##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2007
 o
    
    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
  Nevada
    
    88-0448389(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
 
 (713) 307-8700
  Title of Each Class of Stock
    
    Name of Each Exchange on Which RegisteredCommon Stock - $0.001 par value per share
    
    American Stock Exchange
  o þ
 o þ
 þ o
 o
  o þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



Table of Contents
 Part I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    21Item 2. Properties
    
    
    21Item 3. Legal Proceedings
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Part II
    
    
    24Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    24Item 6. Selected Financial Data
    
    
    25Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 8. Financial Statements and Supplementary Data
    
    
    46Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
    
    
    92Item 9A. Controls and Procedures
    
    
    92Item 9B. Other Information
    
    
    95Part III
    
    
    95Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
    
    
    95Item 11. Executive Compensation
    
    
    95Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters
    
    
    95Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    95Item 14. Principal Accounting Fees and Services
    
    
    96Part IV
    
    
    96Item 15. Exhibits and Financial Statement Schedules
    
    
    96SIGNATURES
    
    
    97Restricted Stock Award AgreementRestricted Stock Award AgreementStock Option AgreementStock Option AgreementCode of ConductsList of SubsidiariesConsent of Independent Registered Public Accounting Firm - KPMG LLPConsent of Independent Reserve Engineers - Netherland, Sewell & Associates, Inc.Certification of William L. Transier, CEO, Pursuant to Rule 13a-14(a)Certification of J. Michael Kirksey, CFO, Pursuant to Rule 13a-14(a)Certification of Robert L. Thompson, CAO, Pursuant to Rule 13a-14(a)Certification of William L. Transier, CEO, Pursuant to Section 906Certification of J. Michael Kirksey, CFO, Pursuant to Section 906Certification of Robert L. Thompson, CAO, Pursuant to Section 906
  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.
 (i)




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Endeavour International Corporation
 
 Part I
 
 Item 1. Business
  General
       1




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Endeavour International Corporation
 Summary Financial Information(1)(Amounts in thousands, except per share data and BOE data)
    
    Year Ended December 31,2007
    
    2006
    
    2005Revenues
    
    $
    176,064
    
    
    $
    54,131
    
    
    $
    38,656Operating Profit (Loss)
    
    
    38,292
    
    
    
    (4,374
    )
    
    
    (28,089
    )Net Loss to Common Shareholders
    
    
    (60,315
    )
    
    
    (8,829
    )
    
    
    (31,531
    )Net Income (Loss) as Adjusted (2)
    
    
    (10,907
    )
    
    
    (21,322
    )
    
    
    (33,355
    )Net Loss Per Common Share  Basic and Diluted
    
    
    (0.49
    )
    
    
    (0.10
    )
    
    
    (0.42
    )Earnings (Loss) per share as Adjusted (2)
    
    
    (0.09
    )
    
    
    (0.25
    )
    
    
    (0.45
    )Adjusted EBITDA (2)
    
    
    124,155
    
    
    
    9,233
    
    
    
    8,157Discretionary cash flow (2)
    
    
    112,973
    
    
    
    10,663
    
    
    
    6,259Daily Production (BOE)
    
    
    8,969
    
    
    
    2,760
    
    
    
    2,072Summary Balance Sheet Data:Working Capital
    
    
    37,198
    
    
    
    47,431
    
    
    
    49,638Total Assets
    
    
    747,623
    
    
    
    774,470
    
    
    
    186,966Debt
    
    
    266,250
    
    
    
    306,250
    
    
    
    81,250Convertible Preferred Stock
    
    
    125,000
    
    
    
    125,000
    
    
    
    Equity
    
    
    70,149
    
    
    
    116,828
    
    
    
    40,344
 
 (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 the non-GAAP financial measures, 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.   2




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Endeavour International Corporation
  Business Strategy
  Exploitation
  Acquisitions
  Exploration
 3-D MegaSurvey North Sea Digital Atlas
 3




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Endeavour International Corporation
 Properties
    EndeavourWorkingField Name
    
    Country
    
    Operator
    
    InterestAlba
    
    United Kingdom
    
    Chevron
    
    2.25%Bittern
    
    United Kingdom
    
    Shell
    
    2.42%Brage
    
    Norway
    
    Norsk Hydro
    
    4.4%Caledonia
    
    United Kingdom
    
    Chevron
    
    2.83%Enoch
    
    United Kingdom
    
    Talisman
    
    8%Goldeneye
    
    United Kingdom
    
    Shell
    
    7.029%Ivanhoe, Rob Roy, Hamish
    
    United Kingdom
    
    Hess
    
    23.46%Njord
    
    Norway
    
    Norsk Hydro
    
    2.5%Renee
    
    United Kingdom
    
    Endeavour
    
    77.5%Rubie
    
    United Kingdom
    
    Endeavour
    
    40.78%
   4




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Endeavour International Corporation
 Reserves
    Oil
    
    Gas
    
    Oil Equivalents(MBbls)
    
    (MMcf)
    
    (MBOE)2007:United Kingdom
    
    
    3,284
    
    
    
    11,812
    
    
    
    5,252Norway
    
    
    2,056
    
    
    
    8,434
    
    
    
    3,4615,340
    
    
    
    20,246
    
    
    
    8,7132006:United Kingdom
    
    
    4,566
    
    
    
    17,172
    
    
    
    7,428Norway
    
    
    1,186
    
    
    
    7,673
    
    
    
    2,4655,752
    
    
    
    24,845
    
    
    
    9,8932005:Norway
    
    
    1,164
    
    
    
    6,297
    
    
    
    2,214
 Planned Exploration and Development Expenditures
   5




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Endeavour International Corporation
   Executive Officers
 Name
    
    Age
    
    PositionWilliam L. Transier
    
    53
    
    Chief Executive Officer, President and Chairman of the Board of DirectorsJ. Michael Kirksey
    
    52
    
    Executive Vice President, Chief Financial OfficerBruce H. Stover
    
    59
    
    Executive Vice President, Operations and Business DevelopmentJohn G. Williams
    
    58
    
    Executive Vice President, ExplorationRobert L. Thompson
    
    61
    
    Senior Vice President, Chief Accounting Officer and Corporate Planning
  William L. Transier
 J. Michael Kirksey 
 Bruce H. Stover
 6




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Endeavour International Corporation
  John G. Williams
 Robert L. Thompson
 Company History
   
    
    a new management team;
    
    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 interests in U.S. oil and gas
properties.
   7




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Endeavour International Corporation
  
    
    37.8 million shares of common stock in the fourth quarter of 2006 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 borrowing base debt facility, before financing costs paid of $3.2
million; and
    
    $75 million in a second lien term loan, before financing costs paid of $2.6 million.
   Environmental
    8




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Endeavour International Corporation
  Regulation
  Competition
  Significant Customers
  Employees
  Offices
  9




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Endeavour International Corporation
 Available Information
  Financial Information about Segment and Geographical Areas
  Average Sales Prices and Production Costs by Geographical Area
  
 Item 1A. Risk Factors
  10




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Endeavour International Corporation
 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.
  We may not be able to replace production with new reserves which could cause our production and
reserves to decline.
  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.
   11




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Endeavour International Corporation
  Our debt level could negatively impact our financial condition, results of operations and business
prospects.
  
    
    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 competitors.
    12




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Endeavour International Corporation
 Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service
obligations to increase significantly.
  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.
  
    
    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 to drill wells and implement other work programs;
    
    selection of technology; and
    
    the rate of production of the reserves.
 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.
  13




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Endeavour International Corporation
 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.
   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.
  
    
    we may not be able to identify additional desirable oil and gas prospects and
acquire interests in such prospects at a desirable price;
    
    any acquisition of interests in oil and gas prospects may be found not to include
prospects that contain proven oil or gas reserves;
    
    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.
 Acquiring interests in properties for oil and natural gas exploration is speculative in nature and
may not ever result in operating revenues or profits.
  14




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Endeavour International Corporation
 We face risks associated with our acquisition strategy.
  
    
    we will be able to finance or consummate the transactions we select;
    
    any acquisitions will be profitable or be successfully integrated into our
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.
   Our results of operations could be adversely affected by goodwill impairments.
  15




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Endeavour International Corporation
  Derivative transactions may limit our potential gains and involve other risks.
  
    
    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.
  We operate internationally and are subject to political, economic and other uncertainties.
  
    
    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.
  16




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Endeavour International Corporation
  Our insurance may not protect us against 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.
  The cost of decommissioning is uncertain.
  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.
  17




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Endeavour International Corporation
  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.
     18




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Endeavour International Corporation
 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.
  We are dependent on our executive officers and need to attract and retain additional qualified
personnel.
   We are unable to predict the outcome of the pending SEC investigation.
  Risks relating to our common stock
 The trading price of our common stock may be volatile.
  19




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Endeavour International Corporation
  There is a limited market for our common stock.
  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 decline.
    Provisions in our articles of incorporation, bylaws and the Nevada Revised Statutes may discourage
a change of control.
   20




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Endeavour International Corporation
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Drilling Statistics
  21




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Endeavour International Corporation
 Productive Wells
    
    Dry Holes
    
    In Progress WellsGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetExploration2007:United Kingdom
    
    
    2
    
    
    
    0.50
    
    
    
    3
    
    
    
    0.75
    
    
    
    
    
    
    
    Norway
    
    
    2
    
    
    
    0.05
    
    
    
    1
    
    
    
    0.04
    
    
    
    
    
    
    
    2006:United Kingdom
    
    
    2
    
    
    
    0.38
    
    
    
    1
    
    
    
    0.10
    
    
    
    
    
    
    
    2005:United Kingdom
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1.5
    
    
    
    
    
    
    
    Development2007:United Kingdom
    
    
    1
    
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norway
    
    
    3
    
    
    
    0.13
    
    
    
    1
    
    
    
    0.04
    
    
    
    
    
    
    
    2006:Norway
    
    
    2
    
    
    
    0.05
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    0.042005:Norway
    
    
    2
    
    
    
    0.07
    
    
    
    1
    
    
    
    0.03
    
    
    
    1
    
    
    
    0.03
  Productive Well Summary
  Oil
    
    GasGross
    
    Net
    
    Gross
    
    NetUnited Kingdom
    
    
    42
    
    
    
    2.67
    
    
    
    5
    
    
    
    0.35Norway
    
    
    38
    
    
    
    1.04
    
    
    
    
    
    
    
    Total
    
    
    80
    
    
    
    3.71
    
    
    
    5
    
    
    
    0.35
 22




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Endeavour International Corporation
 Acreage
  Developed
    
    UndevelopedGross
    
    Net
    
    Gross
    
    NetUnited Kingdom
    
    
    95,209
    
    
    
    13,765
    
    
    
    828,587
    
    
    
    298,969Norway
    
    
    80,665
    
    
    
    2,700
    
    
    
    804,686
    
    
    
    295,923Ireland
    
    
    
    
    
    
    
    
    
    
    172,797
    
    
    
    34,559Total
    
    
    175,874
    
    
    
    16,465
    
    
    
    1,806,070
    
    
    
    629,451
   Sales Volumes and Prices
  Reserves
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  23




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Endeavour International Corporation
 
 Part II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  2007
    
    2006High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    2.37
    
    
    $
    1.97
    
    
    $
    3.79
    
    
    $
    2.75Second Quarter
    
    
    2.25
    
    
    
    1.33
    
    
    
    3.80
    
    
    
    2.10Third Quarter
    
    
    1.53
    
    
    
    0.95
    
    
    
    3.19
    
    
    
    2.28Fourth Quarter
    
    
    1.45
    
    
    
    1.05
    
    
    
    2.68
    
    
    
    2.01
 Holders
  Dividends
   24




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Endeavour International Corporation
   
 Item 6. Selected Financial Data
  Selected Financial Data (1)(Amounts in thousands, except per share data)
    
    Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Revenues
    
    $
    176,064
    
    
    $
    54,131
    
    
    $
    38,656
    
    
    $
    3,663
    
    
    $
    27Operating Profit (Loss)
    
    
    38,292
    
    
    
    (4,374
    )
    
    
    (28,089
    )
    
    
    (15,492
    )
    
    
    (31,922
    )Net Loss to Common Shareholders
    
    
    (60,315
    )
    
    
    (8,829
    )
    
    
    (31,531
    )
    
    
    (23,372
    )
    
    
    (36,829
    )Net Loss Per Common Share  Basic and Diluted
    
    
    (0.49
    )
    
    
    (0.10
    )
    
    
    (0.42
    )
    
    
    (0.37
    )
    
    
    (1.18
    )Summary Balance Sheet Data:Working Capital
    
    
    37,198
    
    
    
    47,431
    
    
    
    49,638
    
    
    
    4,699
    
    
    
    (6,051
    )Total Assets
    
    
    747,623
    
    
    
    774,470
    
    
    
    186,966
    
    
    
    101,737
    
    
    
    12,582Debt
    
    
    266,250
    
    
    
    306,250
    
    
    
    81,250
    
    
    
    2,150
    
    
    
    Convertible Preferred Stock
    
    
    125,000
    
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    Equity
    
    
    70,149
    
    
    
    116,828
    
    
    
    40,344
    
    
    
    56,972
    
    
    
    3,181
 (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;
    
    acquisition of various U.S. assets in 2003; and
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Endeavour International Corporation
 
    
    unrealized gains (losses) on commodity derivatives of $(89.1) million and $34.5
million in 2007 and 2006, respectively.
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    
    
    Exploration  During the last three years, weve drilled fifteen exploration wells with
four successes in the UK and two in Norway, including:
 o
    
    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.
The well has successfully tested as a gas discovery and is located within close
proximity to several potential
 26




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Endeavour International Corporation
 transportation routes. We continue to work toward completing the development plan
with the other interest owners in the prospect.o
    
    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. The well is now suspended for possible use in the
development of the field. Information obtained from the drilling will be used to
further advance development studies, an optimum reservoir depletion scheme and
export plans to nearby infrastructure.
 
    
    Enoch  We completed the development program and began initial production in mid 2007.
    
    Producing assets  At the end of 2007, we completed a project designed to begin gas
production at the Njord field. Production from Goldeneye has continued at levels in 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.
 Results of Operations
    27




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Endeavour International Corporation
 Revenues, Production and Operating Costs
    28




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Endeavour International Corporation
 Year Ended December 31,2007
    
    2006
    
    2005Production(1):Oil and condensate sales (Mbbl):United Kingdom
    
    
    1,274
    
    
    
    209
    
    
    
    Norway
    
    
    519
    
    
    
    508
    
    
    
    726Total
    
    
    1,793
    
    
    
    717
    
    
    
    726Gas sales (MMcf):United Kingdom
    
    
    8,556
    
    
    
    1,539
    
    
    
    Norway
    
    
    328
    
    
    
    203
    
    
    
    184Total
    
    
    8,884
    
    
    
    1,742
    
    
    
    184Total sales (MBOE)United Kingdom
    
    
    2,700
    
    
    
    466
    
    
    
    Norway
    
    
    574
    
    
    
    542
    
    
    
    756Total
    
    
    3,274
    
    
    
    1,008
    
    
    
    756BOE per day
    
    
    8,969
    
    
    
    2,760
    
    
    
    2,072Realized Prices(2):Oil and condensate price ($  per Bbl)Before commodity derivatives
    
    $
    67.11
    
    
    $
    60.51
    
    
    $
    54.92Effect of commodity derivatives
    
    
    (2.13
    )
    
    
    (7.63
    )
    
    
    (3.18
    )Realized prices including commodity derivatives
    
    $
    64.98
    
    
    $
    52.88
    
    
    $
    51.74Gas price ($  per Mcf)Before commodity derivatives
    
    $
    6.27
    
    
    $
    9.30
    
    
    $
    6.06Effect of commodity derivatives
    
    
    1.79
    
    
    
    
    
    
    
    Realized prices including commodity derivatives
    
    $
    8.06
    
    
    $
    9.30
    
    
    $
    6.06Equivalent oil price ($  per BOE)Before commodity derivatives
    
    $
    53.78
    
    
    $
    59.15
    
    
    $
    54.17Effect of commodity derivatives
    
    
    3.68
    
    
    
    (5.43
    )
    
    
    (3.05
    )Realized prices including commodity derivatives
    
    $
    57.46
    
    
    $
    53.72
    
    
    $
    51.12Operating Statistics:Operating costs ($  per BOE)(3)
    
    $
    12.56
    
    
    $
    15.45
    
    
    $
    15.86G&A costs ($  per BOE)
    
    $
    6.07
    
    
    $
    21.76
    
    
    $
    24.10Production per employee (MBOE per employee)
    
    
    54
    
    
    
    17
    
    
    
    15
 (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. Our physical daily production
was approximately 9,300 BOE, 2,900 BOE and 2,000 BOE for 2007, 2006 and 2005, respectively.(2)
    
    The average sales prices include gains and losses for derivative contracts we
utilize to manage price risk related to our future cash flows.
 29




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##### Table of Contents



Endeavour International Corporation
 (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
  General and Administrative Expenses
  (Amounts in thousands, except per BOE data)
    
    Year Ended December 31,2007
    
    2006
    
    2005Compensation
    
    $
    14,407
    
    
    $
    13,027
    
    
    $
    9,742Consulting, legal and accounting fees
    
    
    6,440
    
    
    
    4,989
    
    
    
    5,235Occupancy costs
    
    
    1,364
    
    
    
    845
    
    
    
    1,070Other expenses
    
    
    1,321
    
    
    
    2,342
    
    
    
    2,273Total gross cash G&A expenses
    
    
    23,532
    
    
    
    21,203
    
    
    
    18,320Non-cash stock-based compensation
    
    
    4,968
    
    
    
    11,573
    
    
    
    7,908Fair market value adjustment of stock options  non-cash
    
    
    
    
    
    
    
    
    
    
    (555
    )Total gross non-cash G&A expenses
    
    
    4,968
    
    
    
    11,573
    
    
    
    7,353Gross G&A expenses
    
    
    28,500
    
    
    
    32,776
    
    
    
    25,673Less: capitalized G&A expenses
    
    
    (8,622
    )
    
    
    (10,852
    )
    
    
    (7,450
    )Net G&A expenses
    
    $
    19,878
    
    
    $
    21,924
    
    
    $
    18,223
 30




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Endeavour International Corporation
 Interest Expense and Other
     31




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##### Table of Contents



Endeavour International Corporation
 Income Taxes
  The(Amounts in thousands)
    
    UK
    
    Norway
    
    Netherlands
    
    U.S.
    
    TotalYear Ended December 31, 2007Net income (loss) before taxes
    
    $
    (68,704
    )
    
    $
    10,727
    
    
    $
    6,584
    
    
    $
    (6,864
    )
    
    $
    (58,257
    )Current tax expense (benefit)
    
    
    2,898
    
    
    
    562
    
    
    
    289
    
    
    
    (3
    )
    
    
    3,746Deferred tax expense (benefit)
    
    
    (27,430
    )
    
    
    8,951
    
    
    
    711
    
    
    
    
    
    
    
    (17,768
    )Foreign currency losses on
deferred tax liabilities
    
    
    1,328
    
    
    
    3,514
    
    
    
    
    
    
    
    
    
    
    
    4,842Total tax expense (benefit)
    
    
    (23,204
    )
    
    
    13,027
    
    
    
    1,000
    
    
    
    (3
    )
    
    
    (9,180
    )Net income (loss) after taxes
    
    $
    (45,500
    )
    
    $
    (2,300
    )
    
    $
    5,584
    
    
    $
    (6,861
    )
    
    $
    (49,077
    )Year Ended December 31, 2006Net income (loss) before taxes
    
    $
    33,275
    
    
    $
    4,375
    
    
    $
    13
    
    
    $
    (20,588
    )
    
    $
    17,075Current tax expense
    
    
    1,837
    
    
    
    9,014
    
    
    
    69
    
    
    
    (45
    )
    
    
    10,875Deferred tax expense
    
    
    10,105
    
    
    
    (1,840
    )
    
    
    
    
    
    
    
    
    
    
    8,265Foreign currency losses on
deferred tax liabilities
    
    
    2,904
    
    
    
    1,869
    
    
    
    
    
    
    
    
    
    
    
    4,773Total tax expense
    
    
    14,846
    
    
    
    9,043
    
    
    
    69
    
    
    
    (45
    )
    
    
    23,913Net income (loss) after taxes
    
    $
    18,429
    
    
    $
    (4,668
    )
    
    $
    (56
    )
    
    $
    (20,543
    )
    
    $
    (6,838
    )Year Ended December 31, 2005Net income (loss) before taxes
    
    $
    (31,396
    )
    
    $
    14,057
    
    
    $
    (17
    )
    
    $
    (2,956
    )
    
    $
    (20,312
    )Current tax expense
    
    
    
    
    
    
    7,770
    
    
    
    
    
    
    
    48
    
    
    
    7,818Deferred tax expense
    
    
    
    
    
    
    5,067
    
    
    
    
    
    
    
    
    
    
    
    5,067Foreign currency losses on
deferred tax liabilities
    
    
    
    
    
    
    (1,824
    )
    
    
    
    
    
    
    
    
    
    
    (1,824
    )Total tax expense
    
    
    
    
    
    
    11,013
    
    
    
    
    
    
    
    48
    
    
    
    11,061Net income (loss) after taxes
    
    $
    (31,396
    )
    
    $
    3,044
    
    
    $
    (17
    )
    
    $
    (3,004
    )
    
    $
    (31,373
    )
  32




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Endeavour International Corporation
   Liquidity and Capital Resources
 (Amounts in thousands)
    
    December 31, 2007
    
    December 31, 2006Cash
    
    $
    16,440
    
    
    $
    39,814Restricted cash
    
    
    22,000
    
    
    
    1,867Long-term debt
    
    
    (266,250
    )
    
    
    (303,840
    )Debt, net of cash
    
    $
    (227,810
    )
    
    $
    (262,159
    )
 Year Ended December 31,(Amounts in thousands)
    
    2007
    
    2006
    
    2005Net cash provided by (used in):Operating activities
    
    $
    128,506
    
    
    $
    (14,100
    )
    
    $
    27,962Investing activities
    
    $
    (108,140
    )

    
    $
    (427,118
    )
    
    $
    (34,972
    )Financing activities
    
    $
    (43,740
    )
    
    $
    403,369
    
    
    $
    75,411
  
    
    repaid net $40 million of our senior debt facility
    
    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 borrowing base 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,
to acquire producing properties in the UK;
 
    
    in May 2006, we completed the $11.6 million purchase for cash of an eight percent
interest in the Enoch field;
    
    in the first quarter of 2005, we completed the issuance of $81.25 million in senior
convertible notes due 2012; and
    
    in January 2005, we purchased the remaining minority interest in OER for an aggregate
consideration paid of $10.7 million, which was approximately $1.4 million in cash and 2.2
million shares of our common stock.
 33




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Endeavour International Corporation
 
    Non-GAAP Measures
    34




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##### Table of Contents



Endeavour International Corporation
   
    
    our cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
    
    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.
   (in thousands, except per share)
    
    December 31,2007
    
    2006
    
    2005Net loss
    
    $
    (49,077
    )
    
    $
    (6,838
    )
    
    $
    (31,373
    )Depreciation, depletion and amortization
    
    
    76,850
    
    
    
    20,164
    
    
    
    9,337Impairment of oil and gas properties
    
    
    
    
    
    
    849
    
    
    
    27,116Deferred tax expense (benefit)
    
    
    (12,926
    )
    
    
    13,038
    
    
    
    3,243Unrealized (gain) loss on derivative instruments
    
    
    89,132
    
    
    
    (34,531
    )
    
    
    Amortization of non-cash compensation
    
    
    4,968
    
    
    
    11,573
    
    
    
    7,070Gain on sale of oil and gas assets
    
    
    
    
    
    
    
    
    
    
    (14,966
    )Other
    
    
    4,026
    
    
    
    6,408
    
    
    
    (9,134
    )Discretionary cash flow
    
    $
    112,973
    
    
    $
    10,663
    
    
    $
    8,707
 35




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##### Table of Contents



Endeavour International Corporation
 (in thousands, except per share)
    
    December 31,2007
    
    2006
    
    2005Net income (loss) to common shareholders, as reported
    
    $
    (60,315
    )
    
    $
    (8,829
    )
    
    $
    (31,531
    )Unrealized (gains) losses on derivatives (net of 50% tax)
    
    
    44,566
    
    
    
    (17,266
    )
    
    
    Currency impact of deferred taxes
    
    
    4,842
    
    
    
    4,773
    
    
    
    (1,824
    )Net income (loss) as adjusted
    
    $
    (10,907
    )
    
    $
    (21,322
    )
    
    $
    (33,355
    )Weighted average number of common shares outstanding 
basic and diluted
    
    
    123,118
    
    
    
    86,636
    
    
    
    74,433Earnings per share, as adjusted
    
    $
    (0.09
    )
    
    $
    (0.25
    )
    
    $
    (0.45
    )Net income (loss) to common shareholders, as reported
    
    $
    (60,315
    )
    
    $
    (8,829
    )
    
    $
    (31,531
    )Unrealized (gains) losses on derivatives
    
    
    89,132
    
    
    
    (34,531
    )
    
    
    Net interest expense
    
    
    16,430
    
    
    
    5,676
    
    
    
    1,717Depreciation, depletion and amortization
    
    
    76,850
    
    
    
    20,164
    
    
    
    9,337Impairment of oil and gas properties
    
    
    
    
    
    
    849
    
    
    
    27,116Income tax expense (benefit)
    
    
    (9,180
    )
    
    
    23,913
    
    
    
    11,061Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    5,265Gain on sale of oil and gas assets
    
    
    
    
    
    
    
    
    
    
    (14,966
    )Preferred stock dividends
    
    
    11,238
    
    
    
    1,991
    
    
    
    158Adjusted EBITDA
    
    $
    124,155
    
    
    $
    9,233
    
    
    $
    8,157
  Outlook
 Drilling Program
    36




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##### Table of Contents



Endeavour International Corporation
  Rig Commitments
   Revenues and Production
    Liquidity and Financial Resources
   37




---



##### Table of Contents



Endeavour International Corporation
    Critical Accounting Policies and Estimates
    38




---



##### Table of Contents



Endeavour International Corporation
 Full Cost Accounting
      39




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##### Table of Contents



Endeavour International Corporation
  Business Combinations
  Purchase Price Allocation
  Goodwill and Intangible Assets
  Dismantlement, Restoration and Environmental Costs
  40




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##### Table of Contents



Endeavour International Corporation
 Revenue Recognition
  Derivative Instruments and Hedging Activities
    Income Taxes
  41




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##### Table of Contents



Endeavour International Corporation
  Stock-Based Compensation Arrangements
  Recent Accounting Pronouncements
     42




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##### Table of Contents



Endeavour International Corporation
  Disclosures about Contractual Obligations and Commercial Commitments
  (Amounts in thousands)
    
    Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    YearsLong-term debtPrincipal (1)
    
    $
    266,250
    
    
    $
    
    
    
    $
    85,000
    
    
    $
    181,250
    
    
    $
    Interest (2)
    
    
    50,970
    
    
    
    17,567
    
    
    
    32,997
    
    
    
    406
    
    
    
    Asset retirement obligations
    
    
    104,493
    
    
    
    
    
    
    
    256
    
    
    
    266
    
    
    
    103,971Operating leases for office
leases and equipment
    
    
    7,157
    
    
    
    1,821
    
    
    
    3,421
    
    
    
    1,915
    
    
    
    Rig commitments (3)
    
    
    81,600
    
    
    
    44,100
    
    
    
    37,500
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    510,470
    
    
    $
    63,488
    
    
    $
    159,174
    
    
    $
    183,837
    
    
    $
    103,971
 (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 3.25% LIBOR rate.(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
  43




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Endeavour International Corporation
  Commodity Price Risk
   (Amounts in thousands, except unit and per unit data)
    
    2008
    
    2009
    
    2010
    
    2011
    
    TotalOil:Fixed Price Swap (Mbbl)
    
    
    907
    
    
    
    697
    
    
    
    573
    
    
    
    487
    
    
    
    2,664Weighted Average Price
($/Barrel)
    
    $
    68.87
    
    
    $
    69.08
    
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    68.30Gas:(1)Fixed Price Swap (MMcf)
    
    
    2,676
    
    
    
    1,387
    
    
    
    1,032
    
    
    
    627
    
    
    
    5,722Weighted Average Price
(£/Mcf)
    
    £
    5.81
    
    
    £
    5.58
    
    
    £
    5.35
    
    
    £
    5.13
    
    
    £
    5.60Costless Collar (MMcf)
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,200Weighted Average
Ceiling Price (£/Mcf)
    
    £
    4.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    £
    4.53Weighted Average Floor
Price (£/Mcf)
    
    £
    3.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    £
    3.53Net Fair Market Value -
Asset (Liability):Oil
    
    $
    (20,939
    )
    
    $
    (12,717
    )
    
    $
    (9,160
    )
    
    $
    (8,085
    )
    
    $
    (50,901
    )Gas
    
    
    2,217
    
    
    
    962
    
    
    
    645
    
    
    
    207
    
    
    
    4,031Total
    
    $
    (18,722
    )
    
    $
    (11,755
    )
    
    $
    (8,515
    )
    
    $
    (7,878
    )
    
    $
    (46,870
    )
 (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, 2007 was $1.98 to £1.00.
  44




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Endeavour International Corporation
 Interest Rate Risk
   45




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 
     Internal Control  Integrated
Framework
  
 46




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##### Table of Contents



Endeavour International Corporation
Consolidated Balance Sheets
 December 31,2007
    
    2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    16,440
    
    
    $
    39,814Restricted cash
    
    
    22,000
    
    
    
    1,867Accounts receivable
    
    
    33,291
    
    
    
    61,104Prepaid expenses and other current assets
    
    
    46,516
    
    
    
    25,783Total Current Assets
    
    
    118,247
    
    
    
    128,568Property and Equipment, Net (Note 5)
    
    
    335,023
    
    
    
    319,315Goodwill
    
    
    283,324
    
    
    
    291,752Other Assets
    
    
    11,029
    
    
    
    34,835Total Assets
    
    $
    747,623
    
    
    $
    774,470Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    31,036
    
    
    $
    36,928Current maturities of debt
    
    
    
    
    
    
    2,410Accrued expenses and other
    
    
    50,013
    
    
    
    41,799Total Current Liabilities
    
    
    81,049
    
    
    
    81,137Long-Term Debt
    
    
    266,250
    
    
    
    303,840Deferred Taxes
    
    
    135,552
    
    
    
    115,155Other Liabilities
    
    
    69,623
    
    
    
    32,510Total Liabilities
    
    
    552,474
    
    
    
    532,642Commitments and ContingenciesSeries C Convertible Preferred Stock (Liquidation preference: $126,833)
    
    
    125,000
    
    
    
    125,000Stockholders Equity:Series B Preferred stock (Liquidation preference: $2,799)
    
    
    
    
    
    
    Common stock; shares issued and outstanding  127,006,440
at 2007 and 118,577,369 at 2006
    
    
    127
    
    
    
    119Additional paid-in capital
    
    
    241,539
    
    
    
    226,988Accumulated other comprehensive loss
    
    
    (923
    )
    
    
    Accumulated deficit
    
    
    (170,594
    )
    
    
    (110,279
    )Total Stockholders Equity
    
    
    70,149
    
    
    
    116,828Total Liabilities and Stockholders Equity
    
    $
    747,623
    
    
    $
    774,470
  47




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##### Table of Contents



Endeavour International Corporation
Consolidated Statements of Operations
 For the Year Ended December 31,2007
    
    2006
    
    2005Revenues
    
    $
    176,064
    
    
    $
    54,131
    
    
    $
    38,656Expenses:Operating expenses
    
    
    41,044
    
    
    
    15,568
    
    
    
    11,990Depreciation, depletion and amortization
    
    
    76,850
    
    
    
    20,164
    
    
    
    9,337Impairment of oil and gas properties
    
    
    
    
    
    
    849
    
    
    
    27,116Equity loss from entities with oil and
gas properties
    
    
    
    
    
    
    
    
    
    
    79General and administrative
    
    
    19,878
    
    
    
    21,924
    
    
    
    18,223Total expenses
    
    
    137,772
    
    
    
    58,505
    
    
    
    66,745Operating Profit (Loss)
    
    
    38,292
    
    
    
    (4,374
    )
    
    
    (28,089
    )Other Income (Expense):Commodity derivatives:Unrealized gain (loss)
    
    
    (89,132
    )
    
    
    34,531
    
    
    
    Realized gain
    
    
    12,048
    
    
    
    
    
    
    
    Interest expense
    
    
    (18,742
    )
    
    
    (7,941
    )
    
    
    (4,322
    )Interest income
    
    
    2,312
    
    
    
    2,265
    
    
    
    2,605Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    (5,265
    )Gain on sale of oil and gas assets
    
    
    
    
    
    
    
    
    
    
    14,966Other
    
    
    (3,035
    )
    
    
    (7,406
    )
    
    
    263Total Other Income (Expense)
    
    
    (96,549
    )
    
    
    21,449
    
    
    
    8,247Income (Loss) Before Minority Interest
    
    
    (58,257
    )
    
    
    17,075
    
    
    
    (19,842
    )Minority Interest
    
    
    
    
    
    
    
    
    
    
    (470
    )Income (Loss) Before Income Taxes
    
    
    (58,257
    )
    
    
    17,075
    
    
    
    (20,312
    )Income Tax (Benefit) Expense
    
    
    (9,180)
    )
    
    
    23,913
    
    
    
    11,061Net Loss
    
    
    (49,077
    )
    
    
    (6,838
    )
    
    
    (31,373
    )Preferred Stock Dividends
    
    
    11,238
    
    
    
    1,991
    
    
    
    158Net Loss to Common Stockholders
    
    $
    (60,315
    )
    
    $
    (8,829
    )
    
    $
    (31,531
    )Net Loss Per Common Share  Basic and Diluted
    
    $
    (0.49
    )
    
    $
    (0.10
    )
    
    $
    (0.42
    )Weighted Average Number of Common Shares
Outstanding  Basic and Diluted
    
    
    123,118
    
    
    
    86,636
    
    
    
    74,433
  48




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##### Table of Contents



Endeavour International Corporation
Consolidated Statements of Cash Flows
 Year Ended December 31,2007
    
    2006
    
    2005Cash Flows from Operating Activities:Net loss
    
    $
    (49,077
    )
    
    $
    (6,838
    )
    
    $
    (31,373
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation, depletion and amortization
    
    
    76,850
    
    
    
    20,164
    
    
    
    9,337Impairment of oil and gas properties
    
    
    
    
    
    
    849
    
    
    
    27,116Deferred tax expense (benefit)
    
    
    (12,925
    )
    
    
    13,038
    
    
    
    3,243Unrealized (gain) loss on derivative instruments
    
    
    89,132
    
    
    
    (34,531
    )
    
    
    Amortization of non-cash compensation
    
    
    4,968
    
    
    
    11,573
    
    
    
    7,070Financing costs expensed
    
    
    
    
    
    
    3,750
    
    
    
    Impairment of marketable securities
    
    
    
    
    
    
    1,775
    
    
    
    Litigation settlement expense
    
    
    
    
    
    
    
    
    
    
    5,265Gain on sale of oil and gas assets
    
    
    
    
    
    
    
    
    
    
    (14,966
    )Other
    
    
    4,026
    
    
    
    883
    
    
    
    567Changes in assets and liabilities:(Increase) Decrease in receivables
    
    
    30,127
    
    
    
    (32,165
    )
    
    
    (688
    )(Increase) Decrease in prepaid expenses and other
    
    
    (984
    )
    
    
    (9,749
    )
    
    
    3,637Increase (Decrease) in current liabilities
    
    
    (13,611
    )
    
    
    17,151
    
    
    
    18,754Net Cash Provided by (Used in) Operating Activities
    
    
    128,506
    
    
    
    (14,100
    )
    
    
    27,962Cash Flows From Investing Activities:Capital expenditures
    
    
    (88,007
    )
    
    
    (55,496
    )
    
    
    (47,396
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (376,915
    )
    
    
    (1,437
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    19,465(Increase) decrease in restricted cash and other
investing activities
    
    
    (20,133
    )
    
    
    5,293
    
    
    
    (5,604
    )Net Cash Used in Investing Activities
    
    
    (108,140
    )
    
    
    (427,118
    )
    
    
    (34,972
    )Cash Flows From Financing Activities:Repayment of borrowings
    
    
    (47,000
    )
    
    
    
    
    
    
    (4,006
    )Proceeds from borrowings
    
    
    7,000
    
    
    
    225,000
    
    
    
    81,250Financing costs paid
    
    
    (263
    )
    
    
    (9,565
    )
    
    
    (3,661
    )Proceeds from warrant and stock option exercises
    
    
    
    
    
    
    3,310
    
    
    
    1,956Proceeds from common issued and issuable, net of
issuance costs
    
    
    
    
    
    
    83,967
    
    
    
    Proceeds from preferred stock issued and issuable,
net of issuance costs
    
    
    
    
    
    
    100,657
    
    
    
    Payment of preferred dividends
    
    
    (2,656
    )
    
    
    
    
    
    
    Other financing activities
    
    
    (821
    )
    
    
    
    
    
    
    (128
    )Net Cash Provided by (Used in) Financing Activities
    
    
    (43,740
    )
    
    
    403,369
    
    
    
    75,411Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (23,374
    )
    
    
    (37,849
    )
    
    
    68,401Effect of Foreign Currency Changes on Cash
    
    
    
    
    
    
    1,536
    
    
    
    (1,249
    )Cash and Cash Equivalents, Beginning of Period
    
    
    39,814
    
    
    
    76,127
    
    
    
    8,975Cash and Cash Equivalents, End of Period
    
    $
    16,440
    
    
    $
    39,814
    
    
    $
    76,127
  49




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Endeavour International Corporation
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
 AccumulatedAdditional
    
    
    
    
    
    Other
    
    
    
    
    
    Total
    
    TotalCommon
    
    Paid-In
    
    Deferred
    
    Comprehensive
    
    Accumulated
    
    Stockholders
    
    ComprehensiveStock
    
    Capital
    
    Compensation
    
    Loss
    
    Deficit
    
    Equity
    
    Income (Loss)Balance, December 31, 2004
    
    $
    70
    
    
    $
    133,919
    
    
    $
    (6,570
    )
    
    $
    (528
    )
    
    $
    (69,919
    )
    
    $
    56,972Issuance of common stock for acquisition of OER
net of expenses
    
    
    2
    
    
    
    9,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,258Issuance of common stock as deferred compensation
    
    
    2
    
    
    
    11,102
    
    
    
    (9,967
    )
    
    
    
    
    
    
    
    
    
    
    1,137Exercise of warrants and options
    
    
    1
    
    
    
    1,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,956Other issuances of common stock
    
    
    
    
    
    
    57
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    324Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    6,833
    
    
    
    
    
    
    
    
    
    
    
    6,833Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (158
    )
    
    
    (158
    )Fair market value adjustment of stock options
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555
    )Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,373
    )
    
    
    (31,373
    )
    
    $
    (31,373
    )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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (360
    )
    
    
    
    
    
    
    (360
    )
    
    
    (360
    )Balance, December 31, 2005
    
    $
    75
    
    
    $
    155,734
    
    
    $
    (9,437
    )
    
    $
    (4,578
    )
    
    $
    (101,450
    )
    
    $
    40,344
    
    
    $
    (35,423
    )
  50




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##### Table of Contents



Endeavour International Corporation
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
 AccumulatedAdditional
    
    
    
    
    
    Other
    
    
    
    
    
    Total
    
    TotalCommon
    
    Paid-In
    
    Deferred
    
    Comprehensive
    
    Accumulated
    
    Stockholders
    
    ComprehensiveStock
    
    Capital
    
    Compensation
    
    Loss
    
    Deficit
    
    Equity
    
    Income (Loss)Balance, December 31, 2005
    
    $
    75
    
    
    $
    155,734
    
    
    $
    (9,437
    )
    
    $
    (4,578
    )
    
    $
    (101,450
    )
    
    $
    40,344Adoption of stock-based compensation accounting
standards
    
    
    
    
    
    
    (9,110
    )
    
    
    9,437
    
    
    
    
    
    
    
    
    
    
    
    327Issuance of common stock as deferred compensation
    
    
    2
    
    
    
    473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475Exercise of warrants and options
    
    
    2
    
    
    
    3,308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,310Other issuances of common stock
    
    
    40
    
    
    
    89,353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,393Amortization of deferred compensation
    
    
    
    
    
    
    11,573
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,573Expenses 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
    
    
    
    3,690Unrealized gain (loss) on available-for-
sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888
    
    
    
    
    
    
    
    888
    
    
    
    888Balance, December 31, 2006
    
    $
    119
    
    
    $
    226,988
    
    
    $
    
    
    
    $
    
    
    
    $
    (110,279
    )
    
    $
    116,828
    
    
    $
    (2,260
    )Balance, December 31, 2006
    
    $
    119
    
    
    $
    226,988
    
    
    $
    
    
    
    $
    
    
    
    $
    (110,279
    )
    
    $
    116,828Preferred stock dividend
    
    
    6
    
    
    
    10,509
    
    
    
    
    
    
    
    
    
    
    
    (11,238
    )
    
    
    (723
    )Amortization of deferred compensation
    
    
    
    
    
    
    4,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,975Other
    
    
    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
    )
  51




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##### Table of Contents



Endeavour International Corporation  Notes to Consolidated Financial Statements
 Note 1  Description of Business
   Note 2  Summary of Significant Accounting Policies
 Basis of Presentation and Use of Estimates
   Principles of Consolidation
  52




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Cash and Cash Equivalents
  Inventories
  Full Cost Accounting for Oil and Gas Operations
     53




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
   Other Property and Equipment
  Capitalized Interest
  Marketable Securities
  Goodwill and Intangible Assets
  54




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  Dismantlement, Restoration and Environmental Costs
  Revenue Recognition
  Significant Customers
  Derivative Instruments and Hedging Activities
   55




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
    Concentrations of Credit and Market Risk
    Foreign Currency Translation
  56




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  Income Taxes
  Adoption of Accounting for Uncertainty in Income Taxes
  Adoption of Fair Value Accounting for Share-Based Payments
   57




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
   Loss Per Share
    (Amounts in thousands)
    
    December 31,2007
    
    2006
    
    2005Options and stock-based compensation
    
    
    
    
    
    
    626
    
    
    
    1,796Warrants
    
    
    
    
    
    
    219
    
    
    
    1,275Convertible debt
    
    
    16,185
    
    
    
    16,185
    
    
    
    14,984Convertible preferred stock
    
    
    50,000
    
    
    
    8,356
    
    
    
    Common shares potentially issuable
    
    
    66,185
    
    
    
    25,386
    
    
    
    18,055
 Recent Accounting Pronouncements
  58




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
    Note 3  Acquisitions and Dispositions
 Acquisition of Talisman Expro Limited
  59




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  (Amounts in thousands)Purchase price
    
    $
    359,594Legal, accounting and other direct expenses
    
    
    6,051Total purchase price
    
    $
    365,645Allocation of purchase price:Current assets
    
    $
    31,598Property and equipment
    
    
    209,534Goodwill
    
    
    255,528Current liabilities
    
    
    (15,718
    )Deferred tax liability
    
    
    (90,408
    )Other long-term liabilities
    
    
    (24,889
    )$
    365,645
   December 31,(Amounts in thousands)
    
    2007
    
    2006Balance at beginning of year
    
    $
    291,752
    
    
    $
    27,795Acquisition
    
    
    (8,428
    )
    
    
    263,957Balance at end of year
    
    $
    283,324
    
    
    $
    291,752
 Purchase of Interest in Enoch Field
  Acquisition of OER oil AS
  60




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Sale of Thailand Interests
  Note 4  Prepaid Expenses and Other Current Assets
  December 31,(Amounts in thousands)
    
    2007
    
    2006Current deferred tax asset
    
    $
    30,167
    
    
    $
    Current tax receivable
    
    
    4,083
    
    
    
    Crude oil inventory
    
    
    1,594
    
    
    
    892Fair market value of commodity derivatives  current
    
    
    4,018
    
    
    
    18,396Prepaid insurance
    
    
    1,255
    
    
    
    1,280Collateral account for derivative instruments
    
    
    
    
    
    
    478Other
    
    
    5,399
    
    
    
    4,737$
    46,516
    
    
    $
    25,783
  61




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 5  Property and Equipment
  (Amounts in thousands)
    
    December 31,2007
    
    2006Oil and gas properties under the full cost method:Subject to amortization
    
    $
    298,765
    
    
    $
    219,114Not subject to amortization:Acquired in 2007
    
    
    31,992
    
    
    
    Acquired in 2006
    
    
    97,922
    
    
    
    117,281Acquired in 2005
    
    
    15,108
    
    
    
    15,108Acquired prior to 2005
    
    
    12,507
    
    
    
    16,797456,294
    
    
    
    368,300Other oil and gas activities
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    2,634
    
    
    
    1,940Total property and equipment
    
    
    463,803
    
    
    
    375,115Accumulated depreciation, depletion and amortization
    
    
    (128,780
    )
    
    
    (55,800
    )Net property and equipment
    
    $
    335,023
    
    
    $
    319,315
   62




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Costs Incurred in the Year Ended December 31,(Amounts in thousands)
    
    2007
    
    2006
    
    2005
    
    Prior to 2005
    
    TotalAcquisition costs
    
    $
    
    
    
    $
    61,225
    
    
    $
    
    
    
    $
    6,191
    
    
    $
    67,416Exploration costs
    
    
    30,370
    
    
    
    35,632
    
    
    
    14,582
    
    
    
    6,316
    
    
    
    86,900Capitalized interest
    
    
    1,622
    
    
    
    1,065
    
    
    
    526
    
    
    
    
    
    
    
    3,213Total oil and gas
properties not
subject to
amortization
    
    $
    31,992
    
    
    $
    97,922
    
    
    $
    15,108
    
    
    $
    12,507
    
    
    $
    157,529
  Note 6  Other Assets
  (Amounts in thousands)
    
    2007
    
    2006Intangible assets  workforce in place:Gross
    
    $
    4,800
    
    
    $
    4,800Accumulated amortization
    
    
    (2,806
    )
    
    
    (2,250
    )1,994
    
    
    
    2,550Fair market value of long-term portion
of commodity derivatives (see Note 7)
    
    
    1,957
    
    
    
    23,860Debt issuance costs
    
    
    6,857
    
    
    
    8,249Other
    
    
    221
    
    
    
    176$
    11,029
    
    
    $
    34,835
    63




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 7  Derivative Instruments
   (Amounts in thousands)
    
    December 31,2007
    
    2006Prepaid expenses and other current assets
    
    $
    4,018
    
    
    $
    18,395Other assets  long-term
    
    
    1,957
    
    
    
    23,861Accrued expenses and other
    
    
    (22,210
    )
    
    
    Other liabilities  long-term
    
    
    (30,635
    )
    
    
    $
    (46,870
    )
    
    $
    42,256
  64




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 (Amounts in thousands, except unit and per unitdata)
    
    2008
    
    2009
    
    2010
    
    2011
    
    TotalOil:Fixed Price Swap (Mbbl)
    
    
    907
    
    
    
    697
    
    
    
    573
    
    
    
    487
    
    
    
    2,664Weighted Average Price
($/Barrel)
    
    $
    68.87
    
    
    $
    69.08
    
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    68.30Gas:(1)Fixed Price Swap (MMcf)
    
    
    2,676
    
    
    
    1,387
    
    
    
    1,032
    
    
    
    627
    
    
    
    5,722Weighted Average Price
(£/Mcf)
    
    £
    5.81
    
    
    £
    5.58
    
    
    £
    5.35
    
    
    £
    5.13
    
    
    £
    5.60Costless Collar (MMcf)
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,200Weighted Average
Ceiling Price (£/Mcf)
    
    £
    4.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    £
    4.53Weighted Average Floor
Price (£/Mcf)
    
    £
    3.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    £
    3.53Net Fair Market Value -
Asset (Liability):Oil
    
    $
    (20,939
    )
    
    $
    (12,717
    )
    
    $
    (9,160
    )
    
    $
    (8,085
    )
    
    $
    (50,901
    )Gas
    
    
    2,217
    
    
    
    962
    
    
    
    645
    
    
    
    207
    
    
    
    4,031Total
    
    $
    (18,722
    )
    
    $
    (11,755
    )
    
    $
    (8,515
    )
    
    $
    (7,878
    )
    
    $
    (46,870
    )
 (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, 2007 was $1.98 to £1.00.
   65




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 8  Accrued Expenses
  (Amounts in thousands)
    
    December 31,2007
    
    2006Derivative liability (see Note 7)
    
    $
    22,495
    
    
    $
    Foreign taxes payable
    
    
    12,509
    
    
    
    16,509Accrued interest
    
    
    4,751
    
    
    
    4,446Prepaid revenue
    
    
    974
    
    
    
    2,776Preferred dividends
    
    
    828
    
    
    
    2,477Accrued compensation
    
    
    754
    
    
    
    2,641Foreign deferred taxes
    
    
    
    
    
    
    5,335Accrued joint interest costs
    
    
    
    
    
    
    3,811Other
    
    
    7,702
    
    
    
    3,804$
    50,013
    
    
    $
    41,799
 Note 9  Financial Instruments
 December 31, 2007
    
    December 31, 2006Fair Value
    
    Carrying Value
    
    Fair Value
    
    Carrying ValueAssets:Derivative instruments
    
    $
    5,975
    
    
    $
    5,975
    
    
    $
    42,256
    
    
    $
    42,256Liabilities:Long-term debt
    
    
    253,250
    
    
    
    266,250
    
    
    
    300,156
    
    
    
    306,250Derivative instruments
    
    
    (53,696
    )
    
    
    (53,696
    )
    
    
    
    
    
    
    
  66




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 10  Debt and Notes Payable
  December 31,(Amounts in thousands)
    
    2007
    
    20066% Senior notes, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility
    
    
    110,000
    
    
    
    150,000Second lien term loan
    
    
    75,000
    
    
    
    75,000266,250
    
    
    
    306,250Less: current maturities
    
    
    
    
    
    
    (2,410
    )Long-term debt
    
    $
    266,250
    
    
    $
    303,840
  (Amounts in thousands)2008
    
    $
    2009
    
    
    47,0002010
    
    
    38,0002011
    
    
    100,0002012
    
    
    81,250Thereafter
    
    
    
 6% Senior notes, due 2012
  Senior bank facility
  67




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
    
    
    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
    
    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.
  Second lien term loan
 Subsequent Events
  68




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Endeavour International Corporation
Notes to Consolidated Financial Statements
  Additional Agreements
 Subsequent Events.
 69




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 11  Income Taxes
  The(Amounts in thousands)
    
    UK
    
    Norway
    
    Netherlands
    
    U.S.
    
    TotalYear Ended December 31, 2007Net income (loss) before taxes
    
    $
    (68,704)
    )
    
    $
    10,727
    
    
    $
    6,584
    
    
    $
    (6,864
    )
    
    $
    (58,257
    )Current tax expense (benefit)
    
    
    2,898
    
    
    
    561
    
    
    
    289
    
    
    
    (3
    )
    
    
    3,745Deferred tax expense (benefit)
    
    
    (27,430
    )
    
    
    8,952
    
    
    
    711
    
    
    
    
    
    
    
    (17,767
    )Foreign currency losses on
deferred tax liabilities
    
    
    1,328
    
    
    
    3,514
    
    
    
    
    
    
    
    
    
    
    
    4,842Total tax expense (benefit)
    
    
    (23,204
    )
    
    
    13,027
    
    
    
    1,000
    
    
    
    (3
    )
    
    
    (9,180
    )Net income (loss) after taxes
    
    $
    (45,500
    )
    
    $
    (2,300
    )
    
    $
    5,584
    
    
    $
    (6,861
    )
    
    $
    (49,077
    )Year Ended December 31, 2006Net income (loss) before taxes
    
    $
    33,275
    
    
    $
    4,375
    
    
    $
    13
    
    
    $
    (20,588
    )
    
    $
    17,075Current tax expense
    
    
    1,837
    
    
    
    9,014
    
    
    
    69
    
    
    
    (45
    )
    
    
    10,875Deferred tax expense
    
    
    10,105
    
    
    
    (1,840
    )
    
    
    
    
    
    
    
    
    
    
    8,265Foreign currency losses on
deferred tax liabilities
    
    
    2,904
    
    
    
    1,869
    
    
    
    
    
    
    
    
    
    
    
    4,773Total tax expense
    
    
    14,846
    
    
    
    9,043
    
    
    
    69
    
    
    
    (45
    )
    
    
    23,913Net income (loss) after taxes
    
    $
    18,429
    
    
    $
    (4,668
    )
    
    $
    (56
    )
    
    $
    (20,543
    )
    
    $
    (6,838
    )Year Ended December 31, 2005Net income (loss) before taxes
    
    $
    (31,396
    )
    
    $
    14,057
    
    
    $
    (17
    )
    
    $
    (2,956
    )
    
    $
    (20,312
    )Current tax expense
    
    
    
    
    
    
    7,770
    
    
    
    
    
    
    
    48
    
    
    
    7,818Deferred tax expense
    
    
    
    
    
    
    5,067
    
    
    
    
    
    
    
    
    
    
    
    5,067Foreign currency losses on
deferred tax liabilities
    
    
    
    
    
    
    (1,824
    )
    
    
    
    
    
    
    
    
    
    
    (1,824
    )Total tax expense
    
    
    
    
    
    
    11,013
    
    
    
    
    
    
    
    48
    
    
    
    11,061Net income (loss) after taxes
    
    $
    (31,396
    )
    
    $
    3,044
    
    
    $
    (17
    )
    
    $
    (3,004
    )
    
    $
    (31,373
    )
 70




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  (Amounts in thousands)
    
    Year Ended December 31,2007
    
    2006
    
    2005Federal income tax expense
(benefit) at statutory rate
    
    $
    (20,390
    )
    
    $
    5,976
    
    
    $
    (7,109
    )Book deductions not deductible
for income tax purposes
    
    
    65
    
    
    
    44
    
    
    
    13Taxation of foreign operations
    
    
    3,969
    
    
    
    11,935
    
    
    
    3,309Change in valuation allowance  US
    
    
    2,337
    
    
    
    7,280
    
    
    
    968Change in valuation allowance  UK
    
    
    
    
    
    
    (6,013
    )
    
    
    15,983Foreign currency (gain)/loss on
deferred taxes
    
    
    4,842
    
    
    
    4,773
    
    
    
    (1,824
    )Other
    
    
    (3
    )
    
    
    (82
    )
    
    
    (279
    )Income Tax Expense
    
    $
    (9,180
    )
    
    $
    23,913
    
    
    $
    11,061Effective Income Tax Rate
    
    
    (15
    )%
    
    
    140
    %
    
    
    (54
    )%
    71




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 (Amounts in thousands)
    
    2007
    
    2006Deferred tax asset:Deferred compensation
    
    $
    6,887
    
    
    $
    5,792Unrealized loss on derivative instruments
    
    
    27,292
    
    
    
    Asset retirement obligation
    
    
    21,267
    
    
    
    19,492Net operating loss and capital loss carryforward
    
    
    37,820
    
    
    
    53,541Uplift carryforward
    
    
    2,218
    
    
    
    3,644Other
    
    
    2,388
    
    
    
    621Total deferred tax assets
    
    
    97,872
    
    
    
    83,090Less valuation allowance
    
    
    (19,697
    )
    
    
    (17,291
    )Total deferred tax assets after valuation allowance
    
    
    78,175
    
    
    
    65,799Deferred tax liability:Property, plant and equipment
    
    
    (176,345
    )
    
    
    (161,180
    )Unrealized gain on derivative instruments
    
    
    
    
    
    
    (17,608
    )Petroleum revenue tax, net of tax benefit
    
    
    (5,133
    )
    
    
    (6,001
    )Sale/leaseback
    
    
    (754
    )
    
    
    (822
    )Other
    
    
    (1,327
    )
    
    
    (678
    )Total deferred tax liabilities
    
    
    (183,559
    )
    
    
    (186,289
    )Net deferred tax liability
    
    $
    (105,384
    )
    
    $
    (120,490
    )
   (Amounts in thousands)Years of
    
    CarryforwardTypes of Carryforward
    
    Expiration
    
    AmountsU.S.  Net operating loss
    
    
    2022  2027
    
    
    $
    48,289U.K.  Corporate Tax net operating loss
    
    Indefinite
    
    $
    46,186U.K.  Special Corporate Tax net operating loss
    
    Indefinite
    
    $
    28,817Norway  Uplift
    
    Indefinite
    
    $
    4,434
   72




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
      (Amounts in thousands)Balance at January 1, 2007
    
    $
    Increase in unrecognized tax benefits from current period tax positions
    
    
    1,727Balance at December 31, 2007
    
    $
    1,727
  73




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 12  Other Liabilities
  December 31,(Amounts in thousands)
    
    2007
    
    2006Asset retirement obligations
    
    $
    38,422
    
    
    $
    32,503Long-term commodity derivative liabilities
    
    
    31,201
    
    
    
    Other
    
    
    
    
    
    
    7$
    69,623
    
    
    $
    32,510
  December 31,(Amounts in thousands)
    
    2007
    
    2006Carrying amount of asset retirement obligations as of beginning
of year
    
    $
    32,503
    
    
    $
    6,740Liabilities incurred related to acquired properties
    
    
    
    
    
    
    25,255Increase (decrease) due to revised estimates of asset retirement
obligations
    
    
    1,527
    
    
    
    (1,489
    )Accretion expense
    
    
    3,314
    
    
    
    985Impact of foreign currency exchange rate changes
    
    
    1,078
    
    
    
    1,012Carrying amount of asset retirement obligations as of end of year
    
    $
    38,422
    
    
    $
    32,503
  74




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 13  Equity
  (Amounts in thousands)
    
    Year Ended December 31,2007
    
    2006
    
    2005Common Stock:Outstanding at the beginning of the year
    
    
    118,577
    
    
    
    75,489
    
    
    
    69,995Issuance of common stock in the offering
    
    
    
    
    
    
    39,257
    
    
    
    Issuance of common stock in the OER Acquisition
    
    
    
    
    
    
    
    
    
    
    2,184Issuance of common stock to pay preferred
dividends
    
    
    6,403
    
    
    
    
    
    
    
    Exercise of warrants and stock options
    
    
    
    
    
    
    1,655
    
    
    
    762Other issuances
    
    
    2,026
    
    
    
    2,176
    
    
    
    2,548Outstanding at the end of the year
    
    
    127,006
    
    
    
    118,577
    
    
    
    75,489Series B Preferred Stock:Outstanding at the end of the year
    
    
    20
    
    
    
    20
    
    
    
    20Convertible Preferred Stock:Outstanding at the beginning of the year
    
    
    125
    
    
    
    
    
    
    
    Issuances of preferred stock
    
    
    
    
    
    
    125
    
    
    
    Outstanding at the end of the year
    
    
    125
    
    
    
    125
    
    
    
    
 Common Stock
    75




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Convertible Preferred Stock
      76




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
   Series B Preferred Stock
   Stock Warrants
  (Amounts in thousands, except pershare data)
    
    December 31, 2007
    
    December 31, 2006ExerciseExpiration Date
    
    Price
    
    Shares
    
    Exercise Price
    
    SharesFebruary 2009
    
    $
    2.00
    
    
    
    700
    
    
    $
    2.00
    
    
    
    700April 2012
    
    $
    2.00
    
    
    
    90
    
    
    $
    2.00
    
    
    
    90790
    
    
    
    
    
    
    
    790
 Note 14  Stock-Based Compensation Arrangements
  77




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Endeavour International Corporation
Notes to Consolidated Financial Statements
    2007
    
    2006
    
    2005Pro formaRisk free rate
    
    
    4.4
    %
    
    
    4.4
    %
    
    
    3.8
    %Expected years until exercise
    
    
    4
    
    
    
    4
    
    
    
    5Expected stock volatility
    
    
    45
    %
    
    
    38
    %
    
    
    71
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
  (Amounts in thousands, except per share data)
    
    Year Ended December 31,2005Net loss to common stockholders, as reported
    
    $
    (31,531
    )Add:Stock-based compensation expense as
reported, net of tax
    
    
    4,091Less:Total stock-based compensation expense
determined under fair-value-based
method for all awards, net of tax
    
    
    (5,676
    )Pro forma net loss
    
    $
    (33,116
    )Loss per share:Basic and diluted  as reported
    
    $
    (0.42
    )Basic and diluted  pro forma
    
    $
    (0.44
    )
 78




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
   Stock Options
  WeightedAverage
    
    WeightedExercise
    
    Average
    
    AggregateNumber
    
    Price per
    
    Contractual
    
    Intrinsic(Amounts in thousands, except per share and year data)
    
    of Shares
    
    Share
    
    Life in Years
    
    ValueBalance outstanding  December 31, 2006
    
    
    5,404
    
    
    $
    3.19Granted
    
    
    745
    
    
    
    1.78Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (417
    )
    
    
    4.53Expired
    
    
    (163
    )
    
    
    4.77Balance outstanding  December 31, 2007
    
    
    5,569
    
    
    
    2.86
    
    
    
    2.15
    
    
    $
    40Currently exercisable  December 31, 2007
    
    
    3,461
    
    
    
    2.75
    
    
    
    1.4
    
    
    $
    
   79




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  (Amounts in thousands,except per share data)
    
    Options Outstanding
    
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    
    
    
    
    ExerciseRange of Exercise
    
    Options
    
    Contractual
    
    Price Per
    
    Number
    
    Price PerPrices
    
    Outstanding
    
    Life
    
    Share
    
    Exercisable
    
    ShareLess than $3.00
    
    
    3,242
    
    
    
    2.0
    
    
    $
    2.03
    
    
    
    2,350
    
    
    $
    2.07$3.00 - $3.99
    
    
    990
    
    
    
    2.8
    
    
    $
    3.54
    
    
    
    217
    
    
    $
    3.66Greater than $4.00
    
    
    1,337
    
    
    
    2.0
    
    
    $
    4.35
    
    
    
    894
    
    
    $
    4.325,569
    
    
    
    2.2
    
    
    $
    2.86
    
    
    
    3,461
    
    
    $
    2.75
 Restricted Stock
   WeightedAverage GrantNumber of
    
    Date Fair Value(Amounts in thousands, except per share data)
    
    Shares
    
    per ShareBalance outstanding  December 31, 2006
    
    
    4,414
    
    
    $
    3.76Granted
    
    
    2,624
    
    
    $
    1.69Vested
    
    
    (1,906
    )
    
    $
    3.24Forfeited
    
    
    (580
    )
    
    $
    3.93Balance outstanding  December 31, 2007
    
    
    4,552
    
    
    $
    2.72Total fair value of shares vesting during the period
    
    $
    1.33
 80




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 15  Supplementary Cash Flow Disclosures
  (Amounts in thousands)
    
    Year Ended December 31,2007
    
    2006
    
    2005Interest paid
    
    $
    22,164
    
    
    $
    5,895
    
    
    $
    2,340Income taxes paid
    
    $
    7,662
    
    
    $
    7,064
    
    
    $
    3,206
 Non-Cash Investing and Financing Transactions
    Note 16  Comprehensive Loss
  (Amounts in thousands)
    
    Year Ended December 31,2007
    
    2006
    
    2005Net loss
    
    $
    (49,077
    )
    
    $
    (6,838
    )
    
    $
    (31,373
    )Related to derivative instruments:Unrealized loss
    
    
    (852
    )
    
    
    (1,012
    )
    
    
    (5,672
    )Reclassification adjustment
for loss realized in net loss
above
    
    
    
    
    
    
    4,702
    
    
    
    1,982Related to marketable securities:Unrealized loss
    
    
    (71
    )
    
    
    (887
    )
    
    
    (360
    )Reclassification adjustment
for loss realized in net loss
above
    
    
    
    
    
    
    1,775
    
    
    
    Unrealized gain (loss), net
    
    
    (923
    )
    
    
    4,578
    
    
    
    (4,050
    )Comprehensive loss
    
    $
    (50,000
    )
    
    $
    (2,260
    )
    
    $
    (35,423
    )
 81




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  (Amounts in thousands)
    
    December 31,2007
    
    2006
    
    2005Related to derivative instruments:Balance at beginning of year
    
    $
    
    
    
    $
    (3,690
    )
    
    $
    Change during the year
    
    
    (852
    )
    
    
    3,690
    
    
    
    (3,690
    )Balance at end of year
    
    
    (852
    )
    
    
    
    
    
    
    (3,690
    )Related to marketable securities:Balance at beginning of year
    
    
    
    
    
    
    (888
    )
    
    
    (528
    )Change during the year
    
    
    (71
    )
    
    
    888
    
    
    
    (360
    )Balance at end of year
    
    
    (71
    )
    
    
    
    
    
    
    (888
    )Accumulated comprehensive loss
    
    $
    (923
    )
    
    $
    
    
    
    $
    (4,578
    )
 Note 17  Commitments and Contingencies
 General
  Rig Commitments
    82




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
  Contingencies
  Operating Leases
  Note 18  Segment and Geographic Information
  (Amounts in thousands)
    
    2007
    
    2006
    
    2005Long-lived
    
    
    
    
    
    Long-lived
    
    
    
    
    
    Long-livedRevenue
    
    Assets
    
    Revenue
    
    Assets
    
    Revenue
    
    AssetsUnited States
    
    $
    
    
    
    $
    6,920
    
    
    $
    
    
    
    $
    33,120
    
    
    $
    
    
    
    $
    11,298United Kingdom
    
    
    135,876
    
    
    
    527,810
    
    
    
    24,881
    
    
    
    537,936
    
    
    
    
    
    
    
    16,381Norway
    
    
    40,188
    
    
    
    90,260
    
    
    
    29,250
    
    
    
    72,957
    
    
    
    38,656
    
    
    
    68,620The Netherlands
    
    
    
    
    
    
    4,278
    
    
    
    
    
    
    
    1,799
    
    
    
    
    
    
    
    1,594Ireland
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    Total International
    
    
    176,064
    
    
    
    622,456
    
    
    
    54,131
    
    
    
    612,782
    
    
    
    38,656
    
    
    
    86,595Total
    
    $
    176,064
    
    
    $
    629,376
    
    
    $
    54,131
    
    
    $
    645,902
    
    
    $
    38,656
    
    
    $
    97,893
 83




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##### Table of Contents



Endeavour International Corporation
Notes to Consolidated Financial Statements
 Note 19  Quarterly Financial Data (Unaudited)
 (Amounts in thousands, except per share data)Second
    
    Third
    
    FourthFirst Quarter
    
    Quarter
    
    Quarter
    
    Quarter2007Revenues
    
    $
    42,790
    
    
    $
    31,621
    
    
    $
    47,169
    
    
    $
    54,484Operating expenses
    
    
    35,291
    
    
    
    30,135
    
    
    
    35,370
    
    
    
    36,977Operating profit
    
    
    7,499
    
    
    
    1,486
    
    
    
    11,799
    
    
    
    17,507Net loss to common stockholders
    
    
    (5,987
    )
    
    
    (13,048
    )
    
    
    (11,681
    )
    
    
    (29,598
    )Net loss per common share  basic
    
    
    (0.05
    )
    
    
    (0.11
    )
    
    
    (0.09
    )
    
    
    (0.23
    )Net loss per common share  diluted
    
    
    (0.05
    )
    
    
    (0.11
    )
    
    
    (0.09
    )
    
    
    (0.23
    )2006Revenues
    
    $
    8,476
    
    
    $
    7,645
    
    
    $
    6,726
    
    
    $
    31,284Operating expenses
    
    
    10,741
    
    
    
    10,540
    
    
    
    11,377
    
    
    
    25,847Operating loss
    
    
    (2,265
    )
    
    
    (2,895
    )
    
    
    (4,651
    )
    
    
    5,437Net income (loss) to common stockholders
    
    
    (6,938
    )
    
    
    (10,389
    )
    
    
    15,225
    
    
    
    (6,727
    )Net income (loss) per common share  basic
    
    
    (0.09
    )
    
    
    (0.13
    )
    
    
    0.19
    
    
    
    (0.06
    )Net income (loss) per common share  diluted
    
    
    (0.09
    )
    
    
    (0.13
    )
    
    
    0.17
    
    
    
    (0.06
    )
 Note 20  Supplemental Oil and Gas Disclosures  Unaudited
 Capitalized Costs Relating to Oil and Gas Producing ActivitiesUnited
    
    
    
    
    
    
    
    
    
    The(Amounts in thousands)
    
    Kingdom
    
    Norway
    
    Ireland
    
    Netherlands
    
    TotalDecember 31, 2007:Proved
    
    $
    216,572
    
    
    $
    53,729
    
    
    $
    
    
    
    $
    
    
    
    $
    270,301Unproved
    
    
    154,948
    
    
    
    28,869
    
    
    
    108
    
    
    
    2,068
    
    
    
    185,993Total capitalized costs
    
    
    371,520
    
    
    
    82,598
    
    
    
    108
    
    
    
    2,068
    
    
    
    456,294Accumulated
depreciation,
depletion and
amortization
    
    
    (102,386
    )
    
    
    (20,461
    )
    
    
    
    
    
    
    
    
    
    
    (122,847
    )Net capitalized costs
    
    $
    269,134
    
    
    $
    62,137
    
    
    $
    108
    
    
    
    2,068
    
    
    $
    333,447December 31, 2006:Proved
    
    $
    156,441
    
    
    $
    34,228
    
    
    $
    
    
    
    $
    
    
    
    $
    190,669Unproved
    
    
    151,794
    
    
    
    23,949
    
    
    
    90
    
    
    
    1,799
    
    
    
    177,632Total capitalized costs
    
    
    308,235
    
    
    
    58,177
    
    
    
    90
    
    
    
    1,799
    
    
    
    368,301Accumulated
depreciation,
depletion and
amortization
    
    
    (37,812
    )
    
    
    (13,288
    )
    
    
    
    
    
    
    
    
    
    
    (51,100
    )Net capitalized costs
    
    $
    270,423
    
    
    $
    44,889
    
    
    $
    90
    
    
    $
    1,799
    
    
    $
    317,201
 84




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development ActivitiesUnited
    
    
    
    
    
    
    
    
    
    The(Amounts in thousands)
    
    Kingdom
    
    Norway
    
    Ireland
    
    Netherlands
    
    TotalYear Ended December 31, 2007:Acquisition costs:Proved
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Unproved
    
    
    774
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    792Exploration costs
    
    
    54,916
    
    
    
    10,392
    
    
    
    
    
    
    
    268
    
    
    
    65,576Development costs
    
    
    7,562
    
    
    
    14,063
    
    
    
    
    
    
    
    
    
    
    
    21,625Total costs incurred
    
    $
    63,252
    
    
    $
    24,455
    
    
    $
    18
    
    
    $
    268
    
    
    $
    87,993Year Ended December 31, 2006:Acquisition costs:Proved
    
    $
    139,456
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    139,456Unproved
    
    
    81,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,715Exploration costs
    
    
    35,002
    
    
    
    5,089
    
    
    
    90
    
    
    
    205
    
    
    
    40,386Development costs
    
    
    8,960
    
    
    
    7,235
    
    
    
    
    
    
    
    
    
    
    
    16,195Total costs incurred
    
    $
    265,133
    
    
    $
    12,324
    
    
    $
    90
    
    
    $
    205
    
    
    $
    277,752Year Ended December 31, 2005:Acquisition costs:Proved
    
    $
    
    
    
    $
    (2,151
    )
    
    $
    
    
    
    $
    
    
    
    $
    (2,151
    )Unproved
    
    
    
    
    
    
    (503
    )
    
    
    
    
    
    
    
    
    
    
    (503
    )Exploration costs
    
    
    34,332
    
    
    
    7,626
    
    
    
    
    
    
    
    1,446
    
    
    
    43,404Development costs
    
    
    
    
    
    
    3,277
    
    
    
    
    
    
    
    
    
    
    
    3,277Total costs incurred
    
    $
    34,332
    
    
    $
    8,249
    
    
    $
    
    
    
    $
    1,446
    
    
    $
    44,027
 85




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Results of Operations for Oil and Gas Producing ActivitiesUnited
    
    
    
    
    
    The(Amounts in thousands)
    
    Kingdom
    
    Norway
    
    Netherlands
    
    TotalYear Ended December 31, 2007:Revenues
    
    $
    135,876
    
    
    $
    40,188
    
    
    $
    
    
    
    $
    176,064Production expenses
    
    
    27,263
    
    
    
    13,781
    
    
    
    
    
    
    
    41,044DD&A
    
    
    67,338
    
    
    
    7,722
    
    
    
    
    
    
    
    75,060Income tax expense
    
    
    20,638
    
    
    
    14,574
    
    
    
    
    
    
    
    35,212Results of activities
    
    $
    20,637
    
    
    $
    4,111
    
    
    $
    
    
    
    $
    24,748Year Ended December 31, 2006:Revenues
    
    $
    24,881
    
    
    $
    29,250
    
    
    $
    
    
    
    $
    54,131Production expenses
    
    
    4,477
    
    
    
    11,091
    
    
    
    
    
    
    
    15,568DD&A
    
    
    10,292
    
    
    
    6,217
    
    
    
    
    
    
    
    16,509Impairment of oil and gas properties
    
    
    849
    
    
    
    
    
    
    
    
    
    
    
    849Income tax expense
    
    
    4,631
    
    
    
    9,315
    
    
    
    
    
    
    
    13,946Results of activities
    
    $
    4,632
    
    
    $
    2,627
    
    
    $
    
    
    
    $
    7,259Year Ended December 31, 2005:Revenues
    
    $
    
    
    
    $
    38,656
    
    
    $
    
    
    
    $
    38,656Production expenses
    
    
    
    
    
    
    11,990
    
    
    
    
    
    
    
    11,990DD&A
    
    
    
    
    
    
    7,377
    
    
    
    
    
    
    
    7,377Impairment of oil and gas properties
    
    
    27,116
    
    
    
    
    
    
    
    
    
    
    
    27,116Income tax expense
    
    
    
    
    
    
    15,046
    
    
    
    
    
    
    
    15,046Results of activities
    
    $
    (27,116
    )
    
    $
    4,243
    
    
    $
    
    
    
    $
    (22,873
    )
 Oil and Gas Reserves
  86




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 UnitedProved Oil Reserves (MBbls):
    
    Kingdom
    
    Norway
    
    TotalProved reserves at January 1, 2005
    
    
    
    
    
    
    1,543
    
    
    
    1,543Production
    
    
    
    
    
    
    (726
    )
    
    
    (726
    )Revisions of previous estimates
    
    
    
    
    
    
    347
    
    
    
    347Proved reserves at December 31, 2005
    
    
    
    
    
    
    1,543
    
    
    
    1,543Purchase of proved reserves, in place
    
    
    4,593
    
    
    
    
    
    
    
    4,593Production
    
    
    (210
    )
    
    
    (508
    )
    
    
    (718
    )Revisions of previous estimates
    
    
    183
    
    
    
    530
    
    
    
    713Proved reserves at December 31, 2006
    
    
    4,566
    
    
    
    1,186
    
    
    
    5,752Production
    
    
    (1,274
    )
    
    
    (519
    )
    
    
    (1,793
    )Extensions and discoveries
    
    
    
    
    
    
    340
    
    
    
    340Revisions of previous estimates
    
    
    (8
    )
    
    
    1,049
    
    
    
    1,041Proved reserves at December 31, 2007
    
    
    3,284
    
    
    
    2,056
    
    
    
    5,340Proved Developed Oil Reserves (MBbls):At December 31, 2005
    
    
    
    
    
    
    816
    
    
    
    816At December 31, 2006
    
    
    3,400
    
    
    
    737
    
    
    
    4,137At December 31, 2007
    
    
    2,544
    
    
    
    1,650
    
    
    
    4,194
 UnitedProved Gas Reserves (MMcf):
    
    Kingdom
    
    Norway
    
    TotalProved reserves at January 1, 2005
    
    
    
    
    
    
    6,725
    
    
    
    6,725Production
    
    
    
    
    
    
    (184
    )
    
    
    (184
    )Revisions of previous estimates
    
    
    
    
    
    
    (244
    )
    
    
    (244
    )Proved reserves at December 31, 2004
    
    
    
    
    
    
    6,297
    
    
    
    6,297Purchase of proved reserves, in place
    
    
    14,574
    
    
    
    
    
    
    
    14,574Production
    
    
    (1,539
    )
    
    
    (203
    )
    
    
    (1,742
    )Revisions of previous estimates
    
    
    4,137
    
    
    
    1,579
    
    
    
    5,716Proved reserves at December 31, 2006
    
    
    17,172
    
    
    
    7,673
    
    
    
    24,845Production
    
    
    (8,556
    )
    
    
    (328
    )
    
    
    (8,884
    )Extensions and discoveries
    
    
    
    
    
    
    1,821
    
    
    
    1,821Revisions of previous estimates
    
    
    3,196
    
    
    
    (732
    )
    
    
    2,464Proved reserves at December 31, 2007
    
    
    11,812
    
    
    
    8,434
    
    
    
    20,246
 87




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 UnitedProved Gas Reserves (MMcf):
    
    Kingdom
    
    Norway
    
    TotalProved Developed Gas Reserves (MMcf):At December 31, 2005
    
    
    
    
    
    
    33
    
    
    
    33At December 31, 2006
    
    
    13,184
    
    
    
    
    
    
    
    13,184At December 31, 2007
    
    
    8,416
    
    
    
    6,614
    
    
    
    15,030
 UnitedProved Reserves (MBOE):
    
    Kingdom
    
    Norway
    
    TotalProved reserves at January 1, 2005
    
    
    
    
    
    
    2,664
    
    
    
    2,664Production
    
    
    
    
    
    
    (756
    )
    
    
    (756
    )Revisions of previous estimates
    
    
    
    
    
    
    306
    
    
    
    306Proved reserves at December 31, 2005
    
    
    
    
    
    
    2,214
    
    
    
    2,214Purchase of proved reserves, in place
    
    
    7,022
    
    
    
    
    
    
    
    7,022Production
    
    
    (466
    )
    
    
    (542
    )
    
    
    (1,008
    )Revisions of previous estimates
    
    
    872
    
    
    
    793
    
    
    
    1,665Proved reserves at December 31, 2006
    
    
    7,428
    
    
    
    2,465
    
    
    
    9,893Production
    
    
    (2,700
    )
    
    
    (574
    )
    
    
    (3,274
    )Extensions and discoveries
    
    
    
    
    
    
    643
    
    
    
    643Revisions of previous estimates
    
    
    524
    
    
    
    927
    
    
    
    1,451Proved reserves at December 31, 2007
    
    
    5,252
    
    
    
    3,461
    
    
    
    8,713Proved Developed Reserves (MBOE):At December 31, 2005
    
    
    
    
    
    
    822
    
    
    
    822At December 31, 2006
    
    
    5,597
    
    
    
    737
    
    
    
    6,334At December 31, 2007
    
    
    3,947
    
    
    
    2,752
    
    
    
    6,699
  Standardized Measure of Discounted Future Net Cash Flows
   88




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Endeavour International Corporation
Notes to Consolidated Financial Statements
    Standardized Measure of Discounted Future Net Cash Flows(Amounts in thousands)
    
    United Kingdom
    
    Norway
    
    TotalDecember 31, 2007:Future cash inflows
    
    $
    423,911
    
    
    $
    256,455
    
    
    $
    680,366Future 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
    
    
    
    201,651Annual discount of 10% for estimated timing
    
    
    1,328
    
    
    
    8,403
    
    
    
    9,731Standardized measure of future net cash flows
    
    $
    151,521
    
    
    $
    40,399
    
    
    $
    191,920December 31, 2006:Future cash inflows
    
    $
    354,827
    
    
    $
    103,471
    
    
    $
    458,298Future production costs
    
    
    (74,798
    )
    
    
    (57,712
    )
    
    
    (132,510
    )Future development costs
    
    
    (39,445
    )
    
    
    (22,098
    )
    
    
    (61,543
    )Future income tax expense
    
    
    (99,855
    )
    
    
    (9,838
    )
    
    
    (109,693
    )Future net cash flows (undiscounted)
    
    
    140,729
    
    
    
    13,823
    
    
    
    154,552Annual discount of 10% for estimated timing
    
    
    6,372
    
    
    
    2,639
    
    
    
    9,011Standardized measure of future net cash flows
    
    $
    134,357
    
    
    $
    11,184
    
    
    $
    145,541
 89




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Principal Sources of Change in the Standardized Measure of Discounted Future Net Cash Flows(Amounts in thousands)
    
    Year Ended December 31,2007
    
    2006
    
    2005Standardized measure, beginning of period
    
    $
    145,541
    
    
    $
    18,525
    
    
    $
    10,265Net changes in prices and production costs
    
    
    199,343
    
    
    
    (25,622
    )
    
    
    44,166Future development costs
    
    
    21,625
    
    
    
    16,195
    
    
    
    3,277Revisions of previous quantity estimates
    
    
    79,636
    
    
    
    47,154
    
    
    
    9,502Extensions and discoveries
    
    
    35,345Accretion of discount
    
    
    24,078
    
    
    
    6,037
    
    
    
    1,963Changes in income taxes, net
    
    
    (135,233
    )
    
    
    20,393
    
    
    
    (26,876
    )Sale of oil and gas produced, net of production costs
    
    
    (135,020
    )
    
    
    (38,592
    )
    
    
    (26,667
    )Purchased reserves
    
    
    
    
    
    
    101,533
    
    
    
    Change in estimated future development costs,
production, timing and other
    
    
    (43,395
    )
    
    
    (82
    )
    
    
    2,895Standardized measure, end of period
    
    $
    191,920
    
    
    $
    145,541
    
    
    $
    18,525
 Note 21  Subsequent Events
  
    
    Repayment of the outstanding balance of $75 million under our second lien term loan,
plus accrued interest;
    
    Issuance of $40 million under a private offering of 11.5% guaranteed convertible bonds
to a company controlled by the Smedvig Family Office of Norway; and
    
    Issuance of $25 million under a junior credit facility.
 11.5% Guaranteed Convertible Bonds
    90




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Endeavour International Corporation
Notes to Consolidated Financial Statements
 Junior Facility
    Second lien term loan repayment
 Debt and Notes Payable
 91




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##### Table of Contents



Endeavour International Corporation
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
     Changes in Internal Control over Financial Reporting
  92




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Endeavour International Corporation
 Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework .
    Internal Control  Integrated Framework
  93




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Endeavour International Corporation
 .
  
 94




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##### Table of Contents



Endeavour International Corporation
 
 Item 9B. Other Information
  
 Part III
 
 Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
 
 
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  95




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##### Table of Contents



Endeavour International Corporation
 
 Item 14. Principal Accounting Fees and Services
  
 Part IV
 
 Item 15. Exhibits and Financial Statement Schedules
       96




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Endeavour International Corporation
 
 SIGNATURES
  Endeavour International Corporation
 By:
    
    /s/ J. Michael KirkseyJ. Michael KirkseyExecutive Vice President and Chief Financial Officer
   Signature
    
    Title
    
    Date/s/ William L. Transier
    
    Chief Executive Officer, President
    
    March 14, 2008William L. Transier
    
    and Director
(Principal
Executive Officer)/s/ J. Michael Kirksey
    
    Chief Financial Officer (Principal
    
    March 14, 2008J. Michael Kirksey
    
    Financial Officer)/s/ Robert L. Thompson
    
    Chief Accounting Officer
    
    March 14, 2008Robert L. Thompson
    
    (Principal Accounting Officer)/s/ Thomas D. Clark
    
    Director
    
    March 14, 2008Thomas D. Clark/s/ John B. Connally III
    
    Director
    
    March 14, 2008John B. Connally III/s/ Barry J. Galt
    
    Director
    
    March 14, 2008Barry J. Galt/s/ Charles Hue Williams
    
    Director
    
    March 14, 2008Charles Hue Williams/s/ Nancy K. Quinn
    
    Director
    
    March 14, 2008Nancy K. Quinn/s/ John N. Seitz
    
    Director
    
    March 14, 2008John N. Seitz
 
 97




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Index to Exhibits
 Exhibit
    
    Description3.1(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) on December 12, 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)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).
 
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    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.




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##### Table of Contents



Index to Exhibits
 Exhibit
    
    Description4.3
    
    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)
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) on January 24,
2008.)10.1
    
    Form of Amended and Restated Option to Purchase 100,000 Shares of Common Stock
dated August 8, 2003, between Endeavour and each of Stephen P. Harrington,
Humbert B. Powell, III, Gary Krupp, Thomas M. Curran and John B. Connally III
(Incorporated by reference to Exhibit 10.25 of our Quarterly Report on Form
10-QSB (Commission File No. 000-33439) for the quarter ended June 30, 2003).10.2 (a)
    
    Option to Purchase 200,000 shares of Common Stock issued to Joseph M.
Fioravanti (Incorporated by reference to Exhibit 10.26 of our Quarterly Report
on Form 10-QSB (Commission File No. 000-33439) for the quarter ended June 30,
2003.)10.2 (b)
    
    Amendment to Option to Purchase Common Stock dated February 26, 2004 between
Endeavour and Joseph M. Fioravanti (Incorporated by reference to Exhibit 10.7
of our Annual Report on Form 10-KSB (Commission File No. 000-33439) for the
year ended December 31, 2003.)10.3
    
    Form of Amendment to Amended and Restated Option to Purchase Common Stock dated
February 26, 2004, executed by each of Stephen P. Harrington, Humbert B.
Powell, III Gary Krupp, Thomas M. Curran and John B. Connally. (Incorporated by
reference to Exhibit 10.8 of our Annual Report on Form 10-KSB (Commission File
No. 000-33439) for the year ended December 31, 2003)10.4
    
    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)10.5
    
    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)10.6(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)
 
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    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.




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##### Table of Contents



Index to Exhibits
 Exhibit
    
    Description10.6(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.)10.7
    
    Employment Agreement dated February 26, 2004 by and between Continental
Southern Resources, Inc. and John N. Seitz. (Incorporated by reference to
Exhibit 10.38 of our Annual Report on Form 10-KSB (Commission File No.
000-33439) for the year ended December 31, 2003)10.8
    
    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)10.9
    
    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) on January 5, 2005.)10.10
    
    Form of One-Year Restricted Stock 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 10.2 to our Current Report on Form 8-K (Commission File
No. 001-32212) on January 5, 2005.)10.11
    
    Form of Three-Year Restricted Stock 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 10.3 to our Current Report on Form 8-K (Commission File
No. 001-32212) on January 5, 2005.)10.12
    
    Form of Stock Grant 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 10.4 to our Current Report on Form 8-K (Commission File No. 001-32212)
filed on January 5, 2005.)10.13
    
    Restricted Stock Award Agreement between Endeavour International Corporation
and Lance Gilliland dated effective August 26, 2005 (Incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on September 19, 2005.)10.14
    
    Nonstatutory Stock Option Agreement between Endeavour International Corporation
and Lance Gilliland dated effective August 26, 2005 (Incorporated by reference
to Exhibit 10.2 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on September 19, 2005.)10.15
    
    Agreement for Sale and Purchase of Interest dated 8th December 2005 between
Petro-Canada UK Limited and Endeavour Energy UK Limited (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission File
No. 001-32212) on December 13, 2005.)
 
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    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.




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##### Table of Contents



Index to Exhibits
 Exhibit
    
    Description10.16
    
    Agreement for the Sale and Purchase of 94.77% Interest in PHT Partners, L.P.
dated April 22, 2005 (Incorporated by reference to Exhibit 2.1 to our Current
Report on Form 8-K (Commission File No. 001-32212) on April 27, 2005.)10.17
    
    Put and Call Option Agreement between Paladin Resources Limited, Endeavour
Energy UK Limited and Endeavour International Corporation, dated May 26, 2006
(Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K
(Commission File No. 001-32212) on June 2, 2006.)10.18
    
    Hive-In Agreement between Talisman Energy (UK) Limited, Talisman Energy Alpha
Limited, Talisman North Sea Limited, Talisman Oil Trading Limited and Talisman
Expro Limited, dated May 26, 2006. (Incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K (Commission File No. 001-32212) on June 2,
2006.)10.19
    
    Hive-Out Agreement between Talisman Expro Limited and Paladin Resources
(Montrose) Limited, dated May 26, 2006 (Incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K (Commission File No. 001-32212) on June
2, 2006.)10.20
    
    Hive-Out Agreement between Talisman Expro Limited and Talisman Petroleum Ltd.,
dated May 26, 2006 (Incorporated by reference to Exhibit 10.3 to our Current
Report on Form 8-K (Commission File No. 001-32212) on June 2, 2006.)10.21
    
    Hive-Out Agreement between Talisman Expro Limited and Talisman Oil Trading
Limited, dated May 26, 2006 (Incorporated by reference to Exhibit 10.4 to our
Current Report on Form 8-K (Commission File No. 001-32212) on June 2, 2006.)10.22
    
    Hive-Out Agreement between Talisman Expro Limited and Talisman North Sea
Limited, dated May 26, 2006 (Incorporated by reference to Exhibit 10.5 to our
Current Report on Form 8-K (Commission File No. 001-32212) on June 2, 2006.)10.23
    
    Hive-Out Agreement between Talisman Expro Limited and Talisman Energy (UK)
Limited, dated May 26, 2006 (Incorporated by reference to Exhibit 10.6 to our
Current Report on Form 8-K (Commission File No. 001-32212) on June 2, 2006.)10.24
    
    Underwriting Agreement, dated October 19, 2006, by and among Endeavour
International Corporation and J.P. Morgan Securities Inc. and Credit Suisse
Securities (USA) LLC, as representatives of the several underwriters named in
Schedule I thereto 2006 (Incorporated by reference to Exhibit 1.1 to our
Current Report on Form 8-K (Commission File No. 001-32212) on October 25,
2006.)10.25
    
    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) on October 25, 2006.)10.26
    
    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.)10.27
    
    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) on
November 29, 2007.)
 
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    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.




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##### Table of Contents



Index to Exhibits
 Exhibit
    
    Description10.28 (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.)10.28 (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).10.29 (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.)10.29 (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).10.30
    
    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)
on January 24, 2008.)10.31*
    
    Restricted Stock Award Agreement between Endeavour International Corporation
and J. Michael Kirksey dated September 26, 2007.10.32*
    
    Restricted Stock Award Agreement between Endeavour International Corporation
and John G. Williams dated October 1, 2007.10.33*
    
    Stock Option Agreement between Endeavour International Corporation and J.
Michael Kirksey dated September 26, 2007.10.34*
    
    Stock Option Agreement between Endeavour International Corporation and John G.
Williams dated October 1, 2007.*14.1
    
    Code of Business Conduct of Endeavour International Corporation.*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.*31.3
    
    Certification of Robert L. Thompson, Chief Accounting 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.
 
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    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.




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##### Table of Contents



Index to Exhibits
 Exhibit
    
    Description*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.*32.3
    
    Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
 
 *
    
    Filed herewith.
    
    Identifies management contracts and compensatory plans or arrangements.