------------- |  | ---------------- |  | --------- |  | ----------------- |  | ---- |  | ----- |  | ----
|               |  | Productive Wells |  | Dry Holes |  | In Progress Wells
|               |  | Gross            |  | Net       |  | Gross             |  | Net  |  | Gross |  | Net 
|Exploration    |  |                  |  |           |  |                   |  |      |  |       |  |     
|2008:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|United Kingdom |  |                 |  |          |  |                  |  |     |  | 2     |  | 0.68
|Norway         |  | 5                |  | 0.14      |  |                  |  |     |  |      |  |    
|United States  |  | 1                |  | 0.20      |  |                  |  |     |  | 1     |  | 0.10
|2007:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|United Kingdom |  | 2                |  | 0.50      |  | 3                 |  | 0.75 |  |      |  |    
|Norway         |  | 2                |  | 0.05      |  | 1                 |  | 0.04 |  |      |  |    
|2006:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|United Kingdom |  | 2                |  | 0.38      |  | 1                 |  | 0.10 |  |      |  |    
|Development    |  |                  |  |           |  |                   |  |      |  |       |  |     
|2008:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|United Kingdom |  |                 |  |          |  |                  |  |     |  | 1     |  | 0.02
|Norway         |  | 3                |  | 0.08      |  |                  |  |     |  |      |  |    
|United States  |  |                 |  |          |  |                  |  |     |  |      |  |    
|2007:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|United Kingdom |  | 1                |  | 0.02      |  |                  |  |     |  |      |  |    
|Norway         |  | 3                |  | 0.13      |  | 1                 |  | 0.04 |  |      |  |    
|2006:          |  |                  |  |           |  |                   |  |      |  |       |  |     
|Norway         |  | 2                |  | 0.05      |  |                  |  |     |  | 1     |  | 0.04



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We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling
contractors.

Productive Well Summary

At
December 31, 2008, our productive wells included the following:



|               |  |       |  |      |  |       |  |     
|-------------- |  | ----- |  | ---- |  | ----- |  | ----
|               |  | Oil   |  | Gas 
|               |  | Gross |  | Net  |  | Gross |  | Net 
|United Kingdom |  | 48    |  | 4.83 |  | 5     |  | 0.35
|Norway         |  | 34    |  | 1.34 |  |      |  |    
|United States  |  |      |  |     |  | 1     |  | 0.20
|               |  |       |  |      |  |       |  |     
|Total          |  | 82    |  | 6.17 |  | 6     |  | 0.55
|               |  |       |  |      |  |       |  |     

Acreage

The
following table sets forth certain information regarding our developed and undeveloped acreage as of December 31, 2008 in the areas indicated.



|               |  |           |  |             |  |           |  |        
|-------------- |  | --------- |  | ----------- |  | --------- |  | -------
|               |  | Developed |  | Undeveloped
|               |  | Gross     |  | Net         |  | Gross     |  | Net    
|United Kingdom |  | 111,517   |  | 15,577      |  | 703,553   |  | 241,963
|Norway         |  | 80,665    |  | 2,700       |  | 1,342,292 |  | 355,523
|United States  |  | 3,249     |  | 487         |  | 15,910    |  | 1,114  
|Ireland        |  |          |  |            |  | 172,797   |  | 34,559 
|               |  |           |  |             |  |           |  |        
|Total          |  | 195,431   |  | 18,764      |  | 2,234,552 |  | 633,159
|               |  |           |  |             |  |           |  |        

As of December 31, 2008, we had approximately 196,000, 22,000 and 137,000 net acres that are scheduled to
expire by December 31, 2009, 2010 and 2011, respectively, if we take no action to continue the term of the underlying license through operational or administrative actions. We currently have plans to continue the terms of various licenses
through operational or administrative actions and do not expect a significant portion of our net acreage position to expire before such actions occur.

Sales Volumes and Prices

Information regarding our annual average sales volumes, sales prices and average production costs is contained in
Item 7 of this Form 10-K. Additional detail of production costs is contained in Note 22 to our consolidated financial statements under Item 8 of this Form 10-K.



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Reserves

Our
estimates of proved reserves, proved developed reserves and proved undeveloped reserves at December 31, 2008, 2007 and 2006 and changes in proved reserves during the last three years are contained in Note 22 to our consolidated financial
statements under Item 8 of this Form 10-K.



|Item 3. | Legal Proceedings
|------- | -----------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.

Part II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Our common stock currently trades on the NYSE Alternext US LLC, formerly the American Stock Exchange, under the symbol END and on the London Stock Exchange
under the symbol ENDV. The following table sets forth the range of high and low prices per share of our common stock for each of the calendar quarters identified below as reported by the NYSE Alternext. These quotations represent
inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.



|               |  |      |      |      |   |      |  |     |      |  |   |     
|-------------- |  | ---- | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----
|               |  | 2008 |      | 2007
|               |  | High |      | Low  |   | High |  | Low
|First Quarter  |  | $    | 1.46 |      | $ | 1.13 |  | $   | 2.37 |  | $ | 1.97
|Second Quarter |  |      | 2.56 |      |   | 1.20 |  |     | 2.25 |  |   | 1.33
|Third Quarter  |  |      | 2.30 |      |   | 1.01 |  |     | 1.53 |  |   | 0.95
|Fourth Quarter |  |      | 1.45 |      |   | 0.33 |  |     | 1.45 |  |   | 1.05

Holders

As of
March 9, 2009, the number of holders of record of our common stock was 171. We believe that there are a number of additional beneficial owners of our common stock who hold such shares in street name.



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Dividends

We
have not paid any cash dividends on our common stock to date, and have no intention of declaring or paying any cash dividends on our common stock in the foreseeable future. Our Series B Preferred Stock is subject to a cumulative 8% dividend. Unless
the full amount of the foregoing dividends accrued for the Series B Preferred Stock is paid in full, we cannot declare or pay any dividend on our common stock. The declaration and payment of dividends is subject to the discretion of our Board of
Directors and to certain limitations imposed under Nevada corporate laws. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors
deemed relevant by our Board of Directors.

In 2006, we issued the Series C Convertible Preferred Stock which was converted into the Series C Convertible
Preferred Stock in December 2006. Dividends on the Series C Convertible Preferred Stock are:



| |  |  | cumulative;
| | - |  | -----------



| |  |  | compounded quarterly based on the original issue price;
| | - |  | -------------------------------------------------------



| |  |  | payable in cash (at 8.5% per annum) or common stock (at 8.92% per annum); and
| | - |  | -----------------------------------------------------------------------------



| |  |  | payable to the preferred stock investors prior to payment of any other dividend on any other shares of our capital stock.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

The Series C Convertible Preferred Stock also participates on an as-converted basis with respect to any dividends paid on the common stock. We paid the Series C
Convertible Preferred Stock dividends in common stock until the fourth quarter of 2007. Thereafter, we have paid the Series C Convertible Preferred Stock dividends in cash.



|Item 6. | Selected Financial Data
|------- | -----------------------

The following
table sets forth some of our historical consolidated financial data. The following data should be read in conjunction with Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto included in Item 8. The selected consolidated financial data provided below are not necessarily indicative of our future results of operations or financial performance.



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|                                              |  |                         |         |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|Selected Financial Data(1)                    | 
|                                              |  | Year Ended December 31, |        
|(Amounts in thousands, except per share data) |  | 2008                    |         | 2007 |   |         | 2006 |  |   | 2005    |   |  | 2004 |        
|Summary Income Statement Data:                |  |                         |         |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues                                      |  | $                       | 260,441 |      | $ | 176,064 |      |  | $ | 54,131  |   |  | $    | 38,656  |   |  | $ | 3,663   |  
|Operating Profit (Loss)                       |  |                         | 75,525  |      |   | 38,292  |      |  |   | (4,374  | ) |  |      | (28,089 | ) |  |   | (15,492 | )
|Net Income (Loss) to Common Shareholders      |  |                         | 45,681  |      |   | (60,315 | )    |  |   | (8,829  | ) |  |      | (31,531 | ) |  |   | (23,372 | )
|Net Income (Loss) Per Common Share:           |  |                         |         |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                         |  |                         | 0.36    |      |   | (0.49   | )    |  |   | (0.10   | ) |  |      | (0.42   | ) |  |   | (0.37   | )
|Diluted                                       |  |                         | 0.32    |      |   | (0.49   | )    |  |   | (0.10   | ) |  |      | (0.42   | ) |  |   | (0.37   | )
|Summary Balance Sheet Data:                   |  |                         |         |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Working Capital                               |  |                         | 22,902  |      |   | 37,198  |      |  |   | 47,431  |   |  |      | 49,638  |   |  |   | 4,699   |  
|Total Assets                                  |  |                         | 737,470 |      |   | 747,623 |      |  |   | 774,470 |   |  |      | 186,966 |   |  |   | 101,737 |  
|Debt                                          |  |                         | 227,855 |      |   | 266,250 |      |  |   | 306,250 |   |  |      | 81,250  |   |  |   | 2,150   |  
|Convertible PreferredStock                    |  |                         | 125,000 |      |   | 125,000 |      |  |   | 125,000 |   |  |      |        |   |  |   |        |  
|Equity                                        |  |                         | 117,971 |      |   | 70,149  |      |  |   | 116,828 |   |  |      | 40,344  |   |  |   | 56,972  |  



|(1) | Includes the following:
|--- | -----------------------



| |  |  | acquisition of Talisman Expro Limited in November 2006;
| | - |  | -------------------------------------------------------



| |  |  | acquisition of working interests in the Enoch and Bacchus prospects in 2006;
| | - |  | ----------------------------------------------------------------------------



| |  |  | disposition of Thailand assets in 2005;
| | - |  | ---------------------------------------



| |  |  | acquisition of Norwegian assets in November 2004 and January 2005;
| | - |  | ------------------------------------------------------------------



| |  |  | disposition of all U.S. assets in 2004;
| | - |  | ---------------------------------------



| |  |  | acquisition of NSNV, Inc. in 2004; and
| | - |  | --------------------------------------



| |  |  | unrealized gains (losses) on derivatives of $76.7 million, $(89.1) million and $34.5 million in 2008, 2007 and 2006, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

Information regarding each of these transactions is included in the notes to the Consolidated Financial Statements.



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This Managements Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that
involve risks and uncertainties. All forward-looking statements included in this report are based on information available to Endeavour on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned Risk Factors in Item 1A and elsewhere in this report. The
following should be read in conjunction with the audited financial statements and the notes thereto included herein. The following discussion also includes non-GAAP financial measures, which may not be comparable to similarly titled measures
presented by other companies. Accordingly, we strongly encourage investors to review our financial statements in their entirety and not rely on any single financial measure.



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Endeavour International Corporation



Overview

We are
an international oil and gas exploration and production company focused on the acquisition, exploration and development of energy reserves. To date, we have invested a significant amount of our resources on various development, acquisition and
exploration projects. Over the last several years, we have principally used acquisitions to build our base of production, proved reserves and cash flow while continuing our exploration and development programs. Key items related to our acquisitions,
drilling and operations in the last three years include:



| |  |  | Acquisitions
| | - |  | ------------



| |  |  | In late 2006, we completed the acquisition of various fields in the UK North Sea from Talisman.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Enoch  Following our acquisition of an interest in this field in 2006, we completed the development program and began initial production in mid 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Exploration  During the last three years, we have drilled 17 exploration wells with four successes in the UK, seven in Norway and one in the U.S., including:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cygnus  The first of our wells in our 2006 drilling program, the Cygnus prospect, was spud in early February 2006 in the UK sector of the North Sea. In 2008
we submitted a development plan to the UK authorities and began drilling an appraisal well. We announced the success of the appraisal well in 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Columbus  In 2006, we drilled the Columbus exploratory prospect in the Central Graben region of the North Sea. We served as operator of the well. In December
2006, we completed successful testing of the well. In 2007, we drilled an appraisal well and its sidetrack effectively confirming the presence of gas/condensate bearing sands. In 2008, we submitted a development plan to the UK authorities and expect
to receive approval in 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rochelle  We began appraisal drilling in 2008 and announced successful results in 2009.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | United States  In 2008, we participated in two exploration wells in the United States. We announced first production from one well in January 2009 while the
second well is still undergoing testing and evaluation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Producing assets  At the end of 2007, we completed a project that initiated gas production at the Njord field. Production from the Goldeneye field has
continued at levels above our expectations, indicating the quality of this large gas field. Development drilling has been ongoing at Njord, Brage and Alba to maintain production levels.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our realized price before derivatives increased 25% from 2007 to 2008 largely as a result oil prices climbing to record levels in the summer of 2008 and gas prices in
our markets improving. This substantial increase in prices in the first half of 2008 helped revenue grow from $176.1 million in 2007 to $260.4 million in 2008. With this higher revenue and strong fiscal discipline over expenses, we repaid $32.0
million in



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debt, spent $66.4 million in capital expenditures during 2008 and increased cash from year end by $22.0 million. At December 31, 2008, we held $38.2
million in cash and another $20.7 million in cash restricted for drilling rig commitments.

Even with the substantial growth in revenues, net income can be
significantly affected by various non-cash items, such as unrealized gains and losses on our commodity derivatives, currency impact of long-term liabilities and deferred taxes. Cash flow provided by (used in) operations was $133.2 million in 2008
versus $128.5 million in 2007 and $(14.1) million in 2006. Discretionary cash flow was $120.8 in 2008, compared to $113.0 million in 2007 and $5.1 million in 2006, respectively. This significant increase in our discretionary cash flow in the past
two years has allowed us to repay debt in 2007 and 2008 while continuing to actively invest in our capital programs.

Net income was $45.7 million for
2008, or $0.32 per diluted share. Net loss for 2007 was $60.3 million, or $0.49 per share, reflecting the significant unrealized loss on the mark-to-market of commodity derivatives. For 2006, net loss was $8.8 million, or $0.10 per share. The net
loss for 2006 reflects a significant unrealized gain on the mark-to-market of commodity derivatives.

Net income as adjusted for 2008 would have been $5.7
million without the effect of impairments, derivative transactions and currency impacts of deferred taxes. Net loss as adjusted for 2007 would have been $10.9 million, as compared to net loss as adjusted of $20.9 million in 2006. Adjusted EBITDA
increased to $176.6 million in 2008, as compared to $124.1 million in 2007 and $9.2 million in 2006.

Given the significant impact that non-cash items may
have on our net income, we use various measures in addition to net income, including non-financial performance indicators and non-GAAP measures as key metrics to manage our business. These key metrics demonstrate the companys ability to
maintain or grow production levels and reserves, internally fund capital expenditures and service debt as well as provide comparisons to other oil and gas exploration and production companies. These measures include, among others, debt and cash
balances, production levels, oil and gas reserves, drilling results, discretionary cash flow, adjusted earnings before interest, taxes, depreciation, depletion and amortization (Adjusted EBITDA) and adjusted net income.

For definitions of Adjusted EBITDA and Discretionary Cash Flow, and a reconciliation of Adjusted EBITDA to net income as adjusted, please see Reconciliation of
Non-GAAP Accounting Measures.

In connection with the Talisman Acquisition, we entered into various oil and gas derivative instruments to stabilize
cash flows from the acquired assets and satisfy certain obligations under the financing agreements that funded the acquisition. Hedge accounting has not been elected for these instruments resulting in the application of mark-to-market
accountingeffectively pulling forward into current periods the non-cash gains and losses from commodity price fluctuations relating to all future delivery periods. When we entered into these contracts, they covered nearly 5.2 million BOE
beginning in 2007 and running through 2011 at a weighted average



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price of $68.35. As both oil and gas prices fell from the date we entered into the contracts through December 31, 2006, we recorded an unrealized gain
of $34.5 million reflecting the decline in future commodity prices through 2011. However, in 2007, commodity prices reversed their 2006 declines, continuing to increase to record levels in the case of oil. With oil prices reaching nearly $100 per
barrel and gas prices recovering to levels close to our original contract prices, we recorded an $89.1 million unrealized loss in 2007 on contract volumes through 2011. As oil prices spiked to record levels in 2008 and then went into an
unprecedented decline in the last half of the year, we recorded $77.8 million in unrealized gain on contract volumes through 2011. We expect to continue to have fluctuations in net earnings each period as commodity prices fluctuate based on all
remaining unsettled contracts at the end of each period. See Note 16 to the consolidated financial statements for additional information on these derivatives.

Revenues, Volumes and Operating Costs

Our revenues have increased significantly since 2006 primarily due to the following:



| |  |  | In November 2006, we completed the Talisman Acquisition and each of 2008 and 2007 reflect a full years contribution of those assets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Similarly, our Enoch field began first production in mid 2007.
| | - |  | --------------------------------------------------------------



| |  |  | There was an increase in gas production at the end of 2007 with the completion of a gas project at Njord in the fourth quarter of 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The last three years have been turbulent times for the global oil market and, to a lesser extent, the North Sea gas markets. 2006 experienced seemingly high
commodity prices, only to be followed by lower prices in 2007, new, unprecedented highs in mid 2008 and a precipitous drop by the end of 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To soften the extremes of the commodity markets, we have derivative instruments covering a portion of our anticipated sales through 2011.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Natural production declines at certain of our fields have not been offset by infield drilling, resulting in small production decreases at certain fields.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

In general total operating costs increased from 2006 through 2008 as a result of production from the acquisitions discussed above.
Operating costs per BOE declined for 2006 and 2007 due to the lower operating costs per BOE for our acquired UK properties. Operating costs per BOE increased from 2007 to 2008 primarily due increased fuel costs at a non-operated facility where
several of our fields deliver production.

The following table shows our annual average sales volumes, sales prices and average production costs.



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|                                          |  |                         |        |   |      |   |       |      |  |   |       |  
|----------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                          |  | Year Ended December 31, |       
|                                          |  | 2008                    |        |   | 2007 |   |       | 2006 | 
|Sales Volume (1):                         |  |                         |        |   |      |   |       |      |  |   |       |  
|Oil and condensate sales (Mbbl):          |  |                         |        |   |      |   |       |      |  |   |       |  
|United Kingdom                            |  |                         | 1,032  |   |      |   | 1,274 |      |  |   | 209   |  
|Norway                                    |  |                         | 726    |   |      |   | 519   |      |  |   | 508   |  
|Total                                     |  |                         | 1,758  |   |      |   | 1,793 |      |  |   | 717   |  
|Gas sales (MMcf):                         |  |                         |        |   |      |   |       |      |  |   |       |  
|United Kingdom                            |  |                         | 6,532  |   |      |   | 8,556 |      |  |   | 1,539 |  
|Norway                                    |  |                         | 2,322  |   |      |   | 328   |      |  |   | 203   |  
|Total                                     |  |                         | 8,854  |   |      |   | 8,884 |      |  |   | 1,742 |  
|Total sales (MBOE)                        |  |                         |        |   |      |   |       |      |  |   |       |  
|United Kingdom                            |  |                         | 2,121  |   |      |   | 2,700 |      |  |   | 466   |  
|Norway                                    |  |                         | 1,113  |   |      |   | 574   |      |  |   | 542   |  
|Total                                     |  |                         | 3,234  |   |      |   | 3,274 |      |  |   | 1,008 |  
|BOE per day                               |  |                         | 8,835  |   |      |   | 8,969 |      |  |   | 2,760 |  
|Physical Production Volume (1):           |  |                         |        |   |      |   |       |      |  |   |       |  
|Total production (BOE per day)            |  |                         |        |   |      |   |       |      |  |   |       |  
|United Kingdom                            |  |                         | 5,804  |   |      |   | 7,660 |      |  |   | 1,334 |  
|Norway                                    |  |                         | 3,033  |   |      |   | 1,608 |      |  |   | 1,566 |  
|Total                                     |  |                         | 8,837  |   |      |   | 9,268 |      |  |   | 2,900 |  
|Realized Prices (2):                      |  |                         |        |   |      |   |       |      |  |   |       |  
|Oil and condensate price ($ per Bbl)      |  |                         |        |   |      |   |       |      |  |   |       |  
|Before commodity derivatives              |  | $                       | 90.53  |   |      | $ | 67.11 |      |  | $ | 60.51 |  
|Effect of commodity derivatives           |  |                         | (14.50 | ) |      |   | (2.13 | )    |  |   | (7.63 | )
|                                          |  |                         |        |   |      |   |       |      |  |   |       |  
|Including commodity derivatives           |  | $                       | 76.03  |   |      | $ | 64.98 |      |  | $ | 52.88 |  
|Gas price ($ per Mcf)                     |  |                         |        |   |      |   |       |      |  |   |       |  
|Before commodity derivatives              |  | $                       | 11.44  |   |      | $ | 6.27  |      |  | $ | 9.30  |  
|Effect of commodity derivatives           |  |                         | (0.35  | ) |      |   | 1.79  |      |  |   |      |  
|                                          |  |                         |        |   |      |   |       |      |  |   |       |  
|Including commodity derivatives           |  | $                       | 11.09  |   |      | $ | 8.06  |      |  | $ | 9.30  |  
|Equivalent oil price ($ per BOE)          |  |                         |        |   |      |   |       |      |  |   |       |  
|Before commodity derivatives              |  | $                       | 80.54  |   |      | $ | 53.78 |      |  | $ | 59.15 |  
|Effect of commodity derivatives           |  |                         | (8.84  | ) |      |   | 3.68  |      |  |   | (5.43 | )
|                                          |  |                         |        |   |      |   |       |      |  |   |       |  
|Including commodity derivatives           |  | $                       | 71.70  |   |      | $ | 57.46 |      |  | $ | 53.72 |  
|Operating Statistics:                     |  |                         |        |   |      |   |       |      |  |   |       |  
|Operating costs ($ per BOE)(3)            |  | $                       | 14.40  |   |      | $ | 12.56 |      |  | $ | 15.45 |  
|G&A costs ($ per BOE)                     |  | $                       | 6.07   |   |      | $ | 6.07  |      |  | $ | 21.76 |  
|Sales volume per employee (MBOE/employee) |  |                         | 52     |   |      |   | 54    |      |  |   | 17    |  



|(1) | We record oil revenues on the sales method, i.e. when delivery
has occurred. Actual production may differ based on the timing of tanker liftings. We use the entitlements method to account for sales of gas production.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The average sales prices include realized gains and losses for
derivative contracts we utilize to manage price risk related to our future cash flows.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Operating costs are costs incurred to operate and maintain our
wells and related equipment and include cost of labor, well service and repair, location maintenance, power and fuel, transportation, cost of product and production related general and administrative costs.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DD&A and Impairment of Oil and Gas Properties

Increased DD&A
expense from 2007 to 2008 reflects the impact of costs from unsuccessful exploration drilling in 2007. DD&A expense increased from 2006 to 2007 as a result of the acquisitions discussed above. In addition, DD&A for 2006 includes $1.2 million
related to the impairment of our intangible asset.

In 2008, we recorded $37.0 million in impairment of oil and gas properties, pre-tax, through the
application of the full cost ceiling test at year-end. The prices used to determine the impairment were $36.55 per barrel for oil and $8.70 per Mcf for gas. While our commodity derivatives had a fair value of $31.0 million at December 31, 2008,
these derivatives were not included in the calculation of the full cost ceiling test as the derivatives are not accounted for as cash flow hedges.

During
2006, we recorded $0.8 million in impairment of oil and gas properties related to the abandonment costs of a well impaired in 2005.

General and
Administrative Expenses

Our net G&A expenses have decreased each of the past two years as we have been able to absorb our expanded operations
without a corresponding increase in the number of employees. We had 62 employees at December 31, 2008, 61 employees at December 31, 2007, and 58 employees at December 31, 2006. Gross cash G&A expense increases since 2006 reflect
increased foreign currency exchange rates, additional payroll taxes and salary expense related to the changes in staffing, occupancy costs and fees. Occupancy costs increased due to additional office leases at our four locations. Accounting, legal
and tax consulting fees fluctuated with our acquisition and financing activity. Non-cash stock-based compensation decreased as a result of the final vesting of grants given in prior years, current year forfeitures and declining fair values on each
years grants. Components of G&A expenses for these periods are as follows:



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|                                      |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                      |  | Year Ended December 31, |       
|(Amounts in thousands)                |  | 2008                    |        |   | 2007 |   |        | 2006 | 
|Compensation                          |  | $                       | 17,042 |   |      | $ | 14,407 |      |  | $ | 13,027  |  
|Consulting, legal and accounting fees |  |                         | 6,308  |   |      |   | 6,440  |      |  |   | 4,989   |  
|Occupancy costs                       |  |                         | 1,834  |   |      |   | 1,364  |      |  |   | 845     |  
|Other expenses                        |  |                         | 508    |   |      |   | 1,321  |      |  |   | 2,342   |  
|                                      |  |                         |        |   |      |   |        |      |  |   |         |  
|Total gross cash G&A expenses         |  |                         | 25,692 |   |      |   | 23,532 |      |  |   | 21,203  |  
|Non-cash stock-based compensation     |  |                         | 3,226  |   |      |   | 4,968  |      |  |   | 11,573  |  
|                                      |  |                         |        |   |      |   |        |      |  |   |         |  
|Gross G&A expenses                    |  |                         | 28,918 |   |      |   | 28,500 |      |  |   | 32,776  |  
|Less: capitalized G&A expenses        |  |                         | (9,282 | ) |      |   | (8,622 | )    |  |   | (10,852 | )
|                                      |  |                         |        |   |      |   |        |      |  |   |         |  
|Net G&A expenses                      |  | $                       | 19,636 |   |      | $ | 19,878 |      |  | $ | 21,924  |  
|                                      |  |                         |        |   |      |   |        |      |  |   |         |  

Interest Expense and Other

Interest expense increased to $22.5 million in 2008 primarily as a result of $4.3 million in expenses, including $2.1 million in cash, related to the early repayment of the second lien term loan. Interest expense
increased to $18.7 million for 2007 versus only $7.9 million in 2006, reflecting the various debt instruments issued to fund the Talisman Acquisition. Interest income results from our investments of excess cash in short-term commercial paper and
money market accounts.

Other income (expense) for 2006 includes $3.8 million in financing costs paid in connection with the Talisman Acquisition and $1.8
million impairment of long-term marketable securities with the remainder primarily representing foreign currency exchange losses.



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Income Taxes

The
following summarizes the components of tax expense (benefit):



|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|--------------------------------------------------- |  | -- | ------- | - | ------ | - | ------- | ---- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------- | -
|(Amounts in thousands)                              |  | UK |         |   | Norway |   |         | U.S. |  |   | Other   |   |  | Total |       
|Year Ended December 31, 2008                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | 66,129  |   |        | $ | 59,587  |      |  | $ | (8,312  | ) |  | $     | (4,185 | ) |  | $ | 113,219 |  
|Current tax expense                                 |  |    | 11,158  |   |        |   | 27,879  |      |  |   |        |   |  |       | 10     |   |  |   | 39,047  |  
|Deferred tax expense                                |  |    | 22,673  |   |        |   | 15,415  |      |  |   |        |   |  |       | 303    |   |  |   | 38,391  |  
|Foreign currency gains on deferred tax liabilities  |  |    | (10,028 | ) |        |   | (10,681 | )    |  |   |        |   |  |       |       |   |  |   | (20,709 | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax expense                                   |  |    | 23,803  |   |        |   | 32,613  |      |  |   |        |   |  |       | 313    |   |  |   | 56,729  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | 42,326  |   |        | $ | 26,974  |      |  | $ | (8,312  | ) |  | $     | (4,498 | ) |  | $ | 56,490  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Year Ended December 31, 2007                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | (68,704 | ) |        | $ | 10,727  |      |  | $ | (6,864  | ) |  | $     | 6,584  |   |  | $ | (58,257 | )
|Current tax (benefit) expense                       |  |    | 2,898   |   |        |   | 562     |      |  |   | (3      | ) |  |       | 289    |   |  |   | 3,746   |  
|Deferred tax (benefit) expense                      |  |    | (27,430 | ) |        |   | 8,951   |      |  |   |        |   |  |       | 711    |   |  |   | (17,768 | )
|Foreign currency losses on deferred tax liabilities |  |    | 1,328   |   |        |   | 3,514   |      |  |   |        |   |  |       |       |   |  |   | 4,842   |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax (benefit) expense                         |  |    | (23,204 | ) |        |   | 13,027  |      |  |   | (3      | ) |  |       | 1,000  |   |  |   | (9,180  | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | (45,500 | ) |        | $ | (2,300  | )    |  | $ | (6,861  | ) |  | $     | 5,584  |   |  | $ | (49,077 | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Year Ended December 31, 2006                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | 33,275  |   |        | $ | 4,375   |      |  | $ | (20,588 | ) |  | $     | 13     |   |  | $ | 17,075  |  
|Current tax (benefit) expense                       |  |    | 1,837   |   |        |   | 9,014   |      |  |   | (45     | ) |  |       | 69     |   |  |   | 10,875  |  
|Deferred tax (benefit) expense                      |  |    | 10,105  |   |        |   | (1,840  | )    |  |   |        |   |  |       |       |   |  |   | 8,265   |  
|Foreign currency losseson deferred tax liabilities  |  |    | 2,904   |   |        |   | 1,869   |      |  |   |        |   |  |       |       |   |  |   | 4,773   |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax (benefit) expense                         |  |    | 14,846  |   |        |   | 9,043   |      |  |   | (45     | ) |  |       | 69     |   |  |   | 23,913  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | 18,429  |   |        | $ | (4,668  | )    |  | $ | (20,543 | ) |  | $     | (56    | ) |  | $ | (6,838  | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  

Our income tax expense relates primarily to operations in the UK and Norway. Income tax expense in 2008 represents
the significant increase in revenues as a result of higher realized prices, the strengthening of the U.S. dollar versus the UK pound and Norwegian kroner and the shift in anticipated capital expenditures from late 2008 to early 2009.

During 2007, we incurred taxes in all of the jurisdictions in which we do business, except for the U.S., whereas in 2006, we incurred taxes only on our Norwegian
operations. After closing the Talisman Acquisition in 2006, we began recording tax expense (benefit) for our UK operations and removed the valuation allowances previously recorded. The change in income taxes from an expense of $23.9 million in 2006
to a benefit of $9.2 million in 2007 resulted from the impact of the markto market changes on our derivatives and the activity of our UK operations. At December 31, 2008, we had net operating loss carryforwards of $61.6 million in
the U.S.



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In 2008, 2007 and 2006, we have not recorded any income tax benefits in the U.S. as there was no assurance that we
could generate any U.S. taxable earnings, resulting in a full valuation allowance of deferred tax assets generated.

As our deferred tax liabilities in the
UK, the Netherlands and Norway are denominated in their respective currencies, we revalue those deferred tax liabilities to the applicable foreign currency exchange rate at the end of each period. Those foreign currency gains and losses are included
in income tax expense.

Capital Program

We originally
anticipated spending approximately $90 million during 2008 to fund oil and gas exploration and development in the North Sea. With delays in timing for delivery of the necessary drilling rigs, certain projects were delayed or rescheduled until 2009.
We spent $88.5 million, $87.9 million and $56.6 million on oil and gas capital, excluding acquisitions, in 2008, 2007 and 2006, respectively. We spent $15 million to $20 million each year on development activities at our producing properties. The
remaining costs were spent on exploration and appraisal activities, including $5.5 million in 2008 related to our new operations in the United States.

Liquidity and Capital Resources



|                                            |  |                         |         |   |                   |   |          |                   |  |   |          |  
|------------------------------------------- |  | ----------------------- | ------- | - | ----------------- | - | -------- | ----------------- |  | - | -------- | -
|(Amounts in thousands)                      |  |                         |         |   | December 31, 2008 |   |          | December 31, 2007 | 
|Cash                                        |  |                         |         |   |                   | $ | 38,156   |                   |  | $ | 16,440   |  
|Restricted cash, related to rig commitments |  |                         |         |   |                   |   | 20,739   |                   |  |   | 22,000   |  
|Long-term debt                              |  |                         |         |   |                   |   | (227,855 | )                 |  |   | (266,250 | )
|                                            |  |                         |         |   |                   |   |          |                   |  |   |          |  
|Debt, including current maturities          |  |                         |         |   |                   | $ | (168,960 | )                 |  | $ | (227,810 | )
|                                            |  |                         |         |   |                   |   |          |                   |  |   |          |  
|                                            | 
|                                            |  | Year Ended December 31, |        
|(Amounts in thousands)                      |  | 2008                    |         |   | 2007              |   |          | 2006              | 
|Net cash provided by (used in):             |  |                         |         |   |                   |   |          |                   |  |   |          |  
|Operating activities                        |  | $                       | 133,180 |   |                   | $ | 128,506  |                   |  | $ | (14,100  | )
|Investing activities                        |  | $                       | (64,851 | ) |                   | $ | (108,140 | )                 |  | $ | (427,118 | )
|Financing activities                        |  | $                       | (46,613 | ) |                   | $ | (43,740  | )                 |  | $ | 403,369  |  

In addition to cash flows from operations, we have utilized issuances of debt and equity securities to enhance our
liquidity and support he execution of our strategic objectives. Significant issuances and repayments of debt and equity, as well as the uses of the net proceeds, in 2008, 2007 and 2006 were as follows:



| |  |  | repaid the outstanding balance of the second lien term loan in the first quarter of 2008;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | issued $40 million of the 11.5% convertible bonds in the first quarter of 2008;
| | - |  | -------------------------------------------------------------------------------



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| |  |  | in the fourth quarter of 2006 in conjunction with the Talisman Acquisition, we issued
| | - |  | -------------------------------------------------------------------------------------



| |  |  | 37.8 million shares of common stock for $89 million in gross proceeds,
| | - |  | ----------------------------------------------------------------------



| |  |  | 125,000 shares of Series C Convertible Preferred Stock for $125 million in gross proceeds,
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | $150 million in a senior bank debt facility, before financing costs of $3.2 million, and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | $75 million in a second lien term loan, before financing costs of $2.6 million.
| | - |  | -------------------------------------------------------------------------------

See Note 9 to the Consolidated Financial Statements for additional discussion of our debt.

Cash flow from operations
increased to $133.2 million for 2008 primarily due to higher realized commodity prices that were substantially offset by increased current taxes. The increased revenues generated by a full year of operations of our acquired assets were primarily
responsible for the cash flows provided by operations of $128.5 million for 2007 versus the $13.2 million used by operations in 2006.

Our revenues and
cash flows from operating activities are sensitive to changes in prices received for our products. Our production is sold at prevailing market prices which fluctuate in response to many factors that are outside of our control. Given the current
tightly balanced supply-demand market, small variations in either supply or demand, or both, can have dramatic effects on prices we receive for our oil and natural gas production. While the market price received for oil and natural gas varies among
geographic areas, oil trades in a worldwide market, whereas natural gas, which is still developing a global transportation system, is more subject to local supply and demand conditions. Consequently, price movements for all types and grades of crude
oil generally move in the same direction. Natural gas prices in the North Sea have been influenced by fuel prices around the world, including crude oil and coal. These prices are also impacted by European gas supplies, particularly deliveries from
Russian gas supplies. In addition, regional supply and demand issues affect gas prices. The majority of our natural gas is sold in the UK market. Market prices for both oil and natural gas were at historically high levels during 2006 and oil prices
continued their high levels throughout much of 2007 and 2008. North Sea gas prices declined in the first quarter of 2007 but recovered in the second half of the year and remained strong during 2008. Both crude oil and natural gas prices have
declined in 2009 as a result of the global economic decline.

Non-GAAP Measures

Net income can be significantly affected by various non-cash items, such as unrealized gains and losses on our commodity derivatives, currency impact of long-term liabilities and deferred taxes. Given the significant
impact that non-cash items may have on our net income, we use various measures in addition to net income, including non-financial performance indicators and non-GAAP measures as key metrics to manage our business. These key metrics demonstrate the
companys ability to maintain or grow production levels and reserves, internally fund capital expenditures and service debt as well as provide comparisons to other oil and gas exploration and production



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companies. These measures include, among others, debt and cash balances, production levels, oil and gas reserves, drilling results, discretionary cash flow,
adjusted earnings before interest, taxes, depreciation, depletion and amortization (Adjusted EBITDA) and adjusted net income.

Net Income
(Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow are internal, supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. We use these non-GAAP measures as internal measures of
performance and to aid in our budgeting and forecasting processes. We view these non-GAAP measures, and we believe that others in the oil and gas industry view these, or similar, non-GAAP measures, as commonly used analytic indicators to compare
performance among companies. We further believe that these non-GAAP measures are frequently used by securities analysts, investors, and other interested parties in the evaluation of issuers, many of which present these measures when reporting their
results. We believe these non-GAAP measures provide useful information to both management and investors to gain an overall understanding of our current financial performance and provide investors with financial measures that most closely align to
our internal measurement processes. Since the application of mark-to-market accounting has the effect of pulling forward into current periods non-cash gains and losses related to commodity derivatives relating to future delivery periods, analysis of
results of operations from one period to another can be difficult. We believe that excluding these unrealized non-cash gains and losses related to commodity derivatives and currency exchange changes provides a more meaningful representation of our
economic performance in the reporting period and is therefore useful to us, investors, analysts and others in facilitating the analysis of our results of operations from one period to another. These measures should not be considered as measures of
financial performance under GAAP, and the items excluded from these measures are significant components in understanding and assessing financial performance.

These non-GAAP measures should not be considered in isolation or as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as alternatives to cash flows generated by operating,
investing or financing activities as a measure of our liquidity. Because Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow are not measurements determined in accordance with GAAP and thus susceptible to varying calculations,
Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow as presented may not be comparable to other similarly titled measures of other companies.

Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow have limitations as an analytical tool, and you should not consider these measures in isolation, or as a substitute for analysis of our
financial statement data presented in the consolidated financial statements as reported under GAAP. For example, Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow may not reflect:



| |  |  | our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
| | - |  | ---------------------------------------------------------------------------------------------------



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| |  |  | changes in, or cash requirements for, our working capital needs;
| | - |  | ----------------------------------------------------------------



| |  |  | unrealized gains (losses) on derivatives;
| | - |  | -----------------------------------------



| |  |  | non-cash foreign currency gains (losses);
| | - |  | -----------------------------------------



| |  |  | our interest expense, or the cash requirements necessary to service interest and principal payments on our debts;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | our preferred stock dividend requirements; and
| | - |  | ----------------------------------------------



| |  |  | depreciation, depletion and amortization.
| | - |  | -----------------------------------------

Because
of these limitations, Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow should not be considered as measures of cash available to us to invest in the growth of our business. We compensate for these limitations by relying
primarily on our GAAP results and by using Net Income (Loss) as Adjusted, Adjusted EBITDA and Discretionary Cash Flow only supplementally.

As required
under Regulation G of the Securities Exchange Act of 1934, provided below are reconciliations of net income (loss) to the following non-GAAP financial measures: net income as adjusted, Adjusted EBITDA and discretionary cash flow.



|                                                 |  |              |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                 |  | December 31, |        
|(in thousands, except per share)                 |  | 2008         |         |   | 2007 |   |         | 2006 | 
|Net income                                       |  | $            | 56,490  |   |      | $ | (49,077 | )    |  | $ | (6,838  | )
|Depreciation, depletion and amortization         |  |              | 81,734  |   |      |   | 76,850  |      |  |   | 20,164  |  
|Impairment of oil and gas properties             |  |              | 36,970  |   |      |   |        |      |  |   | 849     |  
|Deferred tax expense (benefit)                   |  |              | 17,682  |   |      |   | (12,926 | )    |  |   | 13,038  |  
|Unrealized (gain) loss on derivative instruments |  |              | (76,666 | ) |      |   | 89,132  |      |  |   | (34,531 | )
|Amortization of non-cash compensation            |  |              | 3,226   |   |      |   | 4,968   |      |  |   | 11,573  |  
|Amortization of loan costs and discount          |  |              | 7,279   |   |      |   | 1,655   |      |  |   | 731     |  
|Other                                            |  |              | (5,940  | ) |      |   | 2,373   |      |  |   | 154     |  
|                                                 |  |              |         |   |      |   |         |      |  |   |         |  
|Discretionary cash flow                          |  | $            | 120,775 |   |      | $ | 112,975 |      |  | $ | 5,140   |  
|                                                 |  |              |         |   |      |   |         |      |  |   |         |  



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|                                                                    |  |              |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                    |  | December 31, |        
|(in thousands, except per share)                                    |  | 2008         |         |   | 2007 |   |         | 2006 | 
|Net income (loss) to common shareholders, as reported               |  | $            | 45,681  |   |      | $ | (60,315 | )    |  | $ | (8,829  | )
|Impairment of oil and gas properties (net of 50% tax)               |  |              | 18,485  |   |      |   |        |      |  |   | 424     |  
|Unrealized (gains) losses on commodity derivatives (net of 50% tax) |  |              | (38,923 | ) |      |   | 44,566  |      |  |   | (17,266 | )
|Unrealized (gains) losses on embedded derivatives                   |  |              | 1,180   |   |      |   |        |      |  |   |        |  
|Currency impact of deferred taxes                                   |  |              | (20,709 | ) |      |   | 4,842   |      |  |   | 4,773   |  
|                                                                    |  |              |         |   |      |   |         |      |  |   |         |  
|Net income (loss) as adjusted                                       |  | $            | 5,714   |   |      | $ | (10,907 | )    |  | $ | (20,898 | )
|                                                                    |  |              |         |   |      |   |         |      |  |   |         |  
|Net income (loss) to common shareholders, asreported                |  | $            | 45,681  |   |      | $ | (60,315 | )    |  | $ | (8,829  | )
|Unrealized (gains) losses on derivatives                            |  |              | (76,666 | ) |      |   | 89,132  |      |  |   | (34,531 | )
|Net interest expense                                                |  |              | 21,301  |   |      |   | 16,430  |      |  |   | 5,676   |  
|Depreciation, depletion and amortization                            |  |              | 81,734  |   |      |   | 76,850  |      |  |   | 20,164  |  
|Impairment of oil and gas properties                                |  |              | 36,970  |   |      |   |        |      |  |   | 849     |  
|Income tax expense (benefit)                                        |  |              | 56,729  |   |      |   | (9,180  | )    |  |   | 23,913  |  
|Preferred stock dividends                                           |  |              | 10,809  |   |      |   | 11,238  |      |  |   | 1,991   |  
|                                                                    |  |              |         |   |      |   |         |      |  |   |         |  
|Adjusted EBITDA                                                     |  | $            | 176,558 |   |      | $ | 124,155 |      |  | $ | 9,233   |  
|                                                                    |  |              |         |   |      |   |         |      |  |   |         |  

Discretionary cash flow is equal to cash flow from operating activities before the changes in operating assets and
liabilities.

Outlook

2009 Capital Program

We anticipate spending approximately $90 million during 2009 to fund oil and gas exploration, production and development activities in our core areas of
operation in the North Sea and the US. As in 2008, we intend to finance this capital program through our cash flow generated from operations. To the extent our cash flow from operations is unable to completely finance our capital program, we will
postpone certain proposed capital projects until our capital spending does not exceed our available resources. However, we believe our existing production base, combined with our commodity derivatives in place, should generate sufficient cash flows
to fund our ongoing operations and capital program.

A significant portion of our 2009 capital program will be directed towards developing our three major
projects in the UK sector of the North Sea, the Rochelle, Cygnus and Columbus prospects. In addition, we expect to spend approximately $12 million to $15 million on infield drilling and facilities improvements to maintain production levels on our
producing properties. Lastly, we also intend to continue our exploration activities in both the North Sea and the US, subject to the availability of sufficient capital.

The timing, completion and process of our 2009 capital program is subject to a number of factors, including availability of capital, drilling results, drilling and production costs, availability of drilling services
and equipment, partner approvals and technical work. Based on these and other factors, we may increase or decrease our planned capital program or prioritize certain projects over others.



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Revenues and Production

We expect production for 2009 to range from 6,500 to 7,500 BOE per day, with approximately 50% of that production as gas. We anticipate this decline in production from 2008 due to normal production declines and the suspension of production
at three of our fields as discussed below. With development programs for Columbus, Cygnus and Rochelle, we expect significant increases in production beginning in the fourth quarter of 2010 when we anticipate the start of production at Rochelle. We
anticipate Columbus and Cygnus to begin production in 2011. When all three projects are fully producing, they have the potential to equal our 2008 production levels from all other fields.

Our IVRRH, Renee and Rubie fields all produce to a single floating production facility that has experienced significant increases in operating costs in recent periods.
With the decline in oil prices and the rising operating costs, the operator has decided to cease operations and begin removal and salvage procedures at that floating production facility. As a result, we expect to suspend production at these fields
by the end of the first quarter 2009. The production from these fields will be suspended until the development activities at Rochelle are operational which we currently anticipate to be late 2010. After the start of Rochelle production, we expect to
re-develop IVRRH, Renee and Rubie if economically feasible. We also expect to incur approximately $10 million of abandonment costs for the facility, before salvage value, by mid 2010.

Oil prices continued to be impacted by supply and demand on a worldwide basis, while natural gas prices are more impacted by regional economic and weather patterns. Oil prices continue to decrease since year-end 2008
and natural gas prices in the UK, the market for the majority of our gas production, have recovered due primarily to return to normal weather conditions. For 2009, we expect realized prices before derivatives to be $0.10 - $0.20 per Mcf less than
the National Balance Point price for gas and $4.50 - $5.50 per Bbl less than the Dated Brent price for oil. We have commodity derivative instruments to secure our realized prices for a portion of our oil and gas production through 2011. See Note 16
to the Consolidated Financial Statements herein for more discussion of our commodity derivative instruments.

We expect operating costs per BOE to be in
the range of $11.00 to $13.00 per BOE for 2009. Commodity prices can also affect our operating cash flow through an indirect effect on operating expenses. Significant commodity price volatility, as experienced in recent years, can lead to
fluctuations in drilling and development activities. As a result, the demand and cost for people, services, equipment and materials may also increase or decrease following worldwide drilling levels, causing an impact on our cash flow.



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Liquidity and Financial Resources

Our primary sources of financial resources and liquidity are internally generated cash flows from operations and access to the credit and capital markets, to the extent available. We believe the combination of our
available cash on hand, cash flow from operations, our ability to time capital expenditures and our flexible 2009 capital program and related obligations will allow us to manage volatile markets while enabling us to further our strategic objectives.

We expect to fund our 2009 capital requirements through internally generated cash flow from operations. These cash flows will be significantly impacted by
the amount of hydrocarbons we produce, and to a lesser extent, the price we obtain for our produced commodities. Oil prices continue to be impacted by supply and demand on a worldwide basis, while natural gas prices are more impacted by regional
economic and weather patterns. Although oil prices have declined significantly since the record high prices in the summer of 2008, natural gas prices in the UK and Norway have not experienced as steep of a decline. While we expect revenues to
decline from 2008 to 2009 as a result of the sharp decline in oil prices, the full impact on our cash flows will be partially mitigated by our balance of gas to oil production and our commodity derivative positions. As of December 31, 2008, our
outstanding commodity derivatives covered 55% to 65% of expected 2009 production.

We have historically utilized a combination of borrowings under our bank
facility and accessing the capital markets to fund our operations, capital projects or strategic acquisitions. The worldwide credit and capital markets have recently experience significant disruptions and exhibited adverse conditions. Continued
volatility in the credit and capital markets may substantially restrict our ability to access these markets or increase costs associated with issuing debt instruments due to, among other things, increased spreads over relevant interest rate
benchmarks and affect our ability to access those markets. We do not believe our liquidity has been materially affected by the recent events in the global financial markets as we have not required these financing alternatives. Further, we do not
expect our liquidity to be materially impacted in the near future as we intend to exercise strict fiscal discipline in matching our future expenditures with cash flow from operations. Nevertheless, we will continue to monitor our capital
requirements, the credit and capital markets and circumstances surrounding each of the lenders in our senior bank facility. To date we have experienced no disruptions in our ability to access additional funding through our senior facility. However,
we cannot predict with any certainty the impact to us of any further disruption in the credit environment.

At December 31, 2008, we had $113 million
outstanding under our senior bank facility. The senior bank facility has a current borrowing base capacity of $126 million, which is secured by our oil and gas assets. The borrowing base is subject to redetermination every six months (on
April 1 and October 1), and we are required to provide our lenders with an independent reserve report every 12 months. Based on our reserve report at December 31 and June 30 each year, commodity prices set by our lenders and
terms set forth in the credit agreement, the maximum capacity of our borrowing base is set, and any amounts outstanding over the redetermined borrowing base must be repaid within 45 days of the redetermination date. The senior bank facility is also
subject to maximum commitment levels by the participating lenders that change over time.



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We have reflected $13 million in current maturities of long-term debt at December 31, 2008 due to the borrowing
base capacity and maximum commitment levels. The next scheduled redetermination of our borrowing base will occur on April 1, 2009. We are currently undergoing the redetermination process based on our reserve report as of December 31, 2008.
We cannot estimate the level of the borrowing base capacity that will be in effect as of April 1, 2009 although we do expect the borrowing base capacity to decrease given the decline in commodity prices during 2008. We expect to repay amounts
outstanding in excess of the redetermined borrowing base with cash on hand. This will reduce the amount of cash on hand that is immediately available for our capital program. Consistent with our strict financial discipline, we continue to manage our
capital expenditures to stay within generated cash flows while anticipating additional debt repayments.

The terms of our credit agreement provide that the
borrowing base capacity may be increased as projects are approved by the applicable authority. We currently have submitted development plans for approval for both our Cygnus and Columbus projects and anticipate submitting a plan for the Rochelle
development during 2009. As these development plans are approved, we expect to include the new projects in the borrowing base assets and believe that this will result in an increase of our borrowing base capacity.

The senior bank facility also provides for issuances of letters of credit of up to an aggregate $60 million. While all letters of credit issued under the senior bank
facility will reduce the total amount available for drawing under the senior bank facility, letters of credit issued to secure abandonment liabilities in respect of borrowing base assets will not reduce the amount available under the borrowing base.
As of December 31, 2008, we have $30.1 million of outstanding letters of credit related to abandonment liabilities on certain of our oil and gas properties.

In January 2008, we completed the refinancing of certain debt utilizing a strategic investment by the Smedvig Family Office in Norway. Included in this refinancing were: the repayment of our Second Lien Term Loan, plus accrued interest;
issuance of $40 million under a private offering of 11.5% guaranteed convertible bonds due 2014; and borrowing of $25 million under a Junior Credit Facility. Amounts borrowed under the Junior Facility were repaid in full during 2008. The Smedvig
Family also committed an additional $60 million for future investments with us.

Our income tax expense relates primarily to our operations in the UK
(statutory income tax rate of 50%) and to our operations in Norway (statutory income tax rate of 78%). We are currently not able to record income tax benefits on our U.S. loss as there is no assurance that we can generate any U.S. taxable earnings.
As operations commence in the U.S. during 2009, we will be able to record income tax benefits in the U.S. and do not anticipate paying current taxes in the U.S.



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Off-Balance Sheet Arrangements

At December 31, 2008, we did not have any off-balance sheet arrangements.

Rig Commitments

We have two commitments for the use of drilling rigs in our North Sea operations. One commitment is for the drilling rig that commenced drilling at the Rochelle field in
December 2008. We have $21 million in escrow toward this commitment, included in Restricted cash on our Condensed Consolidated Balance Sheet. The reserved amounts in escrow will be released as payments are made for this drilling
activity.

We also have a commitment for a semi-submersible rig in Norway through a consortium with several other operators in the Norwegian Continental
Shelf. The contract commits us to 100 days (for two wells) for drilling services for $38 million. We currently estimate the rig will be initially delivered in the third quarter of 2009 and again in 2010.

Critical Accounting Policies and Estimates

The accompanying
financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and have been presented on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. These accounting principles require management to use estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements, and revenues and expenses during the reporting period. Management reviews its estimates, including those related to the determination of proved reserves, estimates of future dismantlement costs, income taxes and
litigation. Actual results could differ from those estimates.

Management believes it is reasonably possible that the following material estimates
affecting the financial statements could change in the coming year: (1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, (3) estimates of future
dismantlement and restoration costs, (4) estimates of fair values used in purchase accounting and (5) estimates of the fair value of derivative instruments. In addition, alternatives may exist among various accounting methods. In such
cases, the choice of accounting method may also have a significant impact on reported amounts.

Our critical accounting policies are as follows:

Full Cost Accounting

Under the full cost method, all
acquisition, exploration and development costs, including certain directly related employee costs and a portion of interest expense, incurred for the purpose of finding oil and gas are capitalized and accumulated in pools on a
countrybycountry basis. Capitalized costs include the cost of drilling and equipping productive wells, including the estimated costs of dismantling and abandoning these assets, dry hole costs, lease acquisition costs, seismic and other
geological and geophysical costs, delay rentals and costs related to such activities. Employee costs associated with production and other operating activities and general corporate activities are expensed in the period incurred.



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Capitalized costs are limited on a country-by-country basis (the ceiling test). The ceiling test limitation is
calculated as the sum of the present value of future net cash flows related to estimated production of proved reserves, using end-of-the-current-period prices including the effect of derivative instruments that qualify as cash flow hedges,
discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the full cost pool, net of deferred taxes, exceeds the ceiling
limitation, the excess is charged as an impairment expense.

We utilize a single cost center for each country where we have operations for amortization
purposes. Any conveyances of properties are treated as adjustments to the cost of oil and gas properties with no gain or loss recognized unless the operations are suspended in the entire cost center or the conveyance is significant in nature.

Unproved property costs include the costs associated with unevaluated properties and properties under development and are not included in the full cost
amortization base (where proved reserves exist) until the project is evaluated. These costs include unproved leasehold acreage, seismic data, wells and production facilities in progress and wells pending determination, together with interest costs
capitalized for these projects. Seismic data costs are associated with specific unevaluated properties where the seismic data is acquired for the purpose of evaluating acreage or trends covered by a leasehold interest owned by us. Significant
unproved properties are assessed periodically for possible impairment or reduction in value. If a reduction in value has occurred, these property costs are considered impaired and are transferred to the related full cost pool. Geological and
geophysical costs included in unproved properties are transferred to the full cost amortization base along with the associated leasehold costs on a specific project basis. Costs associated with wells in progress and wells pending determination are
transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry holes are transferred to the amortization base immediately upon determination that the well is
unsuccessful. Unproved properties whose acquisition costs are not individually significant are aggregated, the portion of such costs estimated to be ultimately nonproductive, based on experience, are amortized to the full cost pool over an average
holding period.

In countries where the existence of proved reserves has not yet been determined, unevaluated property costs remain capitalized in unproved
property cost centers until proved reserves have been established, exploration activities cease or impairment and reduction in value occurs. If exploration activities result in the establishment of a proved reserve base, amounts in the unproved
property cost center are reclassified as proved properties and become subject to amortization and the application of the ceiling test. When it is determined that the value of unproved property costs have been permanently diminished (in part or in
whole) based on the impairment evaluation and future exploration plans, the unproved property cost centers related to the area of interest are impaired, and accumulated costs charged against earnings.



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We capitalize interest on expenditures for significant exploration and development projects while activities are in
progress to bring the assets to their intended use. Capitalized interest is calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying costs and is limited to gross interest expense. As costs are transferred to
the full cost pool, the associated capitalized interest is also transferred to the full cost pool.

Business Combinations

Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business and recording
deferred taxes for any differences between the allocated values and tax basis of assets and liabilities. Any excess of the purchase price over the amounts assigned to assets and liabilities is recorded as goodwill. In connection with the several
acquisitions, we recorded goodwill for the excess of the purchase price over the value assigned to individual assets acquired and liabilities assumed. Our fair value estimates for the acquisition are subject to change as additional information
becomes available and is assessed.

Purchase Price Allocation

The purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. We use all available information to make these fair value determinations, including information commonly considered by our
engineers in valuing individual oil and gas properties and sales prices for similar assets. Estimated deferred taxes are based on available information concerning the tax basis of the acquired companys assets and liabilities and carryforwards
at the merger date, although such estimates may change in the future as additional information becomes known. The amount of goodwill recorded in any particular business combination can vary significantly depending upon the values attributed to
assets acquired and liabilities assumed relative to the total acquisition cost.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in an acquisition. Intangible assets
represent the purchase price allocation to the assembled workforce as a result of the acquisition of NSNV, Inc. We assess the carrying amount of goodwill and other indefinite-lived intangible assets by testing the asset for impairment annually at
year-end, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test requires allocating goodwill and all other assets and liabilities to reporting units. The fair value of each reporting
unit is determined and compared to the book value of the reporting unit. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair value.

At December 31, 2008, we had $282 million of goodwill recorded related to past business combinations. This goodwill is not amortized, but is required to be assessed for impairment annually, or more often as facts
and circumstances warrant. The first step of that process is to compare the fair value of the reporting unit to which goodwill has been assigned to the carrying amount of the associated net assets and goodwill. The reporting units used to evaluate
and measure goodwill for impairment are



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determined from the manner in which the business is managed. We have determined we have a single reporting unit. Goodwill is tested annually at year end.
Although we cannot predict when or if goodwill will be impaired, impairment charges may occur if we are unable to replace the value of our depleting asset base or if other adverse events (for example, lower sustained oil and gas prices) reduce the
fair value of the reporting unit.

We completed our 2008 annual goodwill impairment test with no impairment indicated. To determine the fair value of the
company, we worked with a valuation consulting firm and used all available information, such as market multiples, the present values of expected cash flows and the effect of the announcement of drilling results (where such drilling had begun).

In the determination of the present value of expected cash flows, we assumed production profiles consistent with our year-end estimation of reserves that
are disclosed in our supplemental oil and gas disclosures, market prices considering the forward price curve for oil and gas, adjusted for location and quality differentials that we currently receive, as well as capital and operating costs
consistent with year-end pricing, adjusted for managements view that such costs should decline in the near term to realign with lower commodity prices, and discount rates that management believes a market participant would utilize to consider
the risks inherent in our operations.

We also considered our market capitalization based on average stock prices for 20 days around December 31, 2008 and
any premium a buyer might pay to obtain control of Endeavour. As part of this analysis, we considered the relatively few transactions in the market, trading multiples for peers to determine an appropriate multiple to apply against our projected
EBITDA, cash flows and reserves and the material results of our drilling program that were not publicly available at December 31, 2008. In the first quarter of 2009, we announced the successful drilling results of wells at our Cygnus and Rochelle
projects and the expansion of operations into the US. While these activities were initiated in 2008, the public markets were unaware of the positive outcomes until 2009. From December 31, 2008 through February 10, 2009 (the date of the last of these
three announcements), our common stock price increased 50%, from $0.50 per share to $0.74 per share, respectively.

A lower fair value estimate in the
future could result in impairment. Examples of factors that could cause a lower fair value estimate could be sustained declines in prices, increases in costs, and changes in discount rate assumptions due to market conditions.

Dismantlement, Restoration and Environmental Costs

We recognize
liabilities for asset retirement obligations associated with tangible long-lived assets, such as producing well sites, offshore production platforms, and natural gas processing plants, with a corresponding increase in the related long-lived asset.
The asset retirement cost is depreciated along with the property and equipment in the full cost pool. The asset retirement obligation is recorded at fair value and accretion expense, recognized over the life of the property, increases the liability
to its expected settlement value. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost.

Revenue Recognition

We use the entitlements method to account for
sales of gas production. We may receive more or less than our entitled share of production. Under the entitlements method, if we receive more than our entitled share of production, the imbalance is treated as a liability at the market price at the
time the imbalance occurred. If we receive less than our entitled share, the imbalance is recorded as an asset at the lower of the current market price or the market price at the time the imbalance occurred. Oil revenues are recognized when
production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title has transferred and collectibility of the revenue is probable.



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Derivative Instruments and Hedging Activities

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We may use derivative financial instruments with respect to a
portion of our oil and gas production or a portion of our variable rate debt to achieve a more predictable cash flow by reducing our exposure to price fluctuations. These transactions are likely to be swaps, collars or options and to be entered into
with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural gas that we produce and sell, to increases in
interest rates and to manage cash flows in support of our annual capital expenditure budget. We also have two embedded derivatives related to our debt instruments.

We record all derivatives at fair market value in our Consolidated Balance Sheets at the end of each period. The accounting for the fair market value, and the changes from period to period, depends on the intended use of the derivative and
the resulting designation. This evaluation is determined at each derivatives inception and begins with the decision to account for the derivative as a hedge, if applicable. The accounting for changes in the fair value of a derivative
instrument that is not accounted for as a hedge is included in other (income) expense as an unrealized gain or loss. Where we intend to account for a derivative as a hedge, we document, at its inception, the hedging relationship, the risk management
objective and the strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and the method that will be used to assess
effectiveness of derivative instruments that receive hedge accounting treatment.

Changes in fair value to hedge instruments, to the extent the hedge is
effective, are recognized in other comprehensive income until the forecasted transaction occurs. Hedge effectiveness is assessed at least quarterly based on total changes in the derivatives fair value. Any ineffective portion of the derivative
instruments change in fair value is recognized immediately in other (income) expense.

We discontinue hedge accounting prospectively when (1) we
determine that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires; (3) it is
no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no
longer appropriate.

Income Taxes

We use the liability
method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities, and their respective tax bases. Deferred tax assets and



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liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

Stock-Based
Compensation Arrangements

We recognize all share-based payments to employees, including grants of employee stock options, based on their fair values.
The share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as general and administrative expense over the employees requisite service period (generally the vesting period
of the equity award). We apply the fair value method in accounting for stock option grants to non-employees using the Black-Scholes Method.

It is our
policy to use authorized but unissued shares of stock when stock options are exercised. At December 31, 2008, we had approximately 7.7 million additional shares available for issuance pursuant to our existing stock incentive plan.

Fair Value

We estimate fair value for the measurement
of derivatives, long-lived assets during certain impairment tests, reporting units for goodwill impairment testing and the initial measurement of an asset retirement obligation. When we are required to measure fair value, and there is not a market
observable price for the asset or liability, or a market observable price for a similar asset or liability, we generally utilize an income valuation approach. This approach utilizes managements best assumptions regarding expectations of
projected cash flows, and discounts the expected cash flows using a commensurate risk adjusted discount rate. Such evaluations involve a significant amount of judgment since the results are based on expected future events or conditions, such as
sales prices; estimates of future oil and gas production; development and operating costs and the timing thereof; economic and regulatory climates and other factors. Our estimates of future net cash flows are inherently imprecise because they
reflect managements expectation of future conditions that are often outside of managements control. However, assumptions used reflect a market participants view of long-term prices, costs and other factors, and are consistent with
assumptions used in our business plans and investment decisions.

Recent Accounting Pronouncements

In December 2007, the FASB issued enhanced guidance related to the measurement of identifiable assets acquired, liabilities assumed and disclosure of information related
to business combinations and their effect. The standard applies prospectively to business combinations in 2009 and is not subject to early adoption. We are currently evaluating the potential impact of this new guidance on business combinations and
related valuations.



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In December 2007, the FASB issued a new standard for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as a component of consolidated equity. This is a change from the current practice to present noncontrolling
interests in liabilities or between liabilities and stockholders equity. Similarly, the new standard requires consolidated net income and comprehensive income to be reported at amounts that include the amounts attributable to both the parent
and the noncontrolling interests. The standard is effective prospectively with respect to transactions involving noncontrolling financial interests that occur on or after January 1, 2009. We are currently evaluating the potential impact, if
any, of this new guidance.

In March 2008, the FASB issued a new standard that requires entities to present expanded and detailed financial statement
disclosures for their derivatives and hedged financial instruments. This standard applies to all derivatives and non-derivative instruments designated and qualifying as hedges, including bifurcated derivative instruments and related hedged items.
The new standard is effective for interim periods and fiscal years beginning after November 15, 2008. We do not expect the adoption of this pronouncement to have a material impact on our financial position or results of operations.

In May 2008, the FASB posted a new staff position that applies to convertible debt that may be settled in part or in whole in cash upon conversion. The new staff
position requires required issuers of this form of debt to account for its debt and equity components separately. The new position also expands the definition of convertible preferred shares of an entitys stock that are mandatorily redeemable
financial instruments classified as liabilities. The new FASB staff position is effective for financial statements issued for fiscal years after December 15, 2008 and interim period within those fiscal years. It must be applied retroactively to
all presented periods. We are currently evaluating the potential impact, if any, of this new guidance.

In June 2008, the FASB issued a new staff position
that addresses whether instruments that are granted in share-based payment transactions are participating securities prior to vesting; and therefore are required to be included in the earnings allocation in the calculation of earnings per share
(EPS) under the two-class method as described in a prior FASB standard. The new staff position requires entities to treat unvested share-based payment awards with non-forfeitable rights to dividend or dividend equivalents as a separate class of
securities in calculating EPS. The new staff position is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact, if any, of this new guidance.



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Disclosures about Contractual Obligations and Commercial Commitments

The following table sets forth our obligations and commitments to make future payments under its lease agreements and other long-term obligations as of December 31,
2008:



|                                                 |  |                        |         |                 |   |           |  |           |         |              |   |        |  |   |        
|------------------------------------------------ |  | ---------------------- | ------- | --------------- | - | --------- |  | --------- | ------- | ------------ | - | ------ |  | - | -------
|(Amounts in thousands)                           |  | Payments due by Period
|Contractual Obligations                          |  | Total                  |         | Less than1 Year |   | 1-3 Years |  | 3-5 Years |         | After5 Years
|Long-term debt                                   |  |                        |         |                 |   |           |  |           |         |              |   |        |  |   |        
|Principal(1)                                     |  | $                      | 238,746 |                 | $ | 13,000    |  | $         | 100,000 |              | $ | 81,250 |  | $ | 44,496 
|Interest(2)                                      |  |                        | 55,839  |                 |   | 7,766     |  |           | 13,125  |              |   | 406    |  |   | 34,542 
|Asset retirement obligations                     |  |                        | 47,999  |                 |   | 9,680     |  |           | 160     |              |   | 160    |  |   | 37,999 
|Operating leases for office leases and equipment |  |                        | 5,684   |                 |   | 1,655     |  |           | 2,469   |              |   | 1,560  |  |   |       
|Rig commitments(3)                               |  |                        | 58,239  |                 |   | 39,489    |  |           | 18,750  |              |   |       |  |   |       
|                                                 |  |                        |         |                 |   |           |  |           |         |              |   |        |  |   |        
|Total Contractual Obligations                    |  | $                      | 406,507 |                 | $ | 71,590    |  | $         | 134,504 |              | $ | 83,376 |  | $ | 117,037
|                                                 |  |                        |         |                 |   |           |  |           |         |              |   |        |  |   |        



|(1) | Repayment of the initial borrowing base on the senior bank facility is based on reserve estimates, which are reassessed every six months.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



|(2) | Assumes a 1.5% LIBOR rate. In addition, interest on our 11.5% convertible debt is added to the outstanding principal balance each quarter and reflected as due upon maturity.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As is common in the oil and gas industry, we operate in many instances through joint ventures under joint operating or similar agreements. Typically, the operator under a joint
operating agreement enters into contracts, such as rig commitment contracts, for the benefit of all joint venture partners. Through the joint operating agreement, the non-operators reimburse, and in some cases advance, the funds necessary to meet
the contractual obligations entered into by the operator. These obligations are typically shared on a working interest basis. The joint operating agreement provides remedies to the operator in the event that the non-operator does not
satisfy its share of the contractual obligations. Occasionally, the operator is permitted by the joint operating agreement to enter into lease obligations and other contractual commitments that are then passed on to the non-operating joint interest
owners as lease operating expenses, frequently without any identification as to the long-term nature of any commitments underlying such expenses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

Foreign Exchange Risk

The international scope of our business operations exposes us to the risk of fluctuations in
foreign currency markets. As a result, we are subject to foreign currency exchange rate risk due to effects that foreign exchange rate movements have on our costs and on the cash flows that we receive from foreign operations. Our oil



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revenues are received in U.S. dollars while gas revenues are received in pounds sterling or Norwegian kroner. Capital expenditures, payroll and operating
expenses may be denominated in U.S. dollars, pounds sterling or Norwegian kroner. We operate a centralized currency management operation to take advantage of potential opportunities to naturally offset exposures against each other. To date, we have
addressed our foreign currency exchange rate risks principally by maintaining our liquid assets in interest-bearing accounts, until payments in foreign currency are required, but we have not reduced this risk by hedging to date.

Commodity Price Risk

We produce and sell crude oil and natural gas.
Realized pricing is primarily driven by the prevailing worldwide price for crude oil and regional gas spot market prices which have been volatile and unpredictable for several years. As a result, our financial results can be significantly impacted
as these commodity prices fluctuate widely in response to changing market forces. We may engage in oil and gas hedging activities to realize commodity prices which we consider favorable.

At December 31, 2008, we had the following commodity derivative instruments outstanding:



|                                          |  |      |        |      |   |       |  |       |       |  |   |       
|----------------------------------------- |  | ---- | ------ | ---- | - | ----- |  | ----- | ----- |  | - | ------
|                                          |  | 2009 |        | 2010 |   | 2011  |  | Total
|Oil:                                      |  |      |        |      |   |       |  |       |       |  |   |       
|Fixed Price Swap (Mbbl)                   |  |      | 697    |      |   | 573   |  |       | 487   |  |   | 1,757 
|Weighted Average Price ($/Barrel)         |  | $    | 69.08  |      | $ | 68.39 |  | $     | 66.01 |  | $ | 68.01 
|Costless Collar (Mbbl)                    |  |      | 400    |      |   |      |  |       |      |  |   | 400   
|Weighted Average Ceiling Price ($/Barrel) |  | $    | 121.88 |      | $ |      |  | $     |      |  | $ | 121.88
|Weighted Average Floor Price ($/Barrel)   |  | $    | 100.00 |      | $ |      |  | $     |      |  | $ | 100.00
|Gas:(1)                                   |  |      |        |      |   |       |  |       |       |  |   |       
|Fixed Price Swap (MMcf)                   |  |      | 1,387  |      |   | 1,032 |  |       | 627   |  |   | 3,046 
|Weighted Average Price ($/Mcf)            |  | $    | 8.16   |      | $ | 7.83  |  | $     | 7.51  |  | $ | 7.91  
|Costless Collar (MMcf)                    |  |      | 1,400  |      |   |      |  |       |      |  |   | 1,400 
|Weighted Average Ceiling Price ($/Mcf)    |  | $    | 13.25  |      |   |      |  |       |      |  | $ | 13.25 
|Weighted Average Floor Price ($/Mcf)      |  | $    | 9.32   |      |   |      |  |       |      |  | $ | 9.32  



|(1) | Gas derivative contracts are designated in therms and have been converted to Mcf at a rate of 10 therm to 1 Mcf. The
exchange rate at December 31, 2008 was $1.46 to £1.00.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2008 and 2007, the prices used to determine the
estimates of future cash inflows were $36.55 and $96.02 per barrel, respectively, for oil and $8.70 and $10.03 per Mcf, respectively, for gas.



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Endeavour International Corporation



Interest Rate Risk

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on cash and cash equivalents and the interest rate paid on borrowings under debt.

In 2007, we entered into an interest rate swap for a notional amount of $37.5 million whereby we pay a fixed rate of 5.05% and receive three-month LIBOR through November
2009. A 250 point change in basis points on LIBOR would not result in a material change in our annual interest expense, given our floating rate debt at December 31, 2008 and the interest rate swap.



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|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Endeavour International Corporation:

We have audited the accompanying
consolidated balance sheets of Endeavour International Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Endeavour International Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements,
effective January 1, 2007, the Company changed its accounting for uncertain tax positions. As also discussed in Note 2 to the consolidated financial statements, effective January 1, 2008, the Company changed its method of accounting
and disclosures for fair value measurements and fair value reporting of financial assets and liabilities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Endeavour International Corporations internal control over financial reporting as of December 31, 2008,
based on criteria established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2009 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.

/s/ KPMG LLP

Houston, Texas

March 13, 2009



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Endeavour International Corporation

Consolidated Balance Sheets

(Amounts in thousands)



|                                                                                                                                             |  |              |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                             |  | December 31, |         
|                                                                                                                                             |  | 2008         |          |   | 2007 |  
|Assets                                                                                                                                       |  |              |          |   |      |   |          |  
|Current Assets:                                                                                                                              |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                    |  | $            | 38,156   |   |      | $ | 16,440   |  
|Restricted cash, related to rig commitments                                                                                                  |  |              | 20,739   |   |      |   | 22,000   |  
|Accounts receivable                                                                                                                          |  |              | 26,884   |   |      |   | 33,291   |  
|Prepaid expenses and other current assets                                                                                                    |  |              | 47,626   |   |      |   | 46,516   |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Current Assets                                                                                                                         |  |              | 133,405  |   |      |   | 118,247  |  
|Property and Equipment, Net                                                                                                                  |  |              | 312,957  |   |      |   | 335,023  |  
|Goodwill                                                                                                                                     |  |              | 281,943  |   |      |   | 283,324  |  
|Other Assets                                                                                                                                 |  |              | 9,165    |   |      |   | 11,029   |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Assets                                                                                                                                 |  | $            | 737,470  |   |      | $ | 747,623  |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Liabilities and Stockholders Equity                                                                                                         |  |              |          |   |      |   |          |  
|Current Liabilities:                                                                                                                         |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                             |  | $            | 42,348   |   |      | $ | 31,036   |  
|Current maturities of debt                                                                                                                   |  |              | 13,000   |   |      |   |         |  
|Accrued expenses and other                                                                                                                   |  |              | 55,155   |   |      |   | 50,013   |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Current Liabilities                                                                                                                    |  |              | 110,503  |   |      |   | 81,049   |  
|Long-Term Debt                                                                                                                               |  |              | 214,855  |   |      |   | 266,250  |  
|Deferred Taxes                                                                                                                               |  |              | 104,127  |   |      |   | 135,552  |  
|Other Liabilities                                                                                                                            |  |              | 65,014   |   |      |   | 69,623   |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Liabilities                                                                                                                            |  |              | 494,499  |   |      |   | 552,474  |  
|Commitments and Contingencies                                                                                                                |  |              |          |   |      |   |          |  
|Series C Convertible Preferred Stock (Liquidation preference: $125,000)                                                                      |  |              | 125,000  |   |      |   | 125,000  |  
|Stockholders Equity:                                                                                                                        |  |              |          |   |      |   |          |  
|Series B Preferred stock (Liquidation preference: $ 2,957) Common stock; shares issued and outstanding  128,572 at 2008 and 127,006 at
2007 |  |              | 129      |   |      |   | 127      |  
|Additional paid-in capital                                                                                                                   |  |              | 244,471  |   |      |   | 241,539  |  
|Treasury stock                                                                                                                               |  |              | (450     | ) |      |   |         |  
|Accumulated other comprehensive loss                                                                                                         |  |              | (1,266   | ) |      |   | (923     | )
|Accumulated deficit                                                                                                                          |  |              | (124,913 | ) |      |   | (170,594 | )
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Stockholders Equity                                                                                                                   |  |              | 117,971  |   |      |   | 70,149   |  
|                                                                                                                                             |  |              |          |   |      |   |          |  
|Total Liabilities and Stockholders Equity                                                                                                   |  | $            | 737,470  |   |      | $ | 747,623  |  
|                                                                                                                                             |  |              |          |   |      |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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Endeavour International Corporation

Consolidated Statements of Operations

(Amounts in thousands, except per share
data)



|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|----------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                      |  | For the Year Ended December 31, |        
|                                                      |  | 2008                            |         |   | 2007 |   |         | 2006 | 
|Revenues                                              |  | $                               | 260,441 |   |      | $ | 176,064 |      |  | $ | 54,131 |  
|Expenses:                                             |  |                                 |         |   |      |   |         |      |  |   |        |  
|Operating expenses                                    |  |                                 | 46,576  |   |      |   | 41,044  |      |  |   | 15,568 |  
|Depreciation, depletion and amortization              |  |                                 | 81,734  |   |      |   | 76,850  |      |  |   | 20,164 |  
|Impairment of oil and gas properties                  |  |                                 | 36,970  |   |      |   |        |      |  |   | 849    |  
|General and administrative                            |  |                                 | 19,636  |   |      |   | 19,878  |      |  |   | 21,924 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Total expenses                                        |  |                                 | 184,916 |   |      |   | 137,772 |      |  |   | 58,505 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Operating Profit (Loss)                               |  |                                 | 75,525  |   |      |   | 38,292  |      |  |   | (4,374 | )
|Other Income (Expense):                               |  |                                 |         |   |      |   |         |      |  |   |        |  
|Derivatives:                                          |  |                                 |         |   |      |   |         |      |  |   |        |  
|Unrealized gain (loss)                                |  |                                 | 76,666  |   |      |   | (89,132 | )    |  |   | 34,531 |  
|Realized gain (loss)                                  |  |                                 | (28,578 | ) |      |   | 12,048  |      |  |   |       |  
|Interest expense                                      |  |                                 | (22,548 | ) |      |   | (18,742 | )    |  |   | (7,941 | )
|Unrealized foreign currency exchange gain (loss)      |  |                                 | 11,169  |   |      |   | (1,432  | )    |  |   | (1,523 | )
|Other                                                 |  |                                 | 985     |   |      |   | 709     |      |  |   | (3,618 | )
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Total Other Income (Expense)                          |  |                                 | 37,694  |   |      |   | (96,549 | )    |  |   | 21,449 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Income (Loss) Before Income Taxes                     |  |                                 | 113,219 |   |      |   | (58,257 | )    |  |   | 17,075 |  
|Income Tax (Benefit) Expense                          |  |                                 | 56,729  |   |      |   | (9,180  | )    |  |   | 23,913 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Net Income (Loss)                                     |  |                                 | 56,490  |   |      |   | (49,077 | )    |  |   | (6,838 | )
|Preferred Stock Dividends                             |  |                                 | 10,809  |   |      |   | 11,238  |      |  |   | 1,991  |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Net Income (Loss) to Common Stockholders              |  | $                               | 45,681  |   |      | $ | (60,315 | )    |  | $ | (8,829 | )
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Net Income (Loss) Per Common Share:                   |  |                                 |         |   |      |   |         |      |  |   |        |  
|Basic                                                 |  | $                               | 0.36    |   |      | $ | (0.49   | )    |  | $ | (0.10  | )
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Diluted                                               |  | $                               | 0.32    |   |      | $ | (0.49   | )    |  | $ | (0.10  | )
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Weighted Average Number of Common Shares Outstanding: |  |                                 |         |   |      |   |         |      |  |   |        |  
|Basic                                                 |  |                                 | 128,312 |   |      |   | 123,118 |      |  |   | 86,636 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  
|Diluted                                               |  |                                 | 178,312 |   |      |   | 123,118 |      |  |   | 86,636 |  
|                                                      |  |                                 |         |   |      |   |         |      |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



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Endeavour International Corporation

Consolidated Statements of Cash Flows

(Amounts in thousands)



|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                          |  | Year Ended December 31, |         
|                                                                                          |  | 2008                    |          |   | 2007 |   |          | 2006 | 
|Cash Flows from Operating Activities:                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                         |  | $                       | 56,490   |   |      | $ | (49,077  | )    |  | $ | (6,838   | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation, depletion and amortization                                                  |  |                         | 81,734   |   |      |   | 76,850   |      |  |   | 20,164   |  
|Impairment of oil and gas properties                                                      |  |                         | 36,970   |   |      |   |         |      |  |   | 849      |  
|Deferred tax expense (benefit)                                                            |  |                         | 17,682   |   |      |   | (12,925  | )    |  |   | 13,038   |  
|Unrealized (gain) loss on derivative instruments                                          |  |                         | (76,666  | ) |      |   | 89,132   |      |  |   | (34,531  | )
|Amortization of non-cash compensation                                                     |  |                         | 3,226    |   |      |   | 4,968    |      |  |   | 11,573   |  
|Foreign currency exchange (gain) loss on non-operating liabilities                        |  |                         | (10,508  | ) |      |   | 1,078    |      |  |   | 1,012    |  
|Non-Cash interest charges and other                                                       |  |                         | 11,879   |   |      |   | 2,948    |      |  |   | 5,396    |  
|Changes in assets and liabilities:                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|(Increase) Decrease in receivables                                                        |  |                         | 9,795    |   |      |   | 30,127   |      |  |   | (32,165  | )
|(Increase) Decrease in prepaid expenses and other                                         |  |                         | (3,745   | ) |      |   | (984     | )    |  |   | (9,749   | )
|Increase (Decrease) in current liabilities                                                |  |                         | 6,323    |   |      |   | (13,611  | )    |  |   | 17,151   |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided by (Used in) Operating Activities                                       |  |                         | 133,180  |   |      |   | 128,506  |      |  |   | (14,100  | )
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows From Investing Activities:                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Capital expenditures                                                                      |  |                         | (66,370  | ) |      |   | (88,007  | )    |  |   | (55,496  | )
|Acquisitions, net of cash acquired                                                        |  |                         |         |   |      |   |         |      |  |   | (376,915 | )
|(Increase) decrease in restricted cash and other investing activities                     |  |                         | 1,519    |   |      |   | (20,133  | )    |  |   | 5,293    |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Used in Investing Activities                                                     |  |                         | (64,851  | ) |      |   | (108,140 | )    |  |   | (427,118 | )
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash Flows From Financing Activities:                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Repayment of borrowings                                                                   |  |                         | (120,000 | ) |      |   | (47,000  | )    |  |   |         |  
|Proceeds from borrowings                                                                  |  |                         | 88,000   |   |      |   | 7,000    |      |  |   | 225,000  |  
|Payment of preferred dividends                                                            |  |                         | (10,625  | ) |      |   | (2,656   | )    |  |   |         |  
|Financing costs paid                                                                      |  |                         | (3,538   | ) |      |   | (263     | )    |  |   | (9,565   | )
|Proceeds from common stock, net of issuance costs                                         |  |                         |         |   |      |   |         |      |  |   | 83,967   |  
|Proceeds from preferred stock, net of issuance costs                                      |  |                         |         |   |      |   |         |      |  |   | 100,657  |  
|Other financing activities                                                                |  |                         | (450     | ) |      |   | (821     | )    |  |   | 3,310    |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Cash Provided by (Used in) Financing Activities                                       |  |                         | (46,613  | ) |      |   | (43,740  | )    |  |   | 403,369  |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Net Increase (Decrease) in Cash and Cash Equivalents                                      |  |                         | 21,716   |   |      |   | (23,374  | )    |  |   | (37,849  | )
|Effect of Foreign Currency Changes on Cash                                                |  |                         |         |   |      |   |         |      |  |   | 1,536    |  
|Cash and Cash Equivalents, Beginning of Period                                            |  |                         | 16,440   |   |      |   | 39,814   |      |  |   | 76,127   |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and Cash Equivalents, End of Period                                                  |  | $                       | 38,156   |   |      | $ | 16,440   |      |  | $ | 39,814   |  
|                                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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Endeavour International Corporation

Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)

(Amounts in thousands)



|                                                          |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ----------- | --- | ------------- | - | ------------------------ |  | - | -------------------- | - |  | --------------------------------- | ------ | - | ------------------ | - | ------ | ------------------------ |  | - | ------------------------------- | - |  | - | ------- | - |  | - | ------- | -
|                                                          |  | CommonStock |     | TreasuryStock |   | AdditionalPaid-InCapital |  |   | DeferredCompensation |   |  | AccumulatedOtherComprehensiveLoss |        |   | AccumulatedDeficit |   |        | TotalStockholdersEquity |  |   | TotalComprehensiveIncome (Loss) |  
|Balance, December 31, 2005                                |  | $           | 75  |               | $ |                         |  | $ | 155,734              |   |  | $                                 | (9,437 | ) |                    | $ | (4,578 | )                        |  | $ | (101,450                        | ) |  | $ | 40,344  |   |  |   |         |  
|Adoption of stock-based compensation accounting standards |  |             |     |               |   |                         |  |   | (9,110               | ) |  |                                   | 9,437  |   |                    |   |       |                          |  |   |                                |   |  |   | 327     |   |  |   |         |  
|Issuance of common stock as deferred compensation         |  |             | 2   |               |   |                         |  |   | 473                  |   |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | 475     |   |  |   |         |  
|Exercise of warrants and options                          |  |             | 2   |               |   |                          |  |   | 3,308                |   |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | 3,310   |   |  |   |         |  
|Other issuances of common stock                           |  |             | 40  |               |   |                         |  |   | 89,353               |   |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | 89,393  |   |  |   |         |  
|Amortization of deferred compensation                     |  |             |    |               |   |                          |  |   | 11,573               |   |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | 11,573  |   |  |   |         |  
|Expenses related to Convertible Preferred Stock offering  |  |             |    |               |   |                         |  |   | (24,343              | ) |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | (24,343 | ) |  |   |         |  
|Preferred stock dividend                                  |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   |       |                          |  |   | (1,991                          | ) |  |   | (1,991  | ) |  |   |         |  
|Comprehensive Loss:                                       |  |             |     |               |   |                         |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Net Loss                                                  |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   |       |                          |  |   | (6,838                          | ) |  |   | (6,838  | ) |  | $ | (6,838  | )
|Other comprehensive income (net of tax):                  |  |             |     |               |   |                         |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Unrealized loss on derivative instruments, net of tax     |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   | 3,690  |                          |  |   |                                |   |  |   | 3,690   |   |  |   | 3,690   |  
|Unrealized gain (loss) on available-for- sale securities  |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   | 888    |                          |  |   |                                |   |  |   | 888     |   |  |   | 888     |  
|                                                          |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2006                                |  | $           | 119 |               | $ |                         |  | $ | 226,988              |   |  | $                                 |       |   |                    | $ |       |                          |  | $ | (110,279                        | ) |  | $ | 116,828 |   |  | $ | (2,260  | )
|                                                          |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2006                                |  | $           | 119 |               | $ |                         |  | $ | 226,988              |   |  | $                                 |       |   |                    | $ |       |                          |  | $ | (110,279                        | ) |  | $ | 116,828 |   |  |   |         |  
|Preferred stock dividend                                  |  |             | 6   |               |   |                         |  |   | 10,509               |   |  |                                   |       |   |                    |   |       |                          |  |   | (11,238                         | ) |  |   | (723    | ) |  |   |         |  
|Amortization of deferred compensation                     |  |             |    |               |   |                         |  |   | 4,975                |   |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | 4,975   |   |  |   |         |  
|Other                                                     |  |             | 2   |               |   |                         |  |   | (933                 | ) |  |                                   |       |   |                    |   |       |                          |  |   |                                |   |  |   | (931    | ) |  |   |         |  
|Comprehensive Loss:                                       |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Net Loss                                                  |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   |       |                          |  |   | (49,077                         | ) |  |   | (49,077 | ) |  | $ | (49,077 | )
|Other comprehensive income (net of tax):                  |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Unrealized loss on derivative instruments, net of tax     |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   | (852   | )                        |  |   |                                |   |  |   | (852    | ) |  |   | (852    | )
|Unrealized gain (loss) on available-for- sale securities  |  |             |    |               |   |                         |  |   |                     |   |  |                                   |       |   |                    |   | (71    | )                        |  |   |                                |   |  |   | (71     | ) |  |   | (71     | )
|                                                          |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2007                                |  | $           | 127 |               | $ |                         |  | $ | 241,539              |   |  | $                                 |       |   |                    | $ | (923   | )                        |  | $ | (170,594                        | ) |  | $ | 70,149  |   |  | $ | (50,000 | )
|                                                          |  |             |     |               |   |                          |  |   |                      |   |  |                                   |        |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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Endeavour International Corporation

Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)

(Amounts in thousands)



|                                                        |  |             |     |               |   |      |                          |  |   |                      |   |                                   |   |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |        |  
|------------------------------------------------------- |  | ----------- | --- | ------------- | - | ---- | ------------------------ |  | - | -------------------- | - | --------------------------------- | - | - | ------------------ | - | ------ | ------------------------ |  | - | ------------------------------- | - |  | - | ------- | - |  | - | ------ | -
|                                                        |  | CommonStock |     | TreasuryStock |   |      | AdditionalPaid-InCapital |  |   | DeferredCompensation |   | AccumulatedOtherComprehensiveLoss |   |   | AccumulatedDeficit |   |        | TotalStockholdersEquity |  |   | TotalComprehensiveIncome (Loss) |  
|Balance, December 31, 2007                              |  | $           | 127 |               | $ |     |                          |  | $ | 241,539              |   |                                   | $ |  |                    | $ | (923   | )                        |  | $ | (170,594                        | ) |  | $ | 70,149  |   |  |   |        |  
|Preferred stock dividend                                |  |             |    |               |   |     |                          |  |   |                     |   |                                   |   |  |                    |   |       |                          |  |   | (10,809                         | ) |  |   | (10,809 | ) |  |   |        |  
|Amortization of deferred compensation                   |  |             |    |               |   |     |                          |  |   | 3,226                |   |                                   |   |  |                    |   |        |                          |  |   |                                |   |  |   | 3,226   |   |  |   |        |  
|Treasury stock repurchase                               |  |             |    |               |   | (450 | )                        |  |   |                     |   |                                   |   |  |                    |   |       |                          |  |   |                                |   |  |   | (450    | ) |  |   |        |  
|Other                                                   |  |             | 1   |               |   |     |                          |  |   | (294                 | ) |                                   |   |  |                    |   |        |                          |  |   |                                 |   |  |   | (293    | ) |  |   |        |  
|Comprehensive Loss:                                     |  |             |     |               |   |      |                          |  |   |                      |   |                                   |   |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |        |  
|Net Income                                              |  |             |    |               |   |     |                          |  |   |                     |   |                                   |   |   |                    |   |       |                          |  |   | 56,490                          |   |  |   | 56,490  |   |  | $ | 56,490 |  
|Other comprehensive income (net of tax):                |  |             |     |               |   |      |                          |  |   |                      |   |                                   |   |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |        |  
|Unrealized loss on derivative instruments, net of tax   |  |             |    |               |   |     |                          |  |   |                     |   |                                   |   |  |                    |   | (342   | )                        |  |   |                                |   |  |   | (342    | ) |  |   | (342   | )
|Unrealized gain (loss) on available-for-sale securities |  |             |    |               |   |     |                          |  |   |                     |   |                                   |   |  |                    |   | (1     | )                        |  |   |                                |   |  |   | (1      | ) |  |   |        |  
|                                                        |  |             |     |               |   |      |                          |  |   |                      |   |                                   |   |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |        |  
|Balance, December 31, 2008                              |  | $           | 128 |               | $ | (450 | )                        |  | $ | 244,471              |   |                                   | $ |  |                    | $ | (1,266 | )                        |  | $ | (124,913                        | ) |  | $ | 117,970 |   |  | $ | 56,148 |  
|                                                        |  |             |     |               |   |      |                          |  |   |                      |   |                                   |   |   |                    |   |        |                          |  |   |                                 |   |  |   |         |   |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per
unit data)

Note 1Description of Business

Endeavour International Corporation was incorporated under the laws of the state of Nevada on January 13, 2000. As used in these Notes to Consolidated Financial Statements, the terms Endeavour, we,
us, our and similar terms refer to Endeavour International Corporation and, unless the context indicates otherwise, its consolidated subsidiaries.

Note 2Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted
in the United States of America (US GAAP) and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These accounting principles
require management to use estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Management reviews its
estimates, including those related to the determination of proved reserves, estimates of future dismantlement costs, income taxes and litigation. Actual results could differ from those estimates. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been included in these financial statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.

Management believes it is reasonably possible that the following material estimates affecting the financial statements could change in the coming year:
(1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, (3) estimates of future dismantlement and restoration costs, (4) estimates of fair values used in
purchase accounting and (5) estimates of the fair value of derivative instruments.

Principles of Consolidation

The accompanying consolidated financial statements include all of the accounts of Endeavour and our consolidated subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in entities over which we have significant influence, but not control, are carried at cost adjusted for equity in earnings or (losses) and distributions received.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Cash and Cash Equivalents

We consider all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

Inventories

Materials and supplies and oil inventories are valued at the lower of cost or market value (net realizable value).

Full Cost Accounting for Oil and Gas Operations

Under the full
cost method, all acquisition, exploration and development costs, including certain directly related employee costs and a portion of interest expense, incurred for the purpose of finding oil and gas are capitalized and accumulated in pools on a
countrybycountry basis. Capitalized costs include the cost of drilling and equipping productive wells, including the estimated costs of dismantling and abandoning these assets, dry hole costs, lease acquisition costs, seismic and other
geological and geophysical costs, delay rentals and costs related to such activities. Employee costs associated with production and other operating activities and general corporate activities are expensed in the period incurred.

Capitalized costs are limited on a country-by-country basis (the ceiling test). The ceiling test limitation is calculated as the sum of the present value of future net
cash flows related to estimated production of proved reserves, using end-of-the-current-period prices including the effect of derivative instruments that qualify as cash flow hedges, discounted at 10%, plus the lower of cost or estimated fair value
of unproved properties, all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the full cost pool, net of deferred taxes, exceeds the ceiling limitation, the excess is charged as an impairment expense.

We utilize a single cost center for each country where we have operations for amortization purposes. Any conveyances of properties are treated as adjustments to the
cost of oil and gas properties with no gain or loss recognized unless the operations are suspended in the entire cost center or the conveyance is significant in nature.

Unproved property costs include the costs associated with unevaluated properties and properties under development and are not initially included in the full cost amortization base (where proved reserves exist) until
the project is evaluated. These costs include unproved leasehold acreage, seismic data, wells and production facilities in progress and wells pending determination, together with interest costs capitalized for these projects. Seismic data costs are
associated with specific unevaluated properties where the seismic data is acquired for the purpose of evaluating acreage or trends covered by a leasehold interest owned by us. Significant unproved properties are assessed periodically for possible
impairment or reduction in value. If a reduction in value has occurred, these property costs are considered impaired and are transferred to the related full cost pool. Geological and geophysical costs included in



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



unproved properties are transferred to the full cost amortization base along with the associated leasehold costs on a specific project basis. Costs
associated with wells in progress and wells pending determination are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry holes are transferred to the
amortization base immediately upon determination that the well is unsuccessful. Unproved properties whose acquisition costs are not individually significant are aggregated, the portion of such costs estimated to be ultimately nonproductive, based on
experience, are amortized to the full cost pool over an average holding period.

In countries where the existence of proved reserves has not yet been
determined, unevaluated property costs remain capitalized in unproved property cost centers until proved reserves have been established, exploration activities cease or impairment and reduction in value occurs. If exploration activities result in
the establishment of a proved reserve base, amounts in the unproved property cost center are reclassified as proved properties and become subject to amortization and the application of the ceiling test. When it is determined that the value of
unproved property costs have been permanently diminished (in part or in whole) based on the impairment evaluation and future exploration plans, the unproved property cost centers related to the area of interest are impaired, and accumulated costs
charged against earnings.

Other Property and Equipment

Other oil and gas assets, computer equipment and furniture and fixtures are recorded at cost, less accumulated depreciation. The assets are depreciated using the straight-line method over their estimated useful lives of two to five years.

Capitalized Interest

We capitalize interest on
expenditures for significant exploration and development projects while activities are in progress to bring the assets to their intended use. Capitalized interest is calculated by multiplying our weighted-average interest rate on debt by the amount
of qualifying costs and is limited to gross interest expense. As costs are transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool.

Marketable Securities

The marketable securities reflected in these
financial statements are deemed by management to be available-for-sale and, accordingly, are reported at fair value, with unrealized gains and losses reported in other comprehensive income and reflected as a separate component within the
Statement of Stockholders Equity unless we determine that an other-than-temporary impairment has occurred. Realized gains and losses on securities available-for-sale are included in other income/expense and, when applicable, are reported as a
reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



At December 31, 2006, we determined that our investment in equity securities were subject to an
other-than-temporary impairment. Therefore, we recorded an impairment of $1.8 million for 2006 as we impaired the value of the equity securities to the fair market value of the securities, based on the quoted market price of the securities at
December 31, 2006.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in an acquisition. Intangible assets represent the purchase price allocation to the assembled workforce as a
result of the acquisition in 2004. We assess the carrying amount of goodwill and other indefinite-lived intangible assets by testing the asset for impairment annually at year-end, or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The impairment test requires allocating goodwill and all other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit. An
impairment loss is recognized to the extent that the carrying amount exceeds the assets fair value.

Dismantlement, Restoration and Environmental
Costs

We recognize liabilities for asset retirement obligations associated with tangible long-lived assets, such as producing well sites, offshore
production platforms, and natural gas processing plants, with a corresponding increase in the related long-lived asset. The asset retirement cost is depreciated along with the property and equipment in the full cost pool. The asset retirement
obligation is recorded at fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation changes, an adjustment is
recorded for both the asset retirement obligation and the asset retirement cost.

Revenue Recognition

We use the entitlements method to account for sales of gas production. We may receive more or less than our entitled share of production. Under the entitlements method,
if we receive more than our entitled share of production, the imbalance is treated as a liability at the market price at the time the imbalance occurred. If we receive less than our entitled share, the imbalance is recorded as an asset at the lower
of the current market price or the market price at the time the imbalance occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title has transferred and
collectibility of the revenue is probable.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Significant Customers

Our oil sales are to a limited number of customers, each of which accounts for more than 10% of revenue: Chevron North Sea Ltd;Shell U.K. Limited, and Esso Exploration and Production. Our gas and natural gas liquids sales are to
StatoilHydro, Shell UK Limited and Esso Exploration and Production UK Limited.

Derivative Instruments and Hedging Activities

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We may use
derivative financial instruments with respect to a portion of our oil and gas production or a portion of our variable rate debt to achieve a more predictable cash flow by reducing our exposure to price fluctuations. These transactions are likely to
be swaps, collars or options and to be entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural
gas that we produce and sell, to increases in interest rates and to manage cash flows in support of our annual capital expenditure budget. We also have two embedded derivatives related to our debt instruments.

We record all derivatives at fair market value in our Consolidated Balance Sheets at the end of each period. The accounting for the fair market value, and the changes
from period to period, depends on the intended use of the derivative and the resulting designation. This evaluation is determined at each derivatives inception and begins with the decision to account for the derivative as a hedge, if
applicable. The accounting for changes in the fair value of a derivative instrument that is not accounted for as a hedge is included in other (income) expense as an unrealized gain or loss. Where we intend to account for a derivative as a hedge, we
document, at its inception, the hedging relationship, the risk management objective and the strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of
the risk being hedged, and the method that will be used to assess effectiveness of derivative instruments that receive hedge accounting treatment.

Changes
in fair value to hedge instruments, to the extent the hedge is effective, are recognized in other comprehensive income until the forecasted transaction occurs. Hedge effectiveness is assessed at least quarterly based on total changes in the
derivatives fair value. Any ineffective portion of the derivative instruments change in fair value is recognized immediately in other (income) expense.

We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or
forecasted transactions); (2) the derivative expires; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management
determines that designating the derivative as a hedging instrument is no longer appropriate.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Concentrations of Credit and Market Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, we may exceed the federally insured
limits. To mitigate this risk, we place our cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal.

Derivative financial instruments that hedge the price of oil and gas, interest rates or currency exposure will be generally executed with major financial or commodities trading institutions which expose us to market and credit risks, and
may at times be concentrated with certain counterparties or groups of counterparties. Although notional amounts are used to express the volume of these contracts, the amounts potentially subject to credit risk, in the event of nonperformance
by the counterparties, are substantially smaller. We review the credit ratings of our counterparties to derivative contracts (who are all lenders under our senior bank facility) on a regular basis and to date we have not experienced any
non-performance by any of our counterparties, currently BNP Paribas S.A. and J. Aron & Company, a subsidiary of Goldman Sachs International. At December 31, 2008, our derivative instruments do not require either side to maintain
collateral or margin accounts.

As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent
upon prevailing prices for oil and gas, which are dependent upon numerous factors beyond our control, such as economic, political and regulatory developments and competition from other sources of energy. The energy markets have historically been
very volatile, and there can be no assurance that oil and gas prices will not be subject to wide fluctuations in the future. A substantial or extended decline in oil and gas prices could have a material adverse effect on our financial position,
results of operations, cash flows and our access to capital and on the quantities of oil and gas reserves that may be economically produced.

Foreign
Currency Translation

The U.S. dollar is the functional currency for all of our existing operations, as a majority of all revenue and financing
transactions in these operations are denominated in U.S. dollars. For foreign operations with the U.S. dollar as the functional currency, monetary assets and liabilities are remeasured into U.S. dollars at the exchange rate on the balance sheet
date. Nonmonetary assets and liabilities are translated into U.S. dollars at historical exchange rates. Income and expense items are translated at exchange rates prevailing during each period. Adjustments are recognized currently as a component of
foreign currency gain or loss and deferred income taxes. To the extent that business transactions are not denominated in U.S. dollars, we are exposed to foreign currency exchange rate risk.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Income Taxes

We
use the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

Share-Based Payments

We recognize all share-based payments to employees, including grants of employee stock options, based on their fair values. The share-based
compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as general and administrative expense over the employees requisite service period (generally the vesting period of the equity
award). We apply the fair value method in accounting for stock option grants using the Black-Scholes Method.

It is our policy to use authorized but
unissued shares of stock when stock options are exercised. At December 31, 2008, we had approximately 7.7 million additional shares available for issuance pursuant to our existing stock incentive plan.

Adoption of Accounting for Uncertainty in Income Taxes

In July 2006,
the Financial Accounting Standards Board issued a new interpretation that seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. This new interpretation also provides
guidance on classification, derecognition, interest, penalties and accounting in interim periods and also requires expanded disclosure with respect to the uncertainty in income taxes. The interpretation was effective for us as of January 1,
2007. Our adoption of this standard on January 1, 2007 did not have a material effect on our financial statements. We recognize interest and/or penalties related to income tax matters in income tax expense.

Adoption of Fair Value Standards

On January 1, 2008, we applied
the new standard that permits entities to choose to measure many financial instruments and certain other items at fair value. This standard expanded the use of fair value measurement and applied to entities that elect the fair value option. The
adoption of this pronouncement did not have a material impact on our financial position or results of operations.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



On January 1, 2008, we applied the new standards which defined fair value, established a framework for measuring
fair value in generally accepted accounting principles and expanded disclosures about fair value measurements. The new standards does not require new fair value measurements, rather, its provisions apply when fair value measurements are performed
under other accounting pronouncements.

In February 2008, the standard was deferred for one year as it applies to nonfinancial assets and liabilities that
are recognized or disclosed at fair value on a nonrecurring basis (e.g. those measured at fair value in a business combination and goodwill impairment). We are reviewing the potential impact, if any, of this new guidance.

Recent Accounting Pronouncements

In December 2007, the FASB issued
enhanced guidance related to the measurement of identifiable assets acquired, liabilities assumed and disclosure of information related to business combinations and their effect. The standard applies prospectively to business combinations in 2009
and is not subject to early adoption. We are currently evaluating the potential impact of this new guidance on business combinations and related valuations.

In December 2007, the FASB issued a new standard for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority
interest) as a component of consolidated equity. This is a change from the current practice to present noncontrolling interests in liabilities or between liabilities and stockholders equity. Similarly, the new standard requires consolidated
net income and comprehensive income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interests. The standard is effective prospectively with respect to transactions involving noncontrolling
financial interests that occur on or after January 1, 2009. We are currently evaluating the potential impact, if any, of this new guidance.

In March
2008, the FASB issued a new standard that requires entities to present expanded and detailed financial statement disclosures for their derivatives and hedged financial instruments. This standard applies to all derivatives and non-derivative
instruments designated and qualifying as hedges, including bifurcated derivative instruments and related hedged items. The new standard is effective for interim periods and fiscal years beginning after November 15, 2008. We do not expect the
adoption of this pronouncement to have a material impact on our financial position or results of operations.

In May 2008, the FASB posted a new staff
position that applies to convertible debt that may be settled in part or in whole in cash upon conversion. The new staff position requires required issuers of this form of debt to account for its debt and equity components separately. The new
position also expands the definition of convertible preferred shares of an entitys stock that are mandatorily redeemable



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



financial instruments classified as liabilities. The new FASB staff position is effective for financial statements issued for fiscal years after
December 15, 2008 and interim period within those fiscal years. It must be applied retroactively to all presented periods. We are currently evaluating the potential impact, if any, of this new guidance.

In June 2008, the FASB issued a new staff position that addresses whether instruments that are granted in share-based payment transactions are participating securities
prior to vesting; and therefore are required to be included in the earnings allocation in the calculation of earnings per share (EPS) under the two-class method as described in a prior FASB standard. The new staff position requires entities to treat
unvested share-based payment awards with non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating EPS. The new staff position is effective for fiscal years beginning after December 15, 2008. We
are currently evaluating the potential impact, if any, of this new guidance.

Note 3  Earnings per Share

Basic loss per common share is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding for the period. Diluted
loss per share includes the effect of our outstanding stock options, warrants and shares issuable pursuant to convertible debt, convertible preferred stock and certain stock incentive plans under the treasury stock method, if including such
instruments is dilutive.



|                                                      |  |              |         |      |   |         |      |  |   |        |  
|----------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | ---- |  | - | ------ | -
|                                                      |  | December 31, |        
|                                                      |  | 2008         |         | 2007 |   |         | 2006 | 
|Net income (loss) to common stockholders              |  |              |         |      |   |         |      |  |   |        |  
|Basic                                                 |  | $            | 45,681  |      | $ | (60,315 | )    |  | $ | (8,829 | )
|Add Effect of:                                        |  |              |         |      |   |         |      |  |   |        |  
|Preferred dividends                                   |  |              | 10,625  |      |   |        |      |  |   |       |  
|                                                      |  |              |         |      |   |         |      |  |   |        |  
|Diluted                                               |  | $            | 56,306  |      | $ | (60,315 | )    |  | $ | (8,829 | )
|                                                      |  |              |         |      |   |         |      |  |   |        |  
|Weighted Average Number of Common Shares Outstanding: |  |              |         |      |   |         |      |  |   |        |  
|Basic                                                 |  |              | 128,312 |      |   | 123,118 |      |  |   | 86,636 |  
|Add Effect of:                                        |  |              |         |      |   |        |      |  |   |       |  
|Preferred stock                                       |  |              | 50,000  |      |   |        |      |  |   |       |  
|                                                      |  |              |         |      |   |         |      |  |   |        |  
|Diluted                                               |  |              | 178,312 |      |   | 123,118 |      |  |   | 86,636 |  
|                                                      |  |              |         |      |   |         |      |  |   |        |  

For each of the periods presented, shares associated with stock options, warrants, convertible debt, convertible
preferred stock and certain stock incentive plans are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share). The common shares potentially issuable arising from these instruments, which were outstanding
during the periods presented in the financial statements, consisted of:



|                                     |  |              |  |        |  |       
|------------------------------------ |  | ------------ |  | ------ |  | ------
|                                     |  | December 31,
|                                     |  | 2008         |  | 2007   |  | 2006  
|Options and stock-based compensation |  | 2            |  |       |  | 626   
|Warrants                             |  |             |  |       |  | 219   
|Convertible debt                     |  | 32,725       |  | 16,185 |  | 16,185
|Convertible preferred stock          |  |             |  | 50,000 |  | 8,356 
|                                     |  |              |  |        |  |       
|Common shares potentially issuable   |  | 32,727       |  | 66,185 |  | 25,386
|                                     |  |              |  |        |  |       



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 4  Acquisitions and Dispositions

Acquisition of Talisman Expro Limited

On November 1, 2006, we completed the acquisition of all of the
outstanding shares of Talisman Expro Limited for US $366 million, after purchase price adjustments and expenses (the Talisman Acquisition). As a result of the Talisman Acquisition, we acquired interests in eight fields in the United
Kingdom sector of the North Sea.

The following is an allocation of the purchase price of the Talisman Acquisition:



|                                            |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|Purchase price                              |  | $ | 359,594 |  
|Legal, accounting and other direct expenses |  |   | 6,051   |  
|                                            |  |   |         |  
|Total purchase price                        |  | $ | 365,645 |  
|                                            |  |   |         |  
|Allocation of purchase price:               |  |   |         |  
|Current assets                              |  | $ | 30,373  |  
|Property and equipment                      |  |   | 209,534 |  
|Goodwill                                    |  |   | 254,147 |  
|Current liabilities                         |  |   | (14,345 | )
|Deferred tax liability                      |  |   | (89,175 | )
|Other long-term liabilities                 |  |   | (24,889 | )
|                                            |  |   |         |  
|                                            |  | $ | 365,645 |  
|                                            |  |   |         |  

The purchase price allocation is based on an assessment of the fair value of the assets acquired and liabilities
assumed in the Talisman Acquisition. The assessment of the fair values of oil and gas properties acquired was based on projections of expected future net cash flows, discounted to present value. Other assets and liabilities were recorded at their
historical book values which we believe represent the best current estimate of fair value.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



The following is a reconciliation of the changes in goodwill for the year ended December 31, 2008 and 2007:



|                             |  |              |         |      |   |         |  
|---------------------------- |  | ------------ | ------- | ---- | - | ------- | -
|                             |  | December 31, |        
|                             |  | 2008         |         | 2007 |  
|Balance at beginning of year |  | $            | 283,324 |      | $ | 291,752 |  
|Acquisition                  |  |              | 1,225   |      |   | (8,428  | )
|                             |  |              |         |      |   |         |  
|Balance at end of year       |  | $            | 284,549 |      | $ | 283,324 |  
|                             |  |              |         |      |   |         |  

Purchase of Interest in Enoch Field

During the second quarter of 2006, we invested $12 million for the purchase of an eight percent interest in the Enoch Field located in Block 16/13a in the North Sea.

Note 5Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:



|                                                     |  |              |        |      |   |       
|---------------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                                     |  | December 31,
|                                                     |  | 2008         |        | 2007
|Current deferred tax asset                           |  | $            |       |      | $ | 30,167
|Fair market value of commodity derivatives  current |  |              | 31,649 |      |   | 4,018 
|Prepaid insurance                                    |  |              | 1,322  |      |   | 1,255 
|Inventory                                            |  |              | 5,469  |      |   | 1,594 
|Current tax receivable                               |  |              |       |      |   | 4,083 
|Other                                                |  |              | 9,186  |      |   | 5,399 
|                                                     |  |              |        |      |   |       
|                                                     |  | $            | 47,626 |      | $ | 46,516
|                                                     |  |              |        |      |   |       



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 6Property and Equipment

Property and equipment included the following:



|                                                     |  |              |          |   |      |   |          |  
|---------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                     |  | December 31, |         
|                                                     |  | 2008         |          |   | 2007 |  
|Oil and gas properties under the full cost method:   |  |              |          |   |      |   |          |  
|Subject to amortization                              |  | $            | 298,890  |   |      | $ | 298,765  |  
|Not subject to amortization:                         |  |              |          |   |      |   |          |  
|Acquired in 2008                                     |  |              | 60,481   |   |      |   |         |  
|Acquired in 2007                                     |  |              | 24,474   |   |      |   | 31,992   |  
|Acquired in 2006                                     |  |              | 71,952   |   |      |   | 97,922   |  
|Acquired prior to 2006                               |  |              | 25,716   |   |      |   | 27,615   |  
|                                                     |  |              |          |   |      |   |          |  
|                                                     |  |              | 481,513  |   |      |   | 456,294  |  
|Other oil and gas activities                         |  |              | 4,875    |   |      |   | 4,875    |  
|Computers, furniture and fixtures                    |  |              | 4,652    |   |      |   | 2,634    |  
|                                                     |  |              |          |   |      |   |          |  
|Total property and equipment                         |  |              | 491,040  |   |      |   | 463,803  |  
|Accumulated depreciation, depletion and amortization |  |              | (178,083 | ) |      |   | (128,780 | )
|                                                     |  |              |          |   |      |   |          |  
|Net property and equipment                           |  | $            | 312,957  |   |      | $ | 335,023  |  
|                                                     |  |              |          |   |      |   |          |  

The majority of costs not subject to amortization relate to values assigned to unproved reserves acquired. The
remainder of costs not subject to amortization relate to exploration costs such as drilling costs for projects awaiting approved development plan or the determination of whether or not proved reserves can be assigned and other seismic and geological
and geophysical costs. These costs are transferred to the amortization base when it is determined whether or not proved reserves can be assigned to such properties. This analysis is dependent upon well performance, results of infield drilling,
approval of development plans, drilling results and development of identified projects and periodic assessment of reserves. We expect acquisition costs excluded from amortization to be transferred to the amortization base over the next five years
due to a combination of well performance and results of infield drilling relating to currently producing assets and the drilling and development of identified projects acquired, such as the Rochelle field. We expect exploration costs not subject to
amortization to be transferred to the amortization base over the next three years as development plans are completed and production commences on existing discoveries such as the Columbus, Cygnus and Rochelle projects.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



The following is a summary of our oil and gas properties not subject to amortization as of December 31, 2008:



|                                                         |  |                                               |        |      |   |        |  |              |        |       |   |        |  |   |        
|-------------------------------------------------------- |  | --------------------------------------------- | ------ | ---- | - | ------ |  | ------------ | ------ | ----- | - | ------ |  | - | -------
|                                                         |  | Costs Incurred in the Year Ended December 31,
|                                                         |  | 2008                                          |        | 2007 |   | 2006   |  | Prior to2006 |        | Total
|Acquisition costs                                        |  | $                                             | 803    |      | $ |       |  | $            | 48,816 |       | $ | 3,639  |  | $ | 53,258 
|Exploration costs                                        |  |                                               | 55,447 |      |   | 20,401 |  |              | 23,136 |       |   | 22,077 |  |   | 121,061
|Capitalized interest                                     |  |                                               | 4,231  |      |   | 4,073  |  |              |       |       |   |       |  |   | 8,304  
|                                                         |  |                                               |        |      |   |        |  |              |        |       |   |        |  |   |        
|Total oil and gas properties not subject to amortization |  | $                                             | 60,481 |      | $ | 24,474 |  | $            | 71,952 |       | $ | 25,716 |  | $ | 182,623
|                                                         |  |                                               |        |      |   |        |  |              |        |       |   |        |  |   |        

During 2008, 2007 and 2006, we capitalized $9.3 million, $8.6 million and $10.9 million, respectively, in certain
directly related employee costs. During 2008, 2007 and 2006, we capitalized $4.4 million, $7.2 million and $1.2 million, respectively, in interest.

Note 7  Other Assets

Other long-term assets consisted of the following at December 31:



|                                                                |  |      |        |   |      |   |        |  
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                |  | 2008 |        |   | 2007 |  
|Intangible assets  workforce in place:                         |  |      |        |   |      |   |        |  
|Gross                                                           |  | $    | 4,800  |   |      | $ | 4,800  |  
|Accumulated amortization                                        |  |      | (3,363 | ) |      |   | (2,806 | )
|                                                                |  |      |        |   |      |   |        |  
|                                                                |  |      | 1,437  |   |      |   | 1,994  |  
|Debt issuance costs                                             |  |      | 5,714  |   |      |   | 6,857  |  
|Fair market value of long-term portion of commodity derivatives |  |      | 1,702  |   |      |   | 1,957  |  
|Other                                                           |  |      | 312    |   |      |   | 221    |  
|                                                                |  |      |        |   |      |   |        |  
|                                                                |  | $    | 9,165  |   |      | $ | 11,029 |  
|                                                                |  |      |        |   |      |   |        |  

Intangible assets represent the purchase price allocated to the assembled workforce as a result an acquisition.
During 2006, one of our co-chief executive officers became chairman of the board, president and chief executive officer. Concurrently, our other co-chief executive officer became vice chairman of the board and ceased being our employee although he
continued in a consultancy role during 2007. As a result, we assessed the carrying amount of the intangible asset related to our workforce-in-place and determined an impairment of $1.2 million, included in DD&A expense, was necessary. The
remaining value of the intangible asset is being amortized over its estimated life of six years using the straight-line method. Estimated amortization expense is $0.6 million for each year through December 31, 2010.

Debt issuance costs are amortized over the life of the related debt obligation.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 8Accrued Expenses

We had the following accrued expenses outstanding:



|                               |  |              |        |      |   |       
|------------------------------ |  | ------------ | ------ | ---- | - | ------
|                               |  | December 31,
|                               |  | 2008         |        | 2007
|Derivative liability           |  | $            | 1,193  |      | $ | 22,495
|Foreign taxes payable          |  |              | 21,627 |      |   | 12,509
|Deferred foreign taxes payable |  |              | 15,825 |      |   |      
|Accrued interest               |  |              | 30     |      |   | 4,751 
|Preferred dividends            |  |              | 1,011  |      |   | 828   
|Accrued compensation           |  |              | 2,135  |      |   | 754   
|Crude oil imbalance            |  |              | 8,954  |      |   |      
|Other                          |  |              | 4,380  |      |   | 8,676 
|                               |  |              |        |      |   |       
|                               |  | $            | 55,155 |      | $ | 50,013
|                               |  |              |        |      |   |       

Note 9  Debt and Notes Payable

Our debt and notes payable consisted of the following:



|                                               |  |              |         |   |      |   |        
|---------------------------------------------- |  | ------------ | ------- | - | ---- | - | -------
|                                               |  | December 31,
|                                               |  | 2008         |         |   | 2007
|Senior notes, 6% fixed rate, due 2012          |  | $            | 81,250  |   |      | $ | 81,250 
|Senior bank facility, variable rate, due 2011  |  |              | 113,000 |   |      |   | 110,000
|Convertible bonds, due 2014                    |  |              | 44,496  |   |      |   |       
|Second lien term loan, variable rate, due 2011 |  |              |        |   |      |   | 75,000 
|                                               |  |              |         |   |      |   |        
|                                               |  |              | 238,746 |   |      |   | 266,250
|Less: debt discount                            |  |              | (10,891 | ) |      |   |       
|Less: current maturities                       |  |              | (13,000 | ) |      |   |       
|                                               |  |              |         |   |      |   |        
|Long-term debt                                 |  | $            | 214,855 |   |      | $ | 266,250
|                                               |  |              |         |   |      |   |        

Principal maturities of debt at December 31, 2008 are as follows:



|           |  |   |        
|---------- |  | - | -------
|2009       |  | $ | 13,000 
|2010       |  |   |       
|2011       |  |   | 100,000
|2012       |  |   | 125,746
|2013       |  |   |       
|Thereafter |  |   |       



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



6% Senior notes, due 2012

During 2005, we issued in a private offering $81.25 million aggregate principal amount of convertible senior notes due 2012. The notes bear interest at a rate of 6.00% per annum, payable in January and July. The notes are convertible
into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal amount of notes, subject to adjustment, which represents an initial conversion price of approximately $5.02 per share. In
connection with the issuance of these notes, we paid $3.6 million in financing and other costs. Upon specified change of control events, each holder of those notes may require us to purchase all or a portion of the holders notes at a price
equal to 100% of the principal amount, plus accrued and unpaid interest, if any, up to but excluding the date of purchase.

Senior bank facility

As part of the financing for the Talisman Acquisition during the fourth quarter of 2006, we entered into a $225 million senior bank facility, subject to a
borrowing base limitation. The borrowing base is subject to redetermination every six months with an independent reserve report required every 12 months. At December 31, 2008, the borrowing base capacity was $126 million, of which $113 million
was outstanding. The senior bank facility also provides for issuances of letters of credit of up to an aggregate $60 million. While all letters of credit issued under the senior bank facility will reduce the total amount available for drawing under
the senior bank facility, letters of credit issued to secure abandonment liabilities in respect of borrowing base assets will not reduce the amount available under the borrowing base. As of December 31, 2008, we have $30.1 million of
outstanding letters of credit related to abandonment liabilities on certain of our oil and gas properties.

Indebtedness under the facility will be secured
by cross guarantees from all of our subsidiaries, share pledges from all of our subsidiaries, floating charges over the operating assets held in the United Kingdom and a receivables pledge in Norway. Our borrowings under the senior bank facility
will bear interest at LIBOR plus 1.3% for the first $112 million of availability, and LIBOR plus 1.7% for up to an additional $14 million of availability.

The senior bank facility contains customary covenants, which limit our ability to incur indebtedness, pledge our assets, dispose of our assets and make exploration and appraisal expenditures. In addition, the senior bank facility contains
various financial and technical covenants, including:



| |  |  | a maximum consolidated debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.0:1;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | a minimum current assets to current liabilities ratio of 1.1:1;
| | - |  | ---------------------------------------------------------------



| |  |  | a minimum debt coverage ratio of 1.2:1 for the initial tranche and 1.15:1 for the second tranche;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | a minimum field life net present value (NPV) to loans outstanding coverage ratio of 1.4:1 for the period through March 31, 2009 and 1.5:1
thereafter for the initial tranche, and 1.25:1 for the period through March 31, 2009 and 1.3:1 thereafter for the second tranche; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



| |  |  | a minimum loan life NPV to loans outstanding coverage ratio of 1.2:1 for the period through March 31, 2009 and 1.3:1 thereafter for the initial tranche, and
1.15:1 for the period through March 31, 2009 and 1.2:1 thereafter for the second tranche.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The final maturity is the earlier of five
years or the reserve tail date, being the date when the remaining borrowing base reserves are projected to be 20% or less of the initially approved borrowing base reserves. The senior bank facility is subject to mandatory prepayment in the event of
a change of control of any obligor under the senior bank facility agreement. It is prepayable at our option at any time without penalty.

At December 31,
2008, we had $113 million outstanding under our senior bank facility. The senior bank facility has a current borrowing base capacity of $126 million, which is secured by our oil and gas assets. The borrowing base is subject to redetermination every
six months (on April 1 and October 1), and we are required to provide our lenders with an independent reserve report every 12 months. Based on our reserve report at December 31 and June 30 each year, commodity prices set by our lenders and terms set
forth in the credit agreement, the maximum capacity of our borrowing base is set, and any amounts outstanding over the redetermined borrowing base must be repaid within 45 days of the redetermination date. The senior bank facility is also subject to
maximum commitment levels by the participating lenders that change over time.

We have reflected $13 million in current maturities of long-term debt at
December 31, 2008 due to the borrowing base capacity and maximum commitment levels. The next scheduled redetermination of our borrowing base will occur on April 1, 2009. We are currently undergoing the redetermination process based on our reserve
report as of December 31, 2008. We cannot estimate the level of the borrowing base capacity that will be in effect as of April 1, 2009 although we do expect the borrowing base capacity to decrease given the decline in commodity prices during 2008.

Second lien term loan

As part of the financing for
the Talisman Acquisition during the fourth quarter of 2006, we entered into a $75 million second lien term loan. In January 2008, we terminated our obligations under this loan and repaid all of our outstanding indebtedness, including accrued
interest and related fees.

Convertible Bonds

In
January 2008, we issued 11.5% Convertible Bonds due 2014 (the Convertible Bonds) for gross proceeds of $40 million pursuant to a private offering to a sophisticated investor in Norway. The net proceeds from the issuance of the
Convertible Bonds was used to repay a portion of our outstanding indebtedness. The $40 million Convertible Bonds bear interest at a rate of 11.5% per annum, compounded quarterly, and are unconditionally guaranteed by us on a senior unsecured
basis. Interest is compounded quarterly and added to the outstanding principal balance each quarter. Interest is not payable in cash, but is instead payable in kind upon maturity of the bonds. The bonds are convertible into shares of our common
stock at an initial conversion price of $2.36 per $1,000 of principal. The conversion price will be adjusted in accordance with the terms of the bonds upon occurrence of certain events, including payment of common stock dividends, common stock
splits or issuance of common stock at a price below the then current market price.

Upon the fourth anniversary, the holders have the right to redeem the
Convertible Bonds if the weighted average closing price of our common stock for the preceding 30 days is less than the conversion price, as adjusted. If the holders do not exercise this right, the right will lapse and the conversion price will be
reset to the then current market price of our common stock if such price is lower than the conversion price, as adjusted.

If we undergo a change of
control as defined, the holders of the bonds have the right, subject to certain conditions, to redeem the bonds and accrued interest. The bonds may become immediately due upon the occurrence of certain events of default, as defined.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Two derivatives are associated with the conversion and change in control features of the Convertible Bonds. At
December 31, 2008, the combined fair market value of these derivatives is $14.6 million, reflecting a $0.7 million decrease during 2008 that was recorded in unrealized gains (losses) on derivatives.

Note 10Income Taxes

The loss before income
taxes and the components of the income tax expense recognized on the Consolidated Statement of Income are as follows:



|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|--------------------------------------------------- |  | -- | ------- | - | ------ | - | ------- | ---- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                                    |  | UK |         |   | Norway |   |         | U.S. |  |   | Other   |   |  | Total |       
|Year Ended December 31, 2008                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | 66,129  |   |        | $ | 59,587  |      |  | $ | (8,312  | ) |  | $     | (4,185 | ) |  | $ | 113,219 |  
|Current tax expense                                 |  |    | 11,158  |   |        |   | 27,879  |      |  |   |        |   |  |       | 10     |   |  |   | 39,047  |  
|Deferred tax expense                                |  |    | 22,673  |   |        |   | 15,415  |      |  |   |        |   |  |       | 303    |   |  |   | 38,391  |  
|Foreign currency gains on deferred tax liabilities  |  |    | (10,028 | ) |        |   | (10,681 | )    |  |   |        |   |  |       |        |   |  |   | (20,709 | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax expense                                   |  |    | 23,803  |   |        |   | 32,613  |      |  |   |        |   |  |       | 313    |   |  |   | 56,729  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | 42,326  |   |        | $ | 26,974  |      |  | $ | (8,312  | ) |  | $     | (4,498 | ) |  | $ | 56,490  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Year Ended December 31, 2007                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | (68,704 | ) |        | $ | 10,727  |      |  | $ | (6,864  | ) |  | $     | 6,584  |   |  | $ | (58,257 | )
|Current tax (benefit) expense                       |  |    | 2,898   |   |        |   | 562     |      |  |   | (3      | ) |  |       | 289    |   |  |   | 3,746   |  
|Deferred tax (benefit) expense                      |  |    | (27,430 | ) |        |   | 8,951   |      |  |   |        |   |  |       | 711    |   |  |   | (17,768 | )
|Foreign currency losses on deferred tax liabilities |  |    | 1,328   |   |        |   | 3,514   |      |  |   |        |   |  |       |       |   |  |   | 4,842   |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax (benefit) expense                         |  |    | (23,204 | ) |        |   | 13,027  |      |  |   | (3      | ) |  |       | 1,000  |   |  |   | (9,180  | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | (45,500 | ) |        | $ | (2,300  | )    |  | $ | (6,861  | ) |  | $     | 5,584  |   |  | $ | (49,077 | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Year Ended December 31, 2006                        |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) before taxes                      |  | $  | 33,275  |   |        | $ | 4,375   |      |  | $ | (20,588 | ) |  | $     | 13     |   |  | $ | 17,075  |  
|Current tax (benefit) expense                       |  |    | 1,837   |   |        |   | 9,014   |      |  |   | (45     | ) |  |       | 69     |   |  |   | 10,875  |  
|Deferred tax (benefit) expense                      |  |    | 10,105  |   |        |   | (1,840  | )    |  |   |        |   |  |       |       |   |  |   | 8,265   |  
|Foreign currency losses on deferred tax liabilities |  |    | 2,904   |   |        |   | 1,869   |      |  |   |        |   |  |       |       |   |  |   | 4,773   |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Total tax (benefit) expense                         |  |    | 14,846  |   |        |   | 9,043   |      |  |   | (45     | ) |  |       | 69     |   |  |   | 23,913  |  
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  
|Net income (loss) after taxes                       |  | $  | 18,429  |   |        | $ | (4,668  | )    |  | $ | (20,543 | ) |  | $     | (56    | ) |  | $ | (6,838  | )
|                                                    |  |    |         |   |        |   |         |      |  |   |         |   |  |       |        |   |  |   |         |  



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



The following table presents the principal reasons for the difference between our effective tax rates and the United
States federal statutory income tax rate of 35%.



|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                       |  | Year Ended December 31, |        
|                                                       |  | 2008                    |         |   | 2007 |   |         | 2006 | 
|Federal income tax expense (benefit) at statutory rate |  | $                       | 39,627  |   |      | $ | (20,390 | )    |  | $ | 5,976  |  
|Taxation of foreign operations                         |  |                         | 34,902  |   |      |   | 3,969   |      |  |   | 11,935 |  
|Change in valuation allowance  US                     |  |                         | 2,870   |   |      |   | 2,337   |      |  |   | 7,280  |  
|Change in valuation allowance  UK                     |  |                         |        |   |      |   |        |      |  |   | (6,013 | )
|Foreign currency (gain)/loss on deferred taxes         |  |                         | (20,709 | ) |      |   | 4,842   |      |  |   | 4,773  |  
|Other                                                  |  |                         | 39      |   |      |   | 62      |      |  |   | (38    | )
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|Income Tax Expense                                     |  | $                       | 56,729  |   |      | $ | (9,180  | )    |  | $ | 23,913 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|Effective Income Tax Rate                              |  |                         | 50      | % |      |   | (15     | )%   |  |   | 140    | %
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  

During 2008, 2007 and 2006, we incurred taxes in all of the jurisdictions that we do business in except for the
U.S. In 2008, 2007 and 2006, we had a loss before taxes of $8.3 million, $6.9 million and $20.6 million, respectively, in the U.S. and we did not record any income tax benefits as there was no assurance that we could generate any U.S. taxable
earnings, and therefore recorded a valuation allowance of the full amount of deferred tax asset generated.

Deferred income taxes result from the net tax
effects of temporary timing differences between the carrying amounts of assets and liabilities reflected on the financial statements and the amounts recognized for income tax purposes. The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are as follows at December 31:



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



|                                                    |  |      |          |   |      |   |          |  
|--------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                    |  | 2008 |          |   | 2007 |  
|Deferred tax asset:                                 |  |      |          |   |      |   |          |  
|Deferred compensation                               |  | $    | 6,399    |   |      | $ | 6,887    |  
|Unrealized loss on derivative instruments           |  |      | 4,506    |   |      |   | 27,292   |  
|Asset retirement obligation                         |  |      | 11,470   |   |      |   | 21,267   |  
|Net operating loss and capital loss carryforward    |  |      | 21,633   |   |      |   | 37,820   |  
|Uplift carryforward                                 |  |      | 1,350    |   |      |   | 2,218    |  
|Other                                               |  |      | 621      |   |      |   | 2,388    |  
|                                                    |  |      |          |   |      |   |          |  
|Total deferred tax assets                           |  |      | 45,979   |   |      |   | 97,872   |  
|Less valuation allowance                            |  |      | (23,701  | ) |      |   | (19,697  | )
|                                                    |  |      |          |   |      |   |          |  
|Total deferred tax assets after valuation allowance |  |      | 22,278   |   |      |   | 78,175   |  
|Deferred tax liability:                             |  |      |          |   |      |   |          |  
|Property, plant and equipment                       |  |      | (112,204 | ) |      |   | (176,345 | )
|Unrealized gain on derivative instruments           |  |      | (23,628  | ) |      |   |         |  
|Petroleum revenue tax, net of tax benefit           |  |      | (1,642   | ) |      |   | (5,133   | )
|Debt discount                                       |  |      | (3,267   | ) |      |   |         |  
|Sale/leaseback                                      |  |      | (470     | ) |      |   | (754     | )
|Other                                               |  |      | (1,018   | ) |      |   | (1,327   | )
|                                                    |  |      |          |   |      |   |          |  
|Total deferred tax liabilities                      |  |      | (142,229 | ) |      |   | (183,559 | )
|                                                    |  |      |          |   |      |   |          |  
|Net deferred tax liability                          |  | $    | (119,951 | ) |      | $ | (105,384 | )
|                                                    |  |      |          |   |      |   |          |  

During 2006, we recognized a deferred tax liability of approximately $98 million due to the excess of book over
tax basis of the assets acquired in the Enoch and Talisman acquisitions and $3.2 million for the unitization of the Brage field.

At December 31,
2008, we had the following carryforwards available to reduce future income taxes:



|                          |  |                    |  |                     |       
|------------------------- |  | ------------------ |  | ------------------- | ------
|Types of Carryforward     |  | Years ofExpiration |  | CarryforwardAmounts
|U.S.  Net operating loss |  | 2022 - 2028        |  | $                   | 61,613
|Norway  Uplift           |  | Indefinite         |  | $                   | 2,700 
|                          |  |                    |  |                     |       

With the exception of $61.6 million of net operating loss carryforward attributable to our U.S. operations for
which a valuation allowance has been established, the remaining carryforward amounts shown above have been recognized for financial statement reporting purposes to reduce deferred tax liability.

For U.S. federal income tax purposes, certain limitations are imposed on an entitys ability to utilize its NOLs in future periods if a change of control, as
defined for federal income tax purposes, has taken place. In general terms, the limitation on utilization of NOLs and other tax attributes during any one year is determined by the value of an acquired entity at the date of the change of control
multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an acquired entitys value has not yet been addressed by the Internal Revenue Service. We have determined that, for federal income tax purposes, a
change of control occurred during 2004. However, we do not believe such limitations will significantly impact our ability to utilize the NOL; rather our ability to generate future taxable income will have such an impact.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Recognition of the benefits of the deferred tax assets will require that we generate future taxable income. There can
be no assurance that we will generate any earnings or any specific level of earnings in future years. Therefore, we have established a valuation allowance for deferred tax assets of approximately $23.7 million, $19.7 million and $17.3 million of
December 31, 2008, 2007 and 2006, respectively. During 2008, the valuation allowance in the U.S. increased $2.9 million due to net operating losses and increased $1.1 million for net operating losses in other jurisdictions. During 2007, the
valuation allowance in the U.S. increased $2.4 million due to net operating losses and adjustments. During 2006, the valuation allowance decreased $6.0 million when our UK operations commenced and decreased an additional $11.1 million as a result of
the deferred tax liabilities established in the purchase of Enoch and Talisman. The valuation allowance also increased $7.3 due to net operating losses in the U.S.

Effective January 1, 2007, we adopted the new guidance on uncertainty in income taxes. We determined there was no cumulative effect on our financial statements relating to this adoption.

At December 2007, we provided for a liability of $1.7 million for unrecognized tax benefits relating to various U.K. matters. The statute of limitations for assessing
tax for these benefits expired during 2008, thus allowing the full recognition of these benefits. The benefit was recorded as a reduction to goodwill.

The
following represents a reconciliation of the changes in our unrecognized tax benefits, included in Accrued Expenses and Other on the balance sheet, for the year ended December 31, 2008:



|                                                                                   |  |   |        |  
|---------------------------------------------------------------------------------- |  | - | ------ | -
|Balance at January 1, 2008                                                         |  | $ | 1,727  |  
|Increase (Decrease) in unrecognized tax benefits from current period tax positions |  |   | (1,727 | )
|                                                                                   |  |   |        |  
|Balance at December 31, 2008                                                       |  | $ |       |  
|                                                                                   |  |   |        |  

As of December 31, 2008, we believe that no current tax positions that have resulted in unrecognized tax
benefits will significantly increase or decrease within the next year.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 11Other Liabilities

Other liabilities included the following:



|                                 |  |              |        |      |   |       
|-------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                 |  | December 31,
|                                 |  | 2008         |        | 2007
|Asset retirement obligations     |  | $            | 47,999 |      | $ | 38,422
|Long-term derivative liabilities |  |              | 17,015 |      |   | 31,201
|                                 |  |              |        |      |   |       
|                                 |  | $            | 65,014 |      | $ | 69,623
|                                 |  |              |        |      |   |       

Our asset retirement obligations relate to obligation of the plugging and abandonment of oil and gas properties.
The asset retirement obligation is recorded at fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation
changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost. The following table provides a rollforward of the asset retirement obligations for the year ended December 31, 2008 and 2007:



|                                                                             |  |              |         |   |      |   |       
|---------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------
|                                                                             |  | December 31,
|                                                                             |  | 2008         |         |   | 2007
|Carrying amount of asset retirement obligations as of beginning of year      |  | $            | 38,422  |   |      | $ | 32,503
|Increase (decrease) due to revised estimates of asset retirement obligations |  |              | 16,667  |   |      |   | 1,527 
|Accretion expense                                                            |  |              | 3,418   |   |      |   | 3,314 
|Impact of foreign currency exchange rate changes                             |  |              | (10,508 | ) |      |   | 1,078 
|                                                                             |  |              |         |   |      |   |       
|Carrying amount of asset retirement obligations as of end of year            |  | $            | 47,999  |   |      | $ | 38,422
|                                                                             |  |              |         |   |      |   |       



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 12Equity

The activity in shares of our common and preferred stock during 2008, 2007 and 2006 included the following:



|                                                    |  |                         |   |  |         |  |        
|--------------------------------------------------- |  | ----------------------- | - |  | ------- |  | -------
|                                                    |  | Year Ended December 31,
|                                                    |  | 2008                    |   |  | 2007    |  | 2006   
|Common Stock:                                       |  |                         |   |  |         |  |        
|Outstanding at the beginning of the year            |  | 127,006                 |   |  | 118,577 |  | 75,489 
|Issuance of common stock in the offering            |  |                        |   |  |        |  | 39,257 
|Issuance of common stock to pay preferred dividends |  |                        |   |  | 6,403   |  |       
|Exercise of warrants and stock options              |  |                        |   |  |        |  | 1,655  
|Other issuances                                     |  | 1,566                   |   |  | 2,026   |  | 2,176  
|                                                    |  |                         |   |  |         |  |        
|Outstanding at the end of the year                  |  | 128,572                 |   |  | 127,006 |  | 118,577
|                                                    |  |                         |   |  |         |  |        
|Series B Preferred Stock:                           |  |                         |   |  |         |  |        
|Outstanding at the end of the year                  |  | 20                      |   |  | 20      |  | 20     
|                                                    |  |                         |   |  |         |  |        
|Convertible Preferred Stock:                        |  |                         |   |  |         |  |        
|Outstanding at the beginning of the year            |  | 125                     |   |  | 125     |  |       
|Issuances of preferred stock                        |  |                        |   |  |        |  | 125    
|                                                    |  |                         |   |  |         |  |        
|Outstanding at the end of the year                  |  | 125                     |   |  | 125     |  | 125    
|                                                    |  |                         |   |  |         |  |        
|Treasury Stock:                                     |  |                         |   |  |         |  |        
|Outstanding at the beginning of the year            |  |                        |   |  |        |  |       
|Purchase of Treasury shares for stock vesting       |  | (327                    | ) |  |        |  |       
|                                                    |  |                         |   |  |         |  |        
|Outstanding at the end of the year                  |  | (327                    | ) |  |        |  |       
|                                                    |  |                         |   |  |         |  |        

Common Stock

The Common Stock is $0.001 par value common stock, 300,000,000 shares authorized.

In 2008, we issued inducement grants of 300,000 shares of
Endeavour restricted common stock, and options to purchase 250,000 shares of our common stock at an exercise price of $0.75 per share upon commencement of employment of one executive officer. In 2007, we issued inducement grants of 800,000 shares of
Endeavour restricted common stock, options to purchase 400,000 shares of our common stock at an exercise price of $2.00 per share and options to purchase 200,000 shares of our common stock at an exercise price of $1.14 per share upon commencement of
employment of two executive officers.

As part of the financing for the Talisman Acquisition during the fourth quarter of 2006, we issued 37.8 million
shares of common stock at $2.35 per share. After expenses, proceeds from the offering were $84 million.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Convertible Preferred Stock

As part of the financing for the Talisman Acquisition during the fourth quarter of 2006, we issued $125 million of Series A Convertible Preferred Stock to a group of private institutional investors. In December 2006,
our stockholders approved the conversion of the Series A Convertible Preferred Stock into the Series C Convertible Preferred Stock (the Convertible Preferred Stock). The Series A Convertible Preferred Stock and the Series C Convertible
Preferred Stock are substantially similar in terms, except that the Series C Convertible Preferred Stock includes a full-ratchet antidilution protection provision, which would result in a favorable adjustment (in the number of shares of
common stock issuable on conversion and the conversion price) for the holders of Convertible Preferred Stock in the event we were to issue shares of common stock at a price below the conversion price. The Convertible Preferred Stock ranks senior to
any of our other existing or future shares of capital stock.

The Convertible Preferred Stock is fully convertible into common stock at any time at the
option of the preferred stock investors, at (i) a conversion price of $2.50 (the Conversion Price) and (ii) in an amount of common stock equal to the quotient of the liquidation preference of $1,000 per share plus accrued but
unpaid dividends (the Liquidation Preference) divided by the Conversion Price.

Dividends are payable in cash, or common stock if we are unable
to pay such dividends in cash, and any dividends will be paid to the preferred stock investors prior to payment of any other dividend on any other shares of our capital stock. We will pay a cumulative dividend on the Convertible Preferred Stock
equal to 8.5% per annum of the original issue price (compounded quarterly) if paid in cash and 8.92% per annum of the original issue price (compounded quarterly) if paid in stock (the Original Dividend Rate). The Convertible
Preferred Stock also participates on an as-converted basis with respect to any dividends paid on the common stock.

Issuance of dividends in the form of
common stock are subject to the following equity conditions (the Equity Conditions), which are waivable by two-thirds of the holders of the Convertible Preferred Stock: (i) such common stock is listed on the NYSE Alternext US LLC,
the New York Stock Exchange or the Nasdaq Stock Market, and not subject to any trading suspension; (ii) we are not then subject to any bankruptcy event; and (iii) such common stock will be immediately re-saleable by the preferred stock
investors pursuant to an effective registration statement and otherwise in compliance with all applicable laws. If we have not maintained the effectiveness of the registration statement pursuant to the Registration rights section below, then the
dividend rate on the Convertible Preferred Stock will be increased by the product of 2.5% (if the dividend is paid in cash) or 2.63% (if the dividend is paid in stock) times the number of quarters (or portions thereof) in which the failure occurs or
we fail to cure such failure.

After the fourth anniversary of the initial issuance of the Convertible Preferred Stock, we may redeem all of the
Convertible Preferred Stock in exchange for a cash payment to the preferred stock investors of an amount equal to 102% of the sum of the



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Liquidation Preference. If we call the Convertible Preferred Stock for redemption, the holders thereof will have the right to convert their shares into a
newly issued preferred stock identical in all respects to the Convertible Preferred Stock except that such newly issued preferred stock will not bear a dividend (the Alternate Preferred Stock). We may not redeem the Convertible Preferred
Stock if the Equity Conditions are not then satisfied with respect to the common stock into which the Alternate Preferred Stock is convertible.

Upon the
tenth anniversary of the initial issuance of the Convertible Preferred Stock, we must redeem all of the Convertible Preferred Stock for an amount equal to the Liquidation Preference plus accrued and unpaid dividends payable by us in cash or common
stock at our election. Issuance by us of common stock for such redemption is subject to the Equity Conditions and to the market value of the outstanding shares of common stock immediately prior to such redemption equaling at least $500 million.

In the event of a change of control of Endeavour, we will be required to offer to redeem all of the Convertible Preferred Stock for the greater of:
(i) the amount equal to which such holder would be entitled to receive had the holder converted such Convertible Preferred Stock into common stock; (ii) 115% of the sum of the Liquidation Preference plus accrued and unpaid dividends; and
(iii) the amount resulting in an internal rate of return to such holder of 15% from the date of issuance of such Convertible Preferred Stock through the date that Endeavour pays the redemption price for such shares.

Series B Preferred Stock

In September 2002, we authorized and
designated 500,000 shares of Preferred Stock, as Series B Preferred Stock par value $.001 per share.

The Series B Preferred Stock is to pay dividends of
8% of the original issuing price per share per annum, which are cumulative prior to any dividends on the common stock and on parity with the payment of any dividend or other distribution on any other series of preferred stock that has similar
characteristics. The holders of each share of Series B Preferred Stock are entitled to be paid out of available funds prior to any distributions to holders of common stock in the amount of $100.00 per outstanding share plus all accrued dividends. We
may, upon approval of our Board, redeem all or a portion of the outstanding shares of Series B preferred stock at a cost of the liquidation preference and all accrued and unpaid dividends.

Note 13  Stock-Based Compensation Arrangements

We grant
restricted stock and stock options, including notional restricted stock and options, to employees and directors as incentive compensation. The notional restricted stock and options may be settled in cash or stock upon vesting, at our option, however
it has been our practice to settle in stock. The restricted stock and options generally vest over three years and the options have a five to ten year



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



expiration. The vesting of these shares and options is dependent upon the continued service of the grantees to Endeavour. Upon the occurrence of a change in
control, each share of restricted stock and stock option outstanding on the date on which the change in control occurs will immediately become vested.

The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. For the years 2007 and 2006, expected volatility is based on an average of our peer companies where there is a lack of relevant Endeavour
volatility information for the length of the expected term and the expected term is the average of the vesting date and the expiration of the option. For 2008, expected volatility is based on historical Endeavour volatility for the length of the
expected term, which was determined by historical data. We use historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on
the U.S. treasury yield curve in effect at the time of grant. We do not include an estimated dividend yield since we have not paid dividends on our common stock historically.

The estimated fair value of each option granted was calculated using the Black-Scholes model. The following summarizes the weighted average of the assumptions used in the method.



|                              |  |      |   |  |      |   |  |      |  
|----------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                              |  | 2008 |   |  | 2007 |   |  | 2006 |  
|Risk free rate                |  | 3.1  | % |  | 4.4  | % |  | 4.4  | %
|Expected years until exercise |  | 4    |   |  | 4    |   |  | 4    |  
|Expected stock volatility     |  | 46   | % |  | 45   | % |  | 38   | %
|Dividend yield                |  |     |   |  |     |   |  |     |  

At December 31, 2008, total compensation cost related to nonvested awards not yet recognized was
approximately $4.1 million and is expected to be recognized over a weighted average period of less than two years. For the year ended December 31, 2008, we included approximately $0.8 million of stock-based compensation in capitalized G&A
in property and equipment.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Stock Options

Information relating to stock options, including notional stock options, is summarized as follows:



|                                          |  |                 |  |                                       |      |                                        |      |                         |   |   
|----------------------------------------- |  | --------------- |  | ------------------------------------- | ---- | -------------------------------------- | ---- | ----------------------- | - | --
|                                          |  | Numberof Shares |  | WeightedAverageExercisePrice perShare |      | WeightedAverageContractualLife inYears |      | AggregateIntrinsicValue
|Balance outstanding  December 31, 2007   |  | 5,367           |  | $                                     | 2.92 |                                        |      |                         |   |   
|Granted                                   |  | 1,455           |  |                                       | 1.21 |                                        |      |                         |   |   
|Exercised                                 |  |                |  |                                       |     |                                        |      |                         |   |   
|Forfeited                                 |  | 406             |  |                                       | 3.07 |                                        |      |                         |   |   
|Expired                                   |  | 1,610           |  |                                       | 3.04 |                                        |      |                         |   |   
|                                          |  |                 |  |                                       |      |                                        |      |                         |   |   
|Balance outstanding  December 31, 2008   |  | 4,807           |  |                                       | 2.35 |                                        | 3.47 |                         | $ | 10
|                                          |  |                 |  |                                       |      |                                        |      |                         |   |   
|Currently exercisable  December 31, 2008 |  | 2,454           |  |                                       | 2.92 |                                        | 0.97 |                         | $ |  

The weighted average grant-date fair value of options granted during 2008, 2007 and 2006 was $0.50, $0.40 and
$1.20, respectively.

Of options granted during 2008, 2007 and 2006, 1.2 million, 0.1 million and 1.0 million options, respectively, were
granted pursuant to incentive plans which have been approved by our stockholders. All other stock options have been granted pursuant to stock option plans that were not subject to stockholder approval.

Information relating to stock options outstanding at December 31, 2008 is summarized as follows:



|                        |  |                             |  |                                         |  |                                       |      |                   |       |                                       |   |     
|----------------------- |  | --------------------------- |  | --------------------------------------- |  | ------------------------------------- | ---- | ----------------- | ----- | ------------------------------------- | - | ----
|                        |  | Options Outstanding         |  | Options Exercisable                    
|Range ofExercise Prices |  | Number ofOptionsOutstanding |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice PerShare |      | NumberExercisable |       | WeightedAverageExercisePrice PerShare
|Less than $3.00         |  | 3,426                       |  | 4.3                                     |  | $                                     | 1.66 |                   | 1,444 |                                       | $ | 1.99
|$3.00 - $3.99           |  | 582                         |  | 1.7                                     |  | $                                     | 3.58 |                   | 211   |                                       | $ | 3.69
|Greater than $4.00      |  | 799                         |  | 1.1                                     |  | $                                     | 4.41 |                   | 799   |                                       | $ | 4.41
|                        |  |                             |  |                                         |  |                                       |      |                   |       |                                       |   |     
|                        |  | 4,807                       |  | 3.5                                     |  | $                                     | 2.35 |                   | 2,454 |                                       | $ | 2.60
|                        |  |                             |  |                                         |  |                                       |      |                   |       |                                       |   |     



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Restricted Stock

At December 31, 2008, our employees and directors held 4.0 million restricted shares of our common stock that vest over the service period of up to three years. The restricted stock awards were valued based on the closing price of
our common stock on the measurement date, typically the date of grant, and compensation expense is recorded on a straight-line basis over the restricted share vesting period.

Status of the restricted shares as of December 31, 2008 and the changes during the year ended December 31, 2008 are presented below:



|                                                     |  |                 |        |   |                                              |   |     
|---------------------------------------------------- |  | --------------- | ------ | - | -------------------------------------------- | - | ----
|                                                     |  | Number ofShares |        |   | WeightedAverage GrantDate FairValue perShare
|Balance outstanding  December 31, 2007              |  |                 | 4,539  |   |                                              | $ | 2.70
|Granted                                              |  |                 | 2,259  |   |                                              | $ | 1.22
|Vested                                               |  |                 | (1,892 | ) |                                              | $ | 2.42
|Forfeited                                            |  |                 | (940   | ) |                                              | $ | 3.16
|                                                     |  |                 |        |   |                                              |   |     
|Balance outstanding  December 31, 2008              |  |                 | 3,966  |   |                                              | $ | 1.88
|                                                     |  |                 |        |   |                                              |   |     
|Total fair value of shares vesting during the period |  | $               | 3,835  |   |                                              |   |     
|                                                     |  |                 |        |   |                                              |   |     

Note 14  Financial Instruments



|                       |  |                   |         |   |                   |   |         |            |  |   |               |   |  |   |         |  
|---------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ---------- |  | - | ------------- | - |  | - | ------- | -
|                       |  | December 31, 2008 |         |   | December 31, 2007 |  
|                       |  | Fair Value        |         |   | CarryingValue     |   |         | Fair Value |  |   | CarryingValue |  
|Assets:                |  |                   |         |   |                   |   |         |            |  |   |               |   |  |   |         |  
|Derivative instruments |  | $                 | 33,351  |   |                   | $ | 33,351  |            |  | $ | 5,975         |   |  | $ | 5,975   |  
|Liabilities:           |  |                   |         |   |                   |   |         |            |  |   |               |   |  |   |         |  
|Long-term debt         |  |                   | 190,681 |   |                   |   | 214,855 |            |  |   | 253,250       |   |  |   | 266,250 |  
|Derivative instruments |  |                   | (18,208 | ) |                   |   | (18,208 | )          |  |   | (53,696       | ) |  |   | (53,696 | )



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, short-term receivables
and short-term payables approximate their fair value due to the short maturity of the instruments. The fair values of commodity derivative instruments interest rate swaps and were determined based upon quotes obtained from brokers. The fair values
of long-term debt were determined based upon quotes obtained from brokers for our senior notes, discounted cash flows for our 11.5% convertible debt and book value for other debt. Book value approximates fair value for our senior bank facility and
second lien term loan as these instruments bear interest at a market rate.

Note 15  Fair Value Measurements

Effective January 1, 2008, we adopted the new guidance for fair value measurements of financial assets and liabilities measured on a recurring basis. This new
standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also clarifies that fair value should be based on
assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. This includes not only the credit standing of
counterparties involved and the impact of credit enhancements but also the impact of our own nonperformance risk on our liabilities. According to this new standard, fair value measurements are classified and disclosed in one of the following
categories:



|Level | 1: Fair value is based on actively-quoted market prices, if available.
|----- | ----------------------------------------------------------------------



|Level | 2: In the absence of actively-quoted market prices, we seek price information from external sources, including broker quotes      and industry publications.
Substantially all of these inputs are observable in the marketplace during the entire term of the      instrument, can be derived from observable data, or supported by observable levels at which transactions are executed in
the      marketplace.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level | 3: If valuations require inputs that are both significant to the fair value measurement and less observable from objective      sources, we must estimate
prices based on available historical and near-term future price information and certain statistical      methods that reflect our market assumptions.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We apply fair value measurements to certain assets and liabilities including commodity and interest rate derivative instruments, marketable securities and embedded
derivatives relating to conversion and change in control features in certain of our debt instruments. We seek to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair
value measurement. The following table summarizes the valuation of our investments and financial instruments by pricing levels as of December 31, 2008:



|                                  |  |                                               |   |                                             |   |        |                                         |  |   |                 |   |  |   |         |  
|--------------------------------- |  | --------------------------------------------- | - | ------------------------------------------- | - | ------ | --------------------------------------- |  | - | --------------- | - |  | - | ------- | -
|                                  |  | Quoted MarketPrices in ActiveMarkets -Level 1 |   | Significant OtherObservableInputs - Level 2 |   |        | SignificantUnobservableInputs - Level 3 |  |   | Total FairValue |  
|Oil and gas derivative contracts: |  | $                                             |  |                                             | $ |       |                                         |  | $ |                |   |  | $ |        |  
|Oil and gas swaps                 |  |                                               |  |                                             |   | 9,855  |                                         |  |   |                |   |  |   | 9,855   |  
|Oil and gas collars               |  |                                               |  |                                             |   | 18,538 |                                         |  |   | 2,583           |   |  |   | 21,121  |  
|Interest rate swaps               |  |                                               |  |                                             |   | (1,334 | )                                       |  |   |                |   |  |   | (1,334  | )
|Embedded derivatives              |  |                                               |  |                                             |   |       |                                         |  |   | (14,640         | ) |  |   | (14,640 | )
|                                  |  |                                               |   |                                             |   |        |                                         |  |   |                 |   |  |   |         |  
|Total derivative liabilities      |  | $                                             |  |                                             | $ | 27,059 |                                         |  | $ | (12,057         | ) |  | $ | 15,002  |  
|                                  |  |                                               |   |                                             |   |        |                                         |  |   |                 |   |  |   |         |  

Our commodity and interest rate derivative contracts were measured based on quotes from our counterparties, which
are major financial institutions or commodities trading institutions. Such quotes have been derived using models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for
natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term. The inputs for the fair value models for our swaps and Brent oil collars are all observable market
data and these instruments have been classified as Level 2. Although we utilize the same option pricing models to assess the reasonableness of the fair values of our gas collars, an active futures market does not exist for our UK gas options. We
base the inputs to the option models for our UK gas collars on observable market data in other markets to verify the reasonableness of the counterparty quotes. These UK gas collars are classified as Level 3.

The following is a reconciliation of changes in fair value of net derivative assets and liabilities classified as Level 3:



|                                                                                                                   |  |                                      |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | ------- | -
|                                                                                                                   |  | Twelve Months EndedDecember 31, 2008 |        
|Balance at beginning of period                                                                                     |  | $                                    |        |  
|Total gains or losses (realized/unrealized):                                                                       |  |                                      |         |  
|Included in earnings                                                                                               |  |                                      | 4,614   |  
|Purchases, issuance and settlements (net)                                                                          |  |                                      | (13,460 | )
|Transfers in and/or out of Level 3 (net)                                                                           |  |                                      | (3,211  | )
|                                                                                                                   |  |                                      |         |  
|Balance at end of period                                                                                           |  | $                                    | (12,057 | )
|                                                                                                                   |  |                                      |         |  
|Changes in unrealized gains (losses) relating to derivative assets and liabilities still held at December 31, 2008 |  | $                                    | 6,078   |  
|                                                                                                                   |  |                                      |         |  



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 16  Derivative Instruments

As discussed in Note 2  Accounting Policies, we have oil and gas commodity derivatives, interest rate derivatives and embedded derivatives related to debt instruments. The fair market value of these derivative
instruments is included in our balance sheet as follows:



|                                                |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  | December 31, |        
|                                                |  | 2008         |         |   | 2007 |  
|Derivatives not designated as hedges:           |  |              |         |   |      |   |         |  
|Oil and gas commodity derivatives:              |  |              |         |   |      |   |         |  
|Assets:                                         |  |              |         |   |      |   |         |  
|Prepaid expenses and other current assets       |  | $            | 31,649  |   |      | $ | 4,018   |  
|Other assets  long-term                        |  |              | 1,702   |   |      |   | 1,957   |  
|Liabilities:                                    |  |              |         |   |      |   |         |  
|Accrued expenses and other                      |  |              |        |   |      |   | (22,210 | )
|Other liabilities  long-term                   |  |              | (2,375  | ) |      |   | (30,635 | )
|                                                |  |              |         |   |      |   |         |  
|                                                |  | $            | 30,976  |   |      | $ | (46,870 | )
|Embedded derivatives related to debt instrument |  |              |         |   |      |   |         |  
|Liabilities:                                    |  |              |         |   |      |   |         |  
|Other liabilities  long-term                   |  |              | (14,640 | ) |      |   |        |  
|Derivatives designated as cash flow hedge:      |  |              |         |   |      |   |         |  
|Interest rate swap                              |  |              |         |   |      |   |         |  
|Liabilities:                                    |  |              |         |   |      |   |         |  
|Accrued expenses and other                      |  |              | 1,334   |   |      |   |        |  
|Other liabilities  long-term                   |  |              |        |   |      |   | 567     |  

If all counterparties failed to perform, our maximum loss would be $33.4 million as of December 31, 2008.

The effect of the derivatives not designated as hedges on our results of operations was as follows:



|                                                    |  |                         |         |   |      |   |         |      |  |   |       
|--------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------
|                                                    |  | Year Ended December 31,
|                                                    |  | 2008                    |         |   | 2007 |   |         | 2006
|Derivatives not designated as hedges:               |  |                         |         |   |      |   |         |      |  |   |       
|Oil and gas commodity derivatives                   |  |                         |         |   |      |   |         |      |  |   |       
|Realized gains (losses) on derivative instruments   |  | $                       | (28,578 | ) |      | $ | 12,048  |      |  | $ |      
|Unrealized gains (losses) on derivative instruments |  |                         | 77,846  |   |      |   | (89,132 | )    |  |   | 34,531
|                                                    |  |                         |         |   |      |   |         |      |  |   |       
|                                                    |  |                         | 49,268  |   |      |   | (77,084 | )    |  |   | 34,531
|Embedded derivatives related to debt instrument     |  |                         |         |   |      |   |         |      |  |   |       
|Unrealized gains (losses) on derivative instruments |  |                         | (1,180  | ) |      |   |        |      |  |   |      



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



The effect of derivatives designated as cash flow hedges on our results of operations and other comprehensive income
was as follows:



|                                                                                 |  |                                        |  |      |      |   |      |   |      |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | -------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                 |  | Location ofReclassificationinto Income |  | 2008 |      |   | 2007 |   |      | 2006 | 
|Interest rate swap                                                               |  |                                        |  |      |      |   |      |   |      |      |  |   |        |  
|Gain (loss) recognized in other comprehensive income                             |  |                                        |  | $    | 428  |   |      | $ | (927 | )    |  | $ |       |  
|Gain (loss) reclassified from accumulated other comprehensive income into income |  | Interestexpense                        |  |      | (770 | ) |      |   | 75   |      |  |   |       |  
|Oil and gas commodity derivatives                                                |  |                                        |  |      |      |   |      |   |      |      |  |   |        |  
|Gain (loss) recognized in other comprehensive income                             |  |                                        |  |      |     |   |      |   |     |      |  |   | (1,012 | )
|Gain (loss) reclassified from accumulated other comprehensive income into income |  | Revenue                                |  |      |     |   |      |   |     |      |  |   | 4,702  |  

We did not exclude any component of the hedging instruments gain or loss when assessing effectiveness. The
ineffective portion of the hedges is not material for the periods presented and is included in other income (expense).

As of December 31, 2008, our
outstanding commodity derivatives covered approximately 2,150 Mbbl and 4,450 MMcf cumulative through 2011 and consist of a combination of fixed price swaps and collars. These include four oil and two gas swaps with J. Aron (Goldman) and three oil
and five gas collars with BNP Paribas.

During 2007, we entered into an interest rate swap with BNP Paribas for a notional amount of $37.5 million whereby
we pay a fixed rate of 5.05% and receive three-month LIBOR through November 2009.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 17Comprehensive Income (Loss)

The following summarizes the components of comprehensive loss:



|                                                                |  |                         |        |   |      |   |         |      |  |   |        |  
|--------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                |  | Year Ended December 31, |       
|                                                                |  | 2008                    |        |   | 2007 |   |         | 2006 | 
|Net loss                                                        |  | $                       | 56,490 |   |      | $ | (49,077 | )    |  | $ | (6,838 | )
|Related to derivative instruments:                              |  |                         |        |   |      |   |         |      |  |   |        |  
|Unrealized loss                                                 |  |                         | 428    |   |      |   | (852    | )    |  |   | (1,012 | )
|Reclassification adjustment for loss realized in net loss above |  |                         | (770   | ) |      |   |        |      |  |   | 4,702  |  
|Related to marketable securities:                               |  |                         |        |   |      |   |         |      |  |   |        |  
|Unrealized loss                                                 |  |                         | (1     | ) |      |   | (71     | )    |  |   | (887   | )
|Reclassification adjustment for loss realized in net loss above |  |                         |       |   |      |   |        |      |  |   | 1,775  |  
|                                                                |  |                         |        |   |      |   |         |      |  |   |        |  
|Unrealized gain (loss), net                                     |  |                         | (343   | ) |      |   | (923    | )    |  |   | 4,578  |  
|                                                                |  |                         |        |   |      |   |         |      |  |   |        |  
|Comprehensive loss                                              |  | $                       | 56,147 |   |      | $ | (50,000 | )    |  | $ | (2,260 | )
|                                                                |  |                         |        |   |      |   |         |      |  |   |        |  

The components of accumulated other comprehensive income are:



|                                   |  |                         |        |   |      |   |      |      |  |   |        |  
|---------------------------------- |  | ----------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                   |  | Year Ended December 31, |       
|                                   |  | 2008                    |        |   | 2007 |   |      | 2006 | 
|Related to derivative instruments: |  |                         |        |   |      |   |      |      |  |   |        |  
|Balance at beginning of year       |  | $                       | (852   | ) |      | $ |     |      |  | $ | (3,690 | )
|Change during the year             |  |                         | (342   | ) |      |   | (852 | )    |  |   | 3,690  |  
|                                   |  |                         |        |   |      |   |      |      |  |   |        |  
|Balance at end of year             |  |                         | (1,194 | ) |      |   | (852 | )    |  |   |       |  
|Related to marketable securities:  |  |                         |        |   |      |   |      |      |  |   |        |  
|Balance at beginning of year       |  |                         | (71    | ) |      |   |     |      |  |   | (888   | )
|Change during the year             |  |                         | (1     | ) |      |   | (71  | )    |  |   | 888    |  
|                                   |  |                         |        |   |      |   |      |      |  |   |        |  
|Balance at end of year             |  |                         | (72    | ) |      |   | (71  | )    |  |   |       |  
|                                   |  |                         |        |   |      |   |      |      |  |   |        |  
|Accumulated comprehensive loss     |  | $                       | (1,266 | ) |      | $ | (923 | )    |  | $ |       |  
|                                   |  |                         |        |   |      |   |      |      |  |   |        |  

Note 18Supplementary Cash Flow Disclosures

Cash paid during the period for interest and income taxes was as follows:



|                  |  |                         |        |      |   |        |  |   |      
|----------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | -----
|                  |  | Year Ended December 31,
|                  |  | 2008                    |        | 2007 |   | 2006  
|Interest paid     |  | $                       | 15,966 |      | $ | 22,164 |  | $ | 5,895
|                  |  |                         |        |      |   |        |  |   |      
|Income taxes paid |  | $                       | 20,088 |      | $ | 7,662  |  | $ | 7,064
|                  |  |                         |        |      |   |        |  |   |      



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Non-Cash Investing and Financing Transactions

During the first quarter of 2006, we issued 1.5 million shares of our common stock in connection with the settlement of litigation.

We recorded $10.8 million, $11.2 million and $2.0 million in preferred stock dividends in 2008, 2007 and 2006, respectively. Prior to the fourth quarter of 2007, we paid outstanding dividends on the Convertible
Preferred Stock through the issuance of common stock.

In 2008, we recorded $4.5 million in non-cash interest expense that was added to the principal
balance of the 11.5% convertible notes.

Note 19Commitments and Contingencies

General

The oil and gas industry is subject to regulation by federal,
state and local authorities. In particular, oil and gas production operations and economics are affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry. We believe we are in
compliance with all federal, state and local laws, regulations applicable to Endeavour and its properties and operations, the violation of which would have a material adverse effect on us or our financial condition.

Rig Commitments

We have two commitments for the use of drilling rigs
in our North Sea operations. One commitment is for the drilling rig that commenced drilling at the Rochelle field in December 2008. We have $21 million in escrow toward this commitment, included in Restricted cash on our Condensed
Consolidated Balance Sheet. The reserved amounts in escrow will be released as payments are made for this drilling activity.

We also have a commitment for
a semi-submersible rig in Norway through a consortium with several other operators in the Norwegian Continental Shelf. The contract commits us to 100 days (for two wells) for drilling services for $38 million. We currently estimate the rig will be
initially delivered in the third quarter of 2009 and again in 2010.

Contingencies

In November 2006, we purchased various oil and gas properties, including the Ivanhoe, Rob Roy, Hamish (collectively, IVRRH), Renee and Rubie fields. Hess Limited, the operator of the facility supporting production
from the IVRRH fields, has advised us that there has been a mis-measurement of the volumes of oil produced from the IVRRH fields. At December 31, 2008, the estimate of our liability from this mis-measurement was at $4.1 million.



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Operating Leases

We have leases for office space and equipment with lease payments of $1.1 million, $1.7 million and $1.7 million for the years ended December 31, 2008, 2009 and 2010, respectively.

Note 20Segment and Geographic Information

We
have determined we have one reportable operating segment being the acquisition, exploration and development of oil and gas properties. Our operations are conducted in geographic areas as follows:



|                    |  |         |         |                  |   |         |  |                  |         |         |   |                  |  |   |        |  |   |        
|------------------- |  | ------- | ------- | ---------------- | - | ------- |  | ---------------- | ------- | ------- | - | ---------------- |  | - | ------ |  | - | -------
|                    |  | 2008    |         | 2007             |   | 2006   
|                    |  | Revenue |         | Long-livedAssets |   | Revenue |  | Long-livedAssets |         | Revenue |   | Long-livedAssets
|United States       |  | $       |        |                  | $ | 12,125  |  | $                |        |         | $ | 6,920            |  | $ |       |  | $ | 33,120 
|United Kingdom      |  |         | 170,781 |                  |   | 478,623 |  |                  | 135,876 |         |   | 527,810          |  |   | 24,881 |  |   | 537,936
|Norway              |  |         | 89,660  |                  |   | 108,921 |  |                  | 40,188  |         |   | 90,260           |  |   | 29,250 |  |   | 72,957 
|Other               |  |         |        |                  |   | 2,140   |  |                  |        |         |   | 4,386            |  |   |       |  |   | 1,889  
|                    |  |         |         |                  |   |         |  |                  |         |         |   |                  |  |   |        |  |   |        
|Total International |  |         | 260,441 |                  |   | 589,684 |  |                  | 176,064 |         |   | 622,456          |  |   | 54,131 |  |   | 612,782
|                    |  |         |         |                  |   |         |  |                  |         |         |   |                  |  |   |        |  |   |        
|Total               |  | $       | 260,441 |                  | $ | 601,809 |  | $                | 176,064 |         | $ | 629,376          |  | $ | 54,131 |  | $ | 645,902
|                    |  |         |         |                  |   |         |  |                  |         |         |   |                  |  |   |        |  |   |        

Note 21  Quarterly Financial Data (Unaudited)



|                                                |  |              |         |   |               |   |         |              |  |   |               |   |  |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ------------- | - | ------- | ------------ |  | - | ------------- | - |  | - | ------- | -
|                                                |  | FirstQuarter |         |   | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |  
|                                                |  | 2008         |        
|Revenues                                        |  | $            | 61,255  |   |               | $ | 86,342  |              |  | $ | 71,475        |   |  | $ | 41,369  |  
|Operating expenses                              |  |              | 36,174  |   |               |   | 42,525  |              |  |   | 34,815        |   |  |   | 71,403  |  
|Operating profit                                |  |              | 25,081  |   |               |   | 43,817  |              |  |   | 36,660        |   |  |   | (30,033 | )
|Net income (loss) to common stockholders        |  |              | (19,487 | ) |               |   | (66,733 | )            |  |   | 75,487        |   |  |   | 56,415  |  
|Net income (loss) per share  basic             |  |              | (0.15   | ) |               |   | (0.52   | )            |  |   | 0.59          |   |  |   | 0.44    |  
|Net income (loss) per share  diluted           |  |              | (0.15   | ) |               |   | (0.52   | )            |  |   | 0.36          |   |  |   | 0.29    |  
|                                                | 
|                                                |  | 2007         |        
|Revenues                                        |  | $            | 42,790  |   |               | $ | 31,621  |              |  | $ | 47,169        |   |  | $ | 54,484  |  
|Operating expenses                              |  |              | 35,291  |   |               |   | 30,135  |              |  |   | 35,370        |   |  |   | 36,977  |  
|Operating loss                                  |  |              | 7,499   |   |               |   | 1,486   |              |  |   | 11,799        |   |  |   | 17,507  |  
|Net income (loss) to common stockholders        |  |              | (5,987  | ) |               |   | (13,048 | )            |  |   | (11,681       | ) |  |   | (29,598 | )
|Net income (loss) per share  basic and diluted |  |              | (0.05   | ) |               |   | (0.11   | )            |  |   | (0.09         | ) |  |   | (0.23   | )



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Endeavour International Corporation

Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Note 22  Supplemental Oil and Gas Disclosures - Unaudited



|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|-------------------------------------------------------------- |  | ------------- | -------- | - | ------ | - | ------- | ------------ |  | ----- | ----- | ----- | - | ----- |  | - | -------- | -
|Capitalized Costs Relating to Oil and Gas Producing Activities | 
|                                                               |  | UnitedKingdom |          |   | Norway |   |         | UnitedStates |  | Other |       | Total |  
|December 31, 2008:                                             |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Proved                                                         |  | $             | 232,730  |   |        | $ | 65,522  |              |  | $     | 629   |       | $ | 9     |  | $ | 298,890  |  
|Unproved                                                       |  |               | 131,688  |   |        |   | 48,714  |              |  |       | 5,876 |       |   | 2,132 |  |   | 188,410  |  
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Total capitalized costs                                        |  |               | 364,418  |   |        |   | 114,236 |              |  |       | 6,505 |       |   | 2,141 |  |   | 487,300  |  
|Accumulated depreciation, depletion and amortization           |  |               | (142,686 | ) |        |   | (33,914 | )            |  |       |      |       |   |      |  |   | (176,600 | )
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Net capitalized costs                                          |  | $             | 221,732  |   |        | $ | 80,322  |              |  | $     | 6,505 |       | $ | 2,141 |  | $ | 310,700  |  
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|December 31, 2007:                                             |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Proved                                                         |  | $             | 216,572  |   |        | $ | 53,729  |              |  | $     |      |       | $ |      |  | $ | 270,301  |  
|Unproved                                                       |  |               | 154,948  |   |        |   | 28,869  |              |  |       |      |       |   | 2,176 |  |   | 185,993  |  
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Total capitalized costs                                        |  |               | 371,520  |   |        |   | 82,598  |              |  |       |      |       |   | 2,176 |  |   | 456,294  |  
|Accumulated depreciation, depletion and amortization           |  |               | (102,386 | ) |        |   | (20,461 | )            |  |       |      |       |   |      |  |   | (122,847 | )
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  
|Net capitalized costs                                          |  | $             | 269,134  |   |        | $ | 62,137  |              |  | $     |      |       | $ | 2,176 |  | $ | 333,447  |  
|                                                               |  |               |          |   |        |   |         |              |  |       |       |       |   |       |  |   |          |  



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|------------------------------------------------------------------------------------------ |  | ------------- | ------- | ------ | - | ------------ |  | ----- | ----- |  | ----- | --- | - |  | - | -------
|Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
|                                                                                           |  | UnitedKingdom |         | Norway |   | UnitedStates |  | Other |       |  | Total
|Year Ended December 31, 2008:                                                              |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Acquisition costs:                                                                         |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Proved                                                                                     |  | $             |        |        | $ |             |  | $     |      |  | $     |    |   |  | $ |       
|Unproved                                                                                   |  |               | 1,178   |        |   |             |  |       | 971   |  |       | 27  |   |  |   | 2,176  
|Exploration costs                                                                          |  |               | 34,641  |        |   | 22,796       |  |       | 5,515 |  |       | (62 | ) |  |   | 62,890 
|Development costs                                                                          |  |               | 16,752  |        |   | 8,808        |  |       | 19    |  |       |    |   |  |   | 25,579 
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Total costs incurred                                                                       |  | $             | 52,571  |        | $ | 31,604       |  | $     | 6,505 |  | $     | (35 | ) |  | $ | 90,645 
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Year Ended December 31, 2007:                                                              |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Acquisition costs:                                                                         |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Proved                                                                                     |  | $             |        |        | $ |             |  | $     |      |  | $     |    |   |  | $ |       
|Unproved                                                                                   |  |               | 774     |        |   |             |  |       |      |  |       | 18  |   |  |   | 792    
|Exploration costs                                                                          |  |               | 54,916  |        |   | 10,392       |  |       |      |  |       | 268 |   |  |   | 65,576 
|Development costs                                                                          |  |               | 7,562   |        |   | 14,063       |  |       |      |  |       |    |   |  |   | 21,625 
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Total costs incurred                                                                       |  | $             | 63,252  |        | $ | 24,455       |  | $     |      |  | $     | 286 |   |  | $ | 87,993 
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Year Ended December 31, 2006:                                                              |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Acquisition costs:                                                                         |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Proved                                                                                     |  | $             | 139,456 |        | $ |             |  | $     |      |  | $     |    |   |  | $ | 139,456
|Unproved                                                                                   |  |               | 81,715  |        |   |             |  |       |      |  |       |    |   |  |   | 81,715 
|Exploration costs                                                                          |  |               | 35,002  |        |   | 5,089        |  |       |      |  |       | 295 |   |  |   | 40,386 
|Development costs                                                                          |  |               | 8,960   |        |   | 7,235        |  |       |      |  |       |    |   |  |   | 16,195 
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        
|Total costs incurred                                                                       |  | $             | 265,133 |        | $ | 12,324       |  | $     |      |  | $     | 295 |   |  | $ | 277,752
|                                                                                           |  |               |         |        |   |              |  |       |       |  |       |     |   |  |   |        



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|---------------------------------------------------------- |  | ------------- | ------- | ------ | - | ------------ |  | - | ----- | - |  | - | -------
|Results of Operations for Oil and Gas Producing Activities
|                                                           |  | UnitedKingdom |         | Norway |   | UnitedStates |  |   | Total
|Year Ended December 31, 2008:                              |  |               |         |        |   |              |  |   |       |   |  |   |        
|Revenues                                                   |  | $             | 170,781 |        | $ | 89,660       |  | $ |      |   |  | $ | 260,441
|Production expenses                                        |  |               | 31,489  |        |   | 14,259       |  |   | 828   |   |  |   | 46,576 
|DD&A                                                       |  |               | 65,764  |        |   | 14,078       |  |   |      |   |  |   | 79,842 
|Impairment of oil and gas properties                       |  |               | 36,970  |        |   |             |  |   |      |   |  |   | 36,970 
|Income tax expense                                         |  |               | 18,279  |        |   | 47,832       |  |   | (290  | ) |  |   | 65,821 
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|Results of activities                                      |  | $             | 18,279  |        | $ | 13,491       |  | $ | (538  | ) |  | $ | 31,232 
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|Year Ended December 31, 2007:                              |  |               |         |        |   |              |  |   |       |   |  |   |        
|Revenues                                                   |  | $             | 135,876 |        | $ | 40,188       |  | $ |      |   |  | $ | 176,064
|Production expenses                                        |  |               | 27,263  |        |   | 13,781       |  |   |      |   |  |   | 41,044 
|DD&A                                                       |  |               | 67,338  |        |   | 7,722        |  |   |      |   |  |   | 75,060 
|Income tax expense                                         |  |               | 20,638  |        |   | 14,574       |  |   |      |   |  |   | 35,212 
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|Results of activities                                      |  | $             | 20,637  |        | $ | 4,111        |  | $ |      |   |  | $ | 24,748 
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|Year Ended December 31, 2006:                              |  |               |         |        |   |              |  |   |       |   |  |   |        
|Revenues                                                   |  | $             | 24,881  |        | $ | 29,250       |  | $ |      |   |  | $ | 54,131 
|Production expenses                                        |  |               | 4,477   |        |   | 11,091       |  |   |      |   |  |   | 15,568 
|DD&A                                                       |  |               | 10,292  |        |   | 6,217        |  |   |      |   |  |   | 16,509 
|Impairment of oil and gas properties                       |  |               | 849     |        |   |             |  |   |      |   |  |   | 849    
|Income tax expense                                         |  |               | 4,631   |        |   | 9,315        |  |   |      |   |  |   | 13,946 
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        
|Results of activities                                      |  | $             | 4,632   |        | $ | 2,627        |  | $ |      |   |  | $ | 7,259  
|                                                           |  |               |         |        |   |              |  |   |       |   |  |   |        

Oil and Gas Reserves

Proved reserves are estimated quantities of oil, gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods. The reserve volumes presented are estimates only and should not
be construed as being exact quantities. These reserves may or may not be recovered and may increase or decrease as a result of our future operations and changes in economic conditions. Our oil and gas reserves were prepared by independent reserve
engineers at December 31, 2008, 2007 and 2006.

In December 2008, the U.S. Securities and Exchange Commission adopted revisions to oil and natural gas
reserve reporting requirements, including the definition of proved reserves, pricing used to determine economic producibility and voluntary disclosure of probable and possible reserves. These revisions would be effective for the company at year-end
2009, unless the timing is subsequently amended. We are evaluating these new rules and cannot predict how the new rules will affect our future reporting of oil and natural gas reserves.



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



|                                       |  |               |   |  |        |   |  |              |  |        |  
|-------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------ |  | ------ | -
|Proved Oil Reserves (MBbls):           |  | UnitedKingdom |   |  | Norway |   |  | UnitedStates |  | Total  |  
|Proved reserves at January 1, 2006     |  |              |   |  | 1,164  |   |  |             |  | 1,164  |  
|Purchase of proved reserves, in place  |  | 4,593         |   |  |       |   |  |             |  | 4,593  |  
|Production                             |  | (210          | ) |  | (508   | ) |  |             |  | (718   | )
|Revisions of previous estimates        |  | 183           |   |  | 530    |   |  |             |  | 713    |  
|                                       |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2006   |  | 4,566         |   |  | 1,186  |   |  |             |  | 5,752  |  
|Production                             |  | (1,274        | ) |  | (519   | ) |  |             |  | (1,793 | )
|Extensions and discoveries             |  |              |   |  | 340    |   |  |             |  | 340    |  
|Revisions of previous estimates        |  | (8            | ) |  | 1,049  |   |  |             |  | 1,041  |  
|                                       |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2007   |  | 3,284         |   |  | 2,056  |   |  |             |  | 5,340  |  
|Production                             |  | (1,032        | ) |  | (726   | ) |  |             |  | (1,758 | )
|Extensions and discoveries             |  | 522           |   |  | 121    |   |  | 18           |  | 661    |  
|Revisions of previous estimates        |  | (643          | ) |  | (45    | ) |  |             |  | (688   | )
|                                       |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2008   |  | 2,131         |   |  | 1,406  |   |  | 18           |  | 3,555  |  
|                                       |  |               |   |  |        |   |  |              |  |        |  
|Proved Developed Oil Reserves (MBbls): |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2006                   |  | 3,400         |   |  | 737    |   |  |             |  | 4,137  |  
|                                       |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2007                   |  | 2,544         |   |  | 1,650  |   |  |             |  | 4,194  |  
|                                       |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2008                   |  | 1,468         |   |  | 1,302  |   |  | 7            |  | 2,777  |  
|                                       |  |               |   |  |        |   |  |              |  |        |  



|                                      |  |               |   |  |        |   |  |              |  |        |  
|------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------ |  | ------ | -
|Proved Gas Reserves (MMcf):           |  | UnitedKingdom |   |  | Norway |   |  | UnitedStates |  | Total  |  
|Proved reserves at January 1, 2006    |  |              |   |  | 6,297  |   |  |             |  | 6,297  |  
|Purchase of proved reserves, in place |  | 14,574        |   |  |       |   |  |             |  | 14,574 |  
|Production                            |  | (1,539        | ) |  | (203   | ) |  |             |  | (1,742 | )
|Revisions of previous estimates       |  | 4,137         |   |  | 1,579  |   |  |             |  | 5,716  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2006  |  | 17,172        |   |  | 7,673  |   |  |             |  | 24,845 |  
|Production                            |  | (8,556        | ) |  | (328   | ) |  |             |  | (8,884 | )
|Extensions and discoveries            |  |              |   |  | 1,821  |   |  |             |  | 1,821  |  
|Revisions of previous estimates       |  | 3,196         |   |  | (732   | ) |  |             |  | 2,464  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2007  |  | 11,812        |   |  | 8,434  |   |  |             |  | 20,246 |  
|Production                            |  | (6,532        | ) |  | (2,322 | ) |  |             |  | (8,854 | )
|Extensions and discoveries            |  | 20,370        |   |  | 52     |   |  | 690          |  | 21,112 |  
|Revisions of previous estimates       |  | 1,480         |   |  | (1,187 | ) |  |             |  | 293    |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2008  |  | 27,130        |   |  | 4,977  |   |  | 690          |  | 32,797 |  
|                                      |  |               |   |  |        |   |  |              |  |        |  



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



|                                      |  |               |   |  |        |   |  |              |  |        |  
|------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------ |  | ------ | -
|Proved Gas Reserves (MMcf):           |  | UnitedKingdom |   |  | Norway |   |  | UnitedStates |  | Total  |  
|Proved Developed Gas Reserves (MMcf): |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2006                  |  | 13,184        |   |  |       |   |  |             |  | 13,184 |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2007                  |  | 8,416         |   |  | 6,614  |   |  |             |  | 15,030 |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2008                  |  | 6,761         |   |  | 4,917  |   |  | 234          |  | 11,912 |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|                                      |  |               |   | 
|Proved Reserves (MBOE):               |  | UnitedKingdom |   |  | Norway |   |  | UnitedStates |  | Total  |  
|Proved reserves at January 1, 2006    |  |              |   |  | 2,214  |   |  |             |  | 2,214  |  
|Purchase of proved reserves, in place |  | 7,022         |   |  |       |   |  |             |  | 7,022  |  
|Production                            |  | (466          | ) |  | (542   | ) |  |             |  | (1,008 | )
|Revisions of previous estimates       |  | 872           |   |  | 793    |   |  |             |  | 1,665  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2006  |  | 7,428         |   |  | 2,465  |   |  |             |  | 9,893  |  
|Production                            |  | (2,700        | ) |  | (574   | ) |  |             |  | (3,274 | )
|Extensions and discoveries            |  |              |   |  | 643    |   |  |             |  | 643    |  
|Revisions of previous estimates       |  | 524           |   |  | 927    |   |  |             |  | 1,451  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2007  |  | 5,252         |   |  | 3,461  |   |  |             |  | 8,713  |  
|Production                            |  | (2,121        | ) |  | (1,113 | ) |  |             |  | (3,234 | )
|Extensions and discoveries            |  | 3,917         |   |  | 130    |   |  | 133          |  | 4,180  |  
|Revisions of previous estimates       |  | (395          | ) |  | (242   | ) |  |             |  | (637   | )
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved reserves at December 31, 2008  |  | 6,653         |   |  | 2,236  |   |  | 133          |  | 9,022  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|Proved Developed Reserves (MBOE):     |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2006                  |  | 5,597         |   |  | 737    |   |  |             |  | 6,334  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2007                  |  | 3,947         |   |  | 2,752  |   |  |             |  | 6,699  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  
|At December 31, 2008                  |  | 2,595         |   |  | 2,122  |   |  | 46           |  | 4,763  |  
|                                      |  |               |   |  |        |   |  |              |  |        |  

During the year ended December 31, 2006, we purchased 7,022 MBOE in the Enoch field and Talisman
Acquisitions.

Standardized Measure of Discounted Future Net Cash Flows

Future cash inflows and future production and development costs are determined by applying year-end prices and costs to the estimated quantities of oil and gas to be produced. Estimated future income taxes are
computed using current statutory income tax rates for where production occurs. The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor.



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Estimates of future cash inflows are based on prices at year-end. Oil, gas and condensate prices are escalated only
for fixed and determinable amounts under provisions in some contracts. At December 31, 2008 and 2007, the prices used to determine the estimates of future cash inflows were $36.55 and $96.02 per barrel, respectively, for oil and $8.70 and
$10.03 per Mcf, respectively, for gas. Estimated future cash inflows are reduced by estimated future development, production, abandonment and dismantlement costs based on year-end cost levels, assuming continuation of existing economic conditions,
and by estimated future income tax expense. Income tax expense, both U.S. and foreign, is calculated by applying the existing statutory tax rates, including any known future changes, to the pretax net cash flows giving effect to any permanent
differences and reduced by the applicable tax basis. The effect of tax credits is considered in determining the income tax expense.

The standardized
measure of discounted future net cash flows is not intended to present the fair market value of our oil and gas reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves in excess of proved
reserves, anticipated future changes in prices and costs, an allowance for return on investment and the risks inherent in reserve estimates.

Under the
full cost method of accounting, a noncash charge to earnings related to the carrying value of our oil and gas properties on a country-by-country basis may be required when prices are low. Whether we will be required to take such a charge depends on
the prices for crude oil and natural gas at the end of any quarter, as well as the effect of both capital expenditures and changes to proved reserves during that quarter. Given the volatility of natural gas and oil prices, it is reasonably possible
that our estimate of discounted future net cash flows from proved oil and gas reserves will change in the near term. If a noncash charge were required, it would reduce earnings for the period and result in lower DD&A expense in future periods.



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Standardized Measure of Discounted Future Net Cash Flows



|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|--------------------------------------------- |  | ------------- | -------- | - | ------ | - | -------- | ------------ |  | - | ------ | - |  | - | -------- | -
|                                              | 
|                                              |  | UnitedKingdom |          |   | Norway |   |          | UnitedStates |  |   | Total  |  
|December 31, 2008:                            |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Future cash inflows                           |  | $             | 306,021  |   |        | $ | 88,039   |              |  | $ | 4,599  |   |  | $ | 398,659  |  
|Future production costs                       |  |               | (71,242  | ) |        |   | (25,157  | )            |  |   | (1,005 | ) |  |   | (97,404  | )
|Future development costs                      |  |               | (157,984 | ) |        |   | (25,579  | )            |  |   | (2,100 | ) |  |   | (185,663 | )
|Future income tax expense                     |  |               | (33,977  | ) |        |   | (17,036  | )            |  |   |       |   |  |   | (51,013  | )
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Future net cash flows (undiscounted)          |  |               | 42,818   |   |        |   | 20,267   |              |  |   | 1,494  |   |  |   | 64,579   |  
|Annual discount of 10% for estimated timing   |  |               | 12,548   |   |        |   | 1,806    |              |  |   | 563    |   |  |   | 14,917   |  
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Standardized measure of future net cash flows |  | $             | 30,270   |   |        | $ | 18,461   |              |  | $ | 931    |   |  | $ | 49,662   |  
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|December 31, 2007:                            |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Future cash inflows                           |  | $             | 423,911  |   |        | $ | 256,455  |              |  | $ |       |   |  | $ | 680,366  |  
|Future production costs                       |  |               | (99,544  | ) |        |   | (55,968  | )            |  |   |       |   |  |   | (155,512 | )
|Future development costs                      |  |               | (62,119  | ) |        |   | (26,672  | )            |  |   |       |   |  |   | (88,791  | )
|Future income tax expense                     |  |               | (109,399 | ) |        |   | (125,013 | )            |  |   |       |   |  |   | (234,412 | )
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Future net cash flows (undiscounted)          |  |               | 152,849  |   |        |   | 48,802   |              |  |   |       |   |  |   | 201,651  |  
|Annual discount of 10% for estimated timing   |  |               | 1,328    |   |        |   | 8,403    |              |  |   |       |   |  |   | 9,731    |  
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  
|Standardized measure of future net cash flows |  | $             | 151,521  |   |        | $ | 40,399   |              |  | $ |       |   |  | $ | 191,920  |  
|                                              |  |               |          |   |        |   |          |              |  |   |        |   |  |   |          |  



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Notes to Consolidated Financial Statements

(Amounts in thousands, except per unit data)



Principal Sources of Change in the Standardized Measure of Discounted Future Net Cash Flows



|                                                      |  |                         |          |   |      |   |          |      |  |   |         |  
|----------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                      |  | Year Ended December 31, |         
|                                                      |  | 2008                    |          |   | 2007 |   |          | 2006 | 
|Standardized measure, beginning of period             |  | $                       | 191,920  |   |      | $ | 145,541  |      |  | $ | 18,525  |  
|Net changes in prices and production costs            |  |                         | (144,547 | ) |      |   | 199,343  |      |  |   | (25,622 | )
|Future development costs incurred                     |  |                         | 8,912    |   |      |   | 21,625   |      |  |   | 16,195  |  
|Net changes in estimated future development costs     |  |                         | (105,784 | ) |      |   | (48,873  | )    |  |   | (20,371 | )
|Revisions of previous quantity estimates              |  |                         | (19,381  | ) |      |   | 79,636   |      |  |   | 47,154  |  
|Extensions and discoveries                            |  |                         | 127,182  |   |      |   | 35,345   |      |  |   |        |  
|Accretion of discount                                 |  |                         | 39,734   |   |      |   | 24,078   |      |  |   | 6,037   |  
|Changes in income taxes, net                          |  |                         | 163,445  |   |      |   | (135,233 | )    |  |   | 20,393  |  
|Sale of oil and gas produced, net of production costs |  |                         | (213,865 | ) |      |   | (135,020 | )    |  |   | (38,592 | )
|Purchased reserves                                    |  |                         |         |   |      |   |         |      |  |   | 101,533 |  
|Change in production, timing and other                |  |                         | 2,046    |   |      |   | 5,478    |      |  |   | 20,289  |  
|                                                      |  |                         |          |   |      |   |          |      |  |   |         |  
|Standardized measure, end of period                   |  | $                       | 49,662   |   |      | $ | 191,920  |      |  | $ | 145,541 |  
|                                                      |  |                         |          |   |      |   |          |      |  |   |         |  



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|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

None.



|Item 9A. | Controls and Procedures.
|-------- | ------------------------

Evaluation of Disclosure Controls and
Procedures

Under the supervision and with the participation of our management, including our chief executive officer, chief financial officer and chief
accounting officer, we evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, December 31, 2008. Based on that evaluation, our chief executive officer, chief financial officer
and chief accounting officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Managements Report on
Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal controls over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the
preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, our internal control over financial reporting was effective as of December 31, 2008.

KPMG LLP, an independent registered public accounting firm, audited managements assessment of the effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 and issued their attestation report set forth in this Item 9A.



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Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarterly period ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Endeavour International
Corporation:

We have audited Endeavour International Corporations internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Endeavour International Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



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In our opinion, Endeavour International Corporation maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Endeavour
International Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2008, and our report dated March 13, 2009 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Houston, Texas

March 13, 2009



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Endeavour International Corporation



|Item 9B. | Other Information
|-------- | -----------------

None.

Part III



|Item 10. | Directors, Executive Officers and Corporate Governance of the Registrant
|-------- | ------------------------------------------------------------------------

Our Definitive Proxy Statement for our 2009 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference into this annual report on Form 10-K pursuant to
General Instruction G(3) of Form 10-K and will provide the information required under Part III, Item 10.

Our Code of Business Conduct and the Code of
Ethics for Senior Officers can be found on our internet website located at www.endeavourcorp.com. Any stockholder may request a printed copy of these codes by submitting a written request to our Corporate Secretary.



|Item 11. | Executive Compensation
|-------- | ----------------------

Our Definitive Proxy Statement for our 2009
Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and will
provide the information required under Part III, Item 11.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
|-------- | -----------------------------------------------------------------------------------------------

Our Definitive Proxy Statement for our 2009 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference into this annual report on
Form 10-K pursuant to General Instruction G(3) of Form 10-K and will provide the information required under Part III, Item 12.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

Our Definitive Proxy Statement for our 2009 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference into this annual report on Form 10-K pursuant to
General Instruction G(3) of Form 10-K and will provide the information required under Part III, Item 13.



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|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------

Our Definitive Proxy
Statement for our 2009 Annual Meeting of Stockholders, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference into this annual report on Form 10-K pursuant to General Instruction G(3) of
Form 10-K and will provide the information required under Part III, Item 14.

Part IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

(a) (1) and
(2) Financial Statements and Financial Statement Schedules.

See our consolidated financial statements included in Item 8 herein.

(a) (3) Exhibits.

See Index of Exhibits herein which lists the
documents filed as exhibits with this Form 10-K.

(b) Exhibits.

See Index of Exhibits herein which lists the documents filed as exhibits with this Form 10-K.



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Endeavour International Corporation



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.



|                                    |  |                                                     
|----------------------------------- |  | ----------------------------------------------------
|Endeavour International Corporation
|                                    | 
|By:                                 |  | /s/ J. Michael Kirksey                              
|                                    |  | J. Michael Kirksey                                  
|                                    |  | Executive Vice President and Chief Financial Officer

Date: March 13, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                              |  |                                                                               |  |               
|--------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                                     |  | Title                                                                         |  | Date          
|                                              |  |                                                                              
|/s/ William L. Transier William L. Transier   |  | Chief Executive Officer, President and Director (Principal Executive Officer) |  | March 13, 2009
|                                              |  |                                                                              
|/s/ J. Michael Kirksey J. Michael Kirksey     |  | Chief Financial Officer (Principal Financial Officer)                         |  | March 13, 2009
|                                              |  |                                                                              
|/s/ Robert L. Thompson Robert L. Thompson     |  | Chief Accounting Officer (Principal Accounting Officer)                       |  | March 13, 2009
|                                              |  |                                                                              
|/s/ Thomas D. Clark Thomas D. Clark           |  | Director                                                                      |  | March 13, 2009
|                                              |  |                                                                              
|/s/ John B. Connally III John B. Connally III |  | Director                                                                      |  | March 13, 2009
|                                              |  |                                                                              
|/s/ Charles Hue Williams                      |  | Director                                                                      |  | March 13, 2009
|Charles Hue Williams                          |  |                                                                              
|                                              |  |                                                                              
|/s/ Leiv L. Nergaard Leiv L. Nergaard         |  | Director                                                                      |  | March 13, 2009
|                                              |  |                                                                              
|/s/ Nancy K. Quinn Nancy
K. Quinn             |  | Director                                                                      |  | March 13, 2009
|                                              |  |                                                                              
|/s/ John N. Seitz John
N. Seitz               |  | Director                                                                      |  | March 13, 2009



106



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Index to Exhibits



|        |  |                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                    
|        | 
|3.1(a)  |  | Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30,
2004)                                                             
|        | 
|3.1(b)  |  | Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13, 2006)                                                                   
|        | 
|3.2(a)  |  | Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006.)                                                                                            
|        | 
|3.2(b)  |  | Amendment to Amended and Restated By-laws dated December 12, 2007 by Endeavour International Corporation (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K
(Commission File No. 001-32212) filed on December 13, 2007.)              
|        | 
|3.3     |  | Amended and Restated Certificate of Designation of Series B Preferred Stock filed February 26, 2004 (Incorporated by reference to Exhibit 3.3 of our Quarterly Report on Form 10-Q (Commission
File No. 001-32212) for the quarter ended June 30, 2004.)       
|        | 
|3.4     |  | Specimen of Common Stock Certificate (Incorporated by reference to Exhibit 3.7 of our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30,
2004.)                                                                      
|        | 
|3.5     |  | Certificate of Designation of Series A Preferred Stock of Endeavour International Corporation (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on November 6, 2006.)                          
|        | 
|3.6     |  | Certificate of Designation of Series C Preferred Stock of Endeavour International Corporation (Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on November 6, 2006.)                          
|        | 
|3.7     |  | Certificate of Designation of Series D Preferred Stock of Endeavour International Corporation (Incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on November 6, 2006.)                          
|        | 
|4.1(a)  |  | Warrants to Purchase Common Stock issued to Trident Growth Fund, LP dated July 29, 2003 (warrant # 2003-3) (Incorporated by reference to Exhibit 4.7 of our Annual Report on Form 10-KSB
(Commission File No. 000-33439) for the year ended December 31, 2003.)
|        | 
|4.1(b)  |  | First Amendment to Warrants to Purchase Common Stock dated February 26, 2004 (warrant # 2003-3) (Incorporated by reference to Exhibit 4.7 of our Annual Report on Form 10-KSB (Commission File
No. 000-33439) for the year ended December 31, 2003.)           



|* | Filed herewith.
|- | ---------------



| | Furnished herewith.
|- | -------------------



| | Identifies management contracts and compensatory plans or arrangements.
|- | -----------------------------------------------------------------------



---

##### Table of Contents

Index to Exhibits



|         |  |                                                                                                                                                                                                                                                                                                                                                 
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  | Description                                                                                                                                                                                                                                                                                                                                     
|         | 
|4.2      |  | Warrant to Purchase 25,000 Shares of Common Stock issued to Trident Growth Fund, L.P. (Incorporated by reference to Exhibit 10.11 of our Annual Report on Form 10-KSB (Commission File No.
000-33439) for the Year Ended December 31, 2002.)                                                                                                    
|         | 
|4.3      |  | Indenture, dated as of January 20, 2005, between Endeavour International Corporation and Wells Fargo Bank, National Association, as Trustee, relating to the 6.00% Convertible Senior Notes due
2012 (Incorporated by reference to our Exhibit 4.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 24, 2005.)
|         | 
|4.4      |  | Registration Rights Agreement dated January 24, 2008 by and between Endeavour International Corporation and Smedvig QIF Plc (Incorporated by reference to Exhibit 4.2 to our Current Report on
Form 8-K (Commission File No. 001-32212) filed on January 24, 2008.)                                                                             
|         | 
|4.5      |  | Trust Deed dated January 24, 2008 by and among Endeavour International Corporation, Endeavour Energy Luxembourg S.a.r.l. and BNY Corporate Trustee Services Limited, as trustee (Incorporated
by reference to Exhibit 4.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 24, 2008.)                         
|         | 
|4.6      |  | Common Stock Purchase Warrant dated February 26, 2004 issued to Sanders Morris Harris Inc. in connection with the private placement of 25,000,000 shares of the Endeavours common stock.
(Incorporated by reference to Exhibit 10.24 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)
|         | 
|10.1    |  | 2004 Incentive Plan, effective February 26, 2004 (Incorporated by reference to Exhibit 10.36 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December
31, 2003.)                                                                                                                                         
|         | 
|10.2    |  | 2007 Incentive Plan (Incorporated by reference to Exhibit 10.1 to our Quarterly Report (Commission file No. 001-32212) for the quarter ended June 30, 2007.)                                                                                                                                                                                    
|         | 
|10.3(a) |  | Employment Agreement dated February 26, 2004 by and between Continental Southern Resources, Inc. and William L. Transier. (Incorporated by reference to Exhibit 10.37 of our Annual Report on
Form 10-KSB (Commission File No. 000-33439) for the year ended December 31, 2003.)                                                                
|         | 
|10.3(b) |  | Amendment to employment agreement dated October 9, 2006 by and between Endeavour International Corporation and William L. Transier 2005 (Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K (Commission File No. 001-32212) filed on October 10, 2006.)                                                                



|* | Filed herewith.
|- | ---------------



| | Furnished herewith.
|- | -------------------



| | Identifies management contracts and compensatory plans or arrangements.
|- | -----------------------------------------------------------------------



---

##### Table of Contents

Index to Exhibits



|        |  |                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                    
|        | 
|*10.4  |  | Second Amended and Restated Employment agreement by and between William L. Transier and the Company.                                                                                                                                                                                                                                                           
|        | 
|10.5   |  | Amended and Restated Employment agreement by and among William L. Transier and the Company, effective May 29, 2008 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
(Commission File No. 000-32212) filed on June 2, 2008.)                                                                                                        
|        | 
|10.6   |  | Employment Offer Letter to Carl Grenz, dated August 15, 2008 (Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter
ended September 30, 2008.)                                                                                                                                        
|        | 
|10.7   |  | Form of Change in Control on Termination of Benefits Agreement (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 000-32212) filed on February
15, 2008.)                                                                                                                                                       
|        | 
|*10.8  |  | Form of Amended Change in Control Termination Benefits Agreement between the Company and Kirksey, Grenz, Williams and Stover, individually.                                                                                                                                                                                                                    
|        | 
|10.9   |  | Form of Restricted Stock Award Agreement. (Incorporated by reference to Exhibit 10.39 of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year ended December 31,
2003.)                                                                                                                                                               
|        | 
|10.10  |  | Form of Nonstatutory Stock Option Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz, Michael D. Cochran, Bruce H. Stover, H. Don Teague and Robert
L. Thompson, individually (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 5, 2005.)
|        | 
|10.11  |  | Form of Stock Grant Agreement between Endeavour International Corporation and William L. Transier, John N. Seitz, Bruce H. Stover and Robert L. Thompson, individually (Incorporated by
reference to Exhibit 10.4 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on January 5, 2005.)                                                 
|        | 
|10.12   |  | Subscription and Registration Rights Agreement, dated October 19, 2006, by and among Endeavour International Corporation and the Investors party thereto (Incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on October 25, 2006.)                                                              
|        | 
|10.13   |  | Consulting agreement dated October 9, 2006 by and between Endeavour International Corporation and John N. Seitz (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K
(Commission File No. 001-32212) on October 10, 2006.)                                                                                                             



|* | Filed herewith.
|- | ---------------



| | Furnished herewith.
|- | -------------------



| | Identifies management contracts and compensatory plans or arrangements.
|- | -----------------------------------------------------------------------



---

##### Table of Contents

Index to Exhibits



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         | 
|10.14    |  | Termination agreement dated November 29, 2007 by and between Endeavour International Corporation and John Seitz (Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K (Commission File No. 001-32212) filed on November 29, 2007.)                                                                                                                                                                                                                                          
|         | 
|10.15(a) |  | $225,000,000 Secured Revolving Loan and Letter of Credit Facility Agreement (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed
on November 6, 2006.)                                                                                                                                                                                                                                                                               
|         | 
|10.15(b) |  | Waiver and consent to $225,000,000 Secured Revolving Loan and Letter of Credit Facility Agreement (Incorporated by reference to Exhibit 4.8(b) to our Annual Report on Form 10-K (Commission
File No. 001-32212) for the year ended December 31, 2006.)                                                                                                                                                                                                                                            
|         | 
|10.16(a) |  | Second Lien Credit and Guarantee Agreement (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K/A (Commission File No. 001-32212) filed on November 7,
2006.)                                                                                                                                                                                                                                                                                                              
|         | 
|10.16(b) |  | Amendment to Second Lien Credit and Guarantee Agreement (Incorporated by reference to Exhibit 4.9(b) to our Annual Report on Form 10-K (Commission File No. 001-32212) for the year ended
December 31, 2006.)                                                                                                                                                                                                                                                                                      
|         | 
|10.17    |  | Junior Facility Agreement dated January 22, 2008 by and among Endeavour International Holding B.V., as borrower, Endeavour International Corporation and certain of its affiliates party
thereto, as guarantors, BNP Paribas and Bank of Scotland Plc, as the mandated lead arrangers and original lenders, and BNP Paribas, as agent and security trustee (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
(Commission File No. 001-32212) filed on January 28, 2008.)
|         | 
|10.18   |  | Restricted Stock Award Agreement between Endeavour International Corporation and J. Michael Kirksey dated September 26, 2007 (Incorporated by reference to Exhibit 10.31 to our Annual Report
on Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2007.)                                                                                                                                                                                                                  
|         | 
|10.19   |  | Restricted Stock Award Agreement between Endeavour International Corporation and John G. Williams dated October 1, 2007 (Incorporated by reference to Exhibit 10.32 to our Annual Report on
Form 10-K (Commission File No. 001-32212) for the year ended December 31, 2007.)                                                                                                                                                                                                                       
|         | 
|10.20   |  | Stock Option Agreement between Endeavour International Corporation and J. Michael Kirksey dated September 26, 2007 (Incorporated by reference to Exhibit 10.33 to our Annual Report on Form
10-K (Commission File No. 001-32212) for the year ended December 31, 2007.)                                                                                                                                                                                                                            
|         | 
|10.21   |  | Stock Option Agreement between Endeavour International Corporation and John G. Williams dated October 1, 2007 (Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K
(Commission File No. 001-32212) for the year ended December 31, 2007.)                                                                                                                                                                                                                                 
|         | 
|*10.22  |  | Stock Option Agreement between Endeavour International Corporation and Carl D. Grenz dated November 3, 2008.                                                                                                                                                                                                                                                                                                                                                                                       
|         | 
|*10.23  |  | Stock Option Agreement between Endeavour International Corporation and Carl D. Grenz dated November 3, 2008.                                                                                                                                                                                                                                                                                                                                                                                       
|         | 
|*10.24  |  | Restricted Stock Award Agreement between Endeavour International Corporation and Carl D. Grenz dated November 3, 2008.                                                                                                                                                                                                                                                                                                                                                                             



|* | Filed herewith.
|- | ---------------



| | Furnished herewith.
|- | -------------------



| | Identifies management contracts and compensatory plans or arrangements.
|- | -----------------------------------------------------------------------



---

##### Table of Contents

Index to Exhibits



|        |  |                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                             
|        | 
|*10.25 |  | Restricted Stock Award Agreement between Endeavour International Corporation and Carl D. Grenz dated November 3, 2008.                                                  
|        | 
|*21.1   |  | List of Subsidiaries.                                                                                                                                                   
|        | 
|*23.1   |  | Consent of Independent Registered Public Accounting Firm  KPMG LLP.                                                                                                    
|        | 
|*23.2   |  | Consent of Independent Reserve Engineers  Netherland, Sewell & Associates, Inc.                                                                                        
|        | 
|*31.1   |  | Certification of William L. Transier, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.                       
|        | 
|*31.2   |  | Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.                        
|        | 
|32.1   |  | Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 
|32.2   |  | Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 



|* | Filed herewith.
|- | ---------------



| | Furnished herewith.
|- | -------------------



| | Identifies management contracts and compensatory plans or arrangements.
|- | -----------------------------------------------------------------------