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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, 2004
 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
organization)
    
    (I.R.S. Employer Identification No.)
 1000 Main Street, Suite 3300, Houston, Texas 77002
(Address of principal executive offices)     (Zip code) (713) 307-8700
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Exchange Act:Title of Each Class of Stock
    
    Name of Each Exchange on Which RegisteredCommon Stock
$0.001 par value per share
    
    American Stock Exchange
 Securities registered pursuant to Section 12(g) of the Exchange Act:
None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ  Yes  o  No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K . o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  þ  Yes  o  No State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business
day of the registrants most recently completed second fiscal quarter. Common stock aggregate market value held by
non-affiliates as of June 30, 2004: $150,576,000. As of March 10, 2005, 74,035,162 shares of the issuers common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE : Proxy statement of Endeavour International Corporation relating to the 2005 Annual Meeting of Stockholders expected to be
held on June 2, 2005, which is incorporated by reference into Part III of this Form 10-K.




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Table of Contents Part I
    
    
    1Item 1. Business
    
    
    1Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Part II
    
    
    18Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 8. Financial Statements and Supplementary Data
    
    
    32Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    90Item 9A. Controls and Procedures
    
    
    90Item 9B. Other Information
    
    
    94Part III
    
    
    94Item 10. Directors and Executive Officers of the Registrant
    
    
    94Item 11. Executive Compensation
    
    
    94Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    94Item 13. Certain Relationships and Related Transactions
    
    
    94Item 14. Principal Accounting Fees and Services
    
    
    95Item 15. Exhibits and Financial Statement Schedules
    
    
    95Indenture dated as of January 20, 2005List of SubsidiariesConsent of KPMG LLPConsent of LJ Soldinger Associates LLCConsent of Gaffney, Cline & Associates Ltd.Certificate of Co-Chief Executive OfficerCertificate of Co-Chief Executive OfficerCertificate of Chief Accounting OfficerCertificate of Co-Chief Executive OfficerCertificate of Co-Chief Executive OfficerCertificate of Chief Accounting Officer
  (i)




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Forward-Looking Statements The information contained in this Annual Report on Form 10-K and in other public statements by
the Company and Company officers or directors includes or may contain certain forward-looking
statements. The words may, will, expect, anticipate, believe, continue, estimate,
project, intend, and similar expressions used in this Report are intended to identify
forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and
Section 21E of the U.S. Securities Exchange Act of 1934. You should not place undue reliance on
these forward-looking statements, which speak only as of the date made. We undertake no obligation
to publicly release the result of any revision of these forward-looking statements to reflect
events or circumstances after the date they are made or to reflect the occurrence of unanticipated
events. You should also know that such statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions. Many of these risks and uncertainties are set
forth under the caption Risk Factors in Item 1 of this report. Should any of these risks or
uncertainties materialize, or should any of our assumptions prove incorrect, actual results may
differ materially from those included within the forward-looking statements. 
 Part I 
 Item 1. Business Endeavour International Corporation is a Nevada corporation formed on January 13, 2000 (as
Expression Graphics, Inc.) to market and sell graphics media products, such as symbols, logos,
pictures, signs and business advertisements, over the Internet. In February, 2002, we experienced
a change in management, began to implement a new business plan and changed our name to Continental
Southern Resources, Inc. Beginning in 2002, we have been engaged in the business of acquiring,
exploring for, and developing natural gas and oil properties. Since February 26, 2004, we have
primarily focused on the acquisition, exploration and development of energy reserves in the North
Sea. Our principal executive offices are located at 1000 Main Street, Suite 3300, Houston, Texas 77002,
and our telephone number is (713) 307-8700. Unless the context otherwise requires, references to
the Company, Endeavour, we, us or our mean Endeavour International Corporation or any of
our consolidated subsidiaries. If you are not familiar with the oil and gas terms used in this
report, please refer to the explanations of such terms under the caption Commonly Used Oil and Gas
Terms in Item 7 of this report. We file reports with the Securities and Exchange Commission (the Commission). The public may
read and copy any materials that we file with the Commission at the Commissions Public Reference
Room at 450 Fifth Street, NW, Washington, DC 20549. We make available free of charge our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act on our
internet website at www.endeavourcorp.com, as soon as reasonably practicable after we
electronically file or furnish such material with or to the Commission. During 2004, we significantly transformed the nature and scope of our business. While we have been
engaged in oil and gas activities since 2002, our operations had previously been focused in
Louisiana, Mississippi and Oklahoma. On February 26, 2004, we completed a series of transactions
that provided: 1




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
    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 the Companys new strategy; and
    a restructuring which resulted in the sale of all our interests in U.S. oil and gas
properties. The transformed company, renamed Endeavour International Corporation, emerged with a business
strategy firmly focused on exploration, production and development in the North Sea. With this
transformation, our plan is to take advantage of an industry transition that is occurring in the
region similar to what occurred in the Gulf of Mexico in the 1980s. Some major integrated energy
companies are in the process of restructuring their portfolios away from what is considered a more
mature producing area. The restructuring of portfolios by larger energy companies in the Gulf of
Mexico during the 1980s created financial and development opportunities for smaller, niche players
with the technical capabilities to profitably exploit the available oil and gas reserves. We
believe that a similar transition is now underway in the North Sea. At the same time, initiatives
are being undertaken by governing authorities to renew the industrys interest in the area through
the offering of attractive fiscal and licensing terms. Through the application of seismic
technology and innovative geologic and engineering concepts, we plan to take advantage of the
potential of the North Sea. Throughout 2004, we made significant strides in our goal to capitalize on opportunities in the
North Sea. Simultaneous with the restructuring in February, we completed a private offering of
common stock for net proceeds of $46 million. This offering financed the initial transactions in
the transformation and provided capital for us to proceed with our business plan for the remainder
of 2004. In July 2004, we participated in the 22nd Licensing Round in the United Kingdom,
receiving nine production licenses that cover 18 blocks. In September 2004, we were notified by the Ministry of Petroleum and Energy in Norway of our
pre-qualification as a licensee on the Norwegian Continental Shelf. This process evaluates the
competency of a company from a financial, technical and organizational perspective to participate
in exploration and production activities on the Norwegian Continental Shelf. It also considers the
companys competency concerning issues related to health, safety and the environment. Our
qualification makes us one of a limited number of active companies qualified as an operator or a
licensee in Norway. In November 2004, we purchased a 76.66% majority interest in OER oil AS (OER), a privately held
Norwegian exploration and production company based in Oslo (the OER Acquisition). In January
2005, we purchased the remaining 23.34% interest in OER from twenty-four minority interest holders.
With this acquisition, we hold working interests in the Brage and Njord fields operated by Norsk
Hydro. Our current production from these net interests is approximately 1,900 BOEPD. In December 2004, we were awarded a 7.5 percent ownership in two additional licenses in Norway as
part of the 2004 Awards in Predefined Areas, a concession round held annually by the Norwegian
Ministry of Petroleum and Energy in mature parts of the Norwegian Continental Shelf. The awarded
areas cover approximately 600 square kilometers or 232 square miles, equivalent to 30 Gulf of
Mexico blocks, near our Njord interests. The Company and its partners are currently conducting
exploration and exploitation activities in the Njord field that are expected to extend the life of
the field beyond 2013. In January 2005, we entered into an agreement with PGS Exploration (UK) Ltd (PGS) to obtain data
under PGSs Holland MegaSurvey, including 3D seismic data, covering approximately 15,000 square
kilometers in the Dutch North Sea. The Holland MegaSurveyproduct will bring together open file,
brokered and PGS multi-client data into one format along with a series of regional maps. 2




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In January and February 2005, we issued $81.25 million aggregate principal amount of convertible
senior notes due 2012 in a private placement to qualified institutional buyers, pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as amended. The
purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas
properties, working capital and general corporate purposes, which may include future acquisitions
of interests in oil and gas properties. Business Strategy Our strategy involves taking advantage of the shift of the major integrated energy companies
away from the North Sea, the significant contraction of the independent sector, and the
opportunities these changes create for new independent companies. We intend to leverage vertical
alliances with companies that offer capabilities or technologies that will enhance our future
exploratory and developmental efforts. We have the right to use the 3D Mega Mergedataset, recently compiled by PGS, that covers
approximately 79,200 square kilometers of the United Kingdom Continental Shelf and the Norwegian
Continental Shelf. PGS overcame major technological challenges to bring together, for the first
time, open-file, brokeraged and PGS multi-client 3D seismic data into one format. Also, included
in the agreement is access to the North Sea Digital Atlas,a dataset consisting of a multitude of
regional maps on key horizons, interpreted from 110,000 kilometers of 2D data tied to over 1,200
wells. In January 2005, we added PGSs Holland MegaSurvey, including 3D seismic data, covering
approximately 15,000 square kilometers in the Dutch North Sea. We believe the use of the 3D Mega Merge, Holland MegaSurveyand the North Sea Digital Atlas,
coupled with over 20 man-years of associated interpretation from PGS, will enable proprietary
mapping for purposes of identifying development and exploration opportunities not yet exploited by
the energy industry in the North Sea. From our perspective, this data gives us a period of
competitive advantage over current operators and other niche independent exploration and production
companies entering the North Sea. Our efforts to establish a leadership role in the area are
supported by the analysis of key geophysical data using advanced technologies to better understand
and manage risk and improve the probability of early, profitable results. We believe that this combination of the most comprehensive seismic data available to the industry
in this region with advanced geologic concepts will result in the discovery and/or exploitation of
new energy resources in the North Sea. United Kingdom Opportunity The exploration and exploitation potential of the United Kingdom was our initial focus for
establishing our business plan. The UK has led the way in regulatory and fiscal reform to
encourage more entrants for exploration. Also, approximately two-thirds of our 3D Mega Merge
covers the UK. Our success in the 22nd Licensing Round is evidence of our long-term
commitment to growth opportunities in the UK sector. Norway Opportunity The exploration potential of Norway is also of particular interest to us. Norway is immature from
a historical drilling activity and well density perspective. While the UK has offered initiatives
and incentives to encourage exploration and production activities, historic regulatory and fiscal
policies in Norway have controlled the pace and scope of exploration activities and prevented
drilling and development from all but the very largest of fields. The dynamics of world oil and
gas supply and 3




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demand, global competition, and the increasing need to support the governments policies have
caused the Norwegian government to reconsider its current regulations and fiscal policies. As a
result, Norway has begun to take proactive steps to promote more exploration and development and
retain its position as a premier supplier of oil and, particularly, natural gas to the UK and
Europe. The signing of a framework agreement with the UK to encourage, among other things, the
construction of additional natural gas pipeline infrastructure between the two countries
exemplifies Norways commitment to expanding its energy industry. We intend to position ourselves
to capture the opportunities that these new policies may provide. Netherlands Opportunity Our business model was recently expanded to include evaluation of exploration and exploitation
potential in the Netherlands through the acquisition of the Holland MegaSurvey. We will focus our
efforts on new exploration opportunities in two play areas in the southern gas-prone region of the
Dutch North Sea and an immature oil play in the northern part of the sector that could extend from
our activities in the UK Central Graben area. Dutch regulatory and fiscal terms are comparable to
those in the UK and the relatively low level of industry competition makes this sector a reasonable
place for us to expand our search for high quality investment opportunities. Acquisition Strategy Our acquisition strategy will focus on asset management processes of other companies and corporate
opportunities that are identified and prioritized by utilizing our extensive regional datasets. An
overriding objective will be to gain a level of production and cash flow that will support a strong
exploration effort and provide investment funding for exploitation opportunities we identify in
acquired assets. Through the use of the North Sea Digital Atlas, existing extensive regional and local maps and
proprietary interpretation of the 3D Mega Mergeand Holland MegaSurvey, we intend to identify
specific targets for investment. These will primarily include:  
    existing oil and gas producing properties,
    the acquisition of oil and gas producing properties,
    acquiring the rights to explore, evaluate and exploit fallow blocks and fallow
discoveries in the all three sectors (fallow refers to blocks on which initial
exploratory terms or follow-up appraisal requirements have expired), and
    the rights to leaseholds available in future licensing rounds in the UK, Norway and
the Netherlands. We intend to develop an asset portfolio balanced between exploration and exploitation, oil and gas,
leverage and equity, with the ultimate objective of funding continued growth and building long-term
value for our stockholders. Our value creation capabilities will rely heavily on the extensive
industry contact base of our executive team and the development of innovative transaction models.
The most desirable targets for investment are natural gas projects with long life production
profiles and oil-producing assets that provide near-term cash flow, as well as upside from further
drilling. Low risk exploration with significant option value in upside potential should provide
expanded growth opportunities. We will also focus on acquiring regional hub assets with access
to infrastructure in areas which hold the most promise for sustainable exploration activity.
Corporate acquisitions with quality assets that are undervalued may also be pursued. 4




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Technical Strategy Our technical strategy is founded on a philosophy that regional petroleum systems analyses improve
competitive advantage, reduce exploration risk and optimize value creation. This strategy consists
of understanding source rock maturation, hydrocarbon migration pathways, trap and seal integrity,
and reservoir distribution to the fullest extent possible. This system has been successfully
employed by our new management team in their past experiences to identify and commercialize
reserves in basins worldwide. Technical teams are initially focusing their efforts in the regions of the North Sea that offer
large reserve potential, proven play concepts and undeveloped oil and gas resources. A number of
opportunities may be available due to asset divestitures, relinquishment of fallow acreage
(including unexploited discoveries) and introduction of UK promote licenses. We have assembled a
London-based team of experienced technical and commercial professionals for the specific purpose of
evaluating and developing opportunities in the region. With the OER Acquisition, we have a
regional office in Oslo, Norway, focused on operations and business development. Senior
management, experienced technical and commercial professionals and a small administrative staff
located at corporate headquarters in Houston provide strategic direction and guidance and oversee
administrative, legal and financial support. Information technology support is outsourced and the
workstation environment is server- and or/high-end personal computer- based. Executive Officers Name
    
    Age
    
    Positions HeldWilliam L. Transier
    
    
    50
    
    

Co-Chief Executive Officer and Director of
the Company since February 2004; From 1999 to
2003, Executive Vice President and Chief
Financial Officer for Ocean Energy, Inc.
prior to its merger with Devon Energy
Corporation; From September 1998 to March
1999, Mr. Transier was executive vice
president and Chief Financial Officer for
Seagull Energy CorporationJohn N. Seitz
    
    
    53
    
    
    Co-Chief Executive Officer and Director of
the Company since February 2004; January 2002
to March 2003, Chief Executive Officer, Chief
Operating Officer and President of Anadarko
Petroleum Corporation; President and Chief
Operating Officer from 1999 to 2003 of
Anadarko Petroleum Corporation; Vice
President-Exploration from 1997 to 1999 of
Anadarko Petroleum CorporationMichael D. Cochran
    
    
    63
    
    
    Executive Vice President Exploration of the
Company since February 2004; From 2001 to
2003, Senior Vice President, Strategy and
Planning, for Anadarko Petroleum Corporation;
From 1997 to 2001, Vice President, World-Wide
Exploration for Anadarko Petroleum
CorporationBruce H. Stover
    
    
    56
    
    
    Executive Vice President Operations and
Business Development of the Company since
February 2004; From 1997 to 2003, Mr. Stover
was Senior Vice President, Worldwide Business
Development for Anadarko Petroleum
Corporation
 5




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Name
    
    Age
    
    Positions HeldH. Don Teague
    
    
    62
    
    
    Executive Vice President, Administration,
General Counsel and Secretary of the Company
since March 2004; From 2000 to 2004, an
independent consultant; From 1997 to 2000,
Executive Vice President and General Counsel
of ICG Communications, Inc.Robert L. Thompson
    
    
    58
    
    
    Vice President, Chief Accounting Officer and
Corporate Planning of the Company since March
2004; From 2001 to 2003, Vice President and
Controller of Ocean Energy, Inc.; From 2000
to 2001, senior consultant on finance and
economics at Cambridge Energy Research
Associates
 Competition The petroleum and natural gas industry is highly competitive. Numerous independent oil and
gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for
oil and gas properties as well as for the services of third party providers, such as drilling
companies, upon which we rely. A substantial number of our competitors have longer operating
histories in this region and substantially greater financial and personnel resources than we do.
Many of these companies not only explore for, produce and market petroleum and natural gas, but
also carry out refining operations and market the resultant products on a worldwide basis. Such
larger or vertically integrated competitors may be in a position to outbid us for particular
prospect rights. These competitors may also be better able to withstand sustained periods of
unsuccessful drilling. Larger competitors may be able to absorb the burden of any changes in laws
and regulations more easily than we can, which would adversely affect our competitive position. In
addition, most of our competitors have been operating for a much longer time and have demonstrated
the ability to operate through industry cycles. The petroleum and natural gas producers also compete with other suppliers of energy and fuel to
industrial, commercial and individual customers. Competitive conditions may be substantially
affected by various forms of energy legislation and/or regulation considered from time to time by
the governments and/or agencies thereof and other factors out of our control including,
international political conditions, overall levels of supply and demand for oil and gas, and the
markets for synthetic fuels and alternative energy sources. Regulation The exploration, production and sale of oil and gas are extensively regulated by governmental
bodies. Applicable legislation is under constant review for amendment or expansion. These efforts
frequently result in an increase in the regulatory burden on companies in our industry and
consequently an increase in the cost of doing business and decrease in profitability. Numerous
governmental departments and agencies are authorized to, and have, issued rules and regulations
imposing additional burdens on the oil and gas industry that often are costly to comply with and
carry substantial penalties for failure to comply. Production operations are affected by changing
tax and other laws relating to the petroleum industry, by constantly changing administrative
regulations and possible interruptions or termination by government authorities. Oil and gas mineral rights may be held by individuals or corporations and by governments having
jurisdiction over the area in which such mineral rights are located. As a general rule, parties
holding such mineral rights grant licenses or leases to third parties to facilitate the exploration
and development of these mineral rights. The terms of the leases and licenses are generally
established to require timely 6




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development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction
in which mineral rights are located generally retains authority over the manner of development of
those rights. Regulatory authorities have established rules and regulations requiring permits for drilling
operations, drilling bonds and reports concerning operations. The areas in which we operate have
statutes and regulations governing various environmental and conservation matters, including the
unitization or pooling of oil and gas properties and the establishment of maximum rates of
production from oil and gas wells. Many authorities may also restrict production to the market
demand for oil and gas. Such statutes and regulations may limit the rate at which oil and gas
could otherwise be produced from our properties. Environmental Our operations are also subject to a variety of constantly changing laws and regulations
governing the discharge of materials into the environment or otherwise relating to environmental
protection. Significant fines and penalties may be imposed for the failure to comply with
environmental laws and regulations. Some environmental laws provide for joint and several strict
liability for remediation of releases of hazardous substances, rendering a person liable for
environmental damage without regard to negligence or fault on the part of such person. In
addition, we may be subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances, such as oil and gas related products or for other
reasons. Some environmental protection laws and regulations may expose us to liability arising out of the
conduct of operations or conditions caused by others, or for acts which were in compliance with all
applicable laws at the time the acts were performed. Changes in the environmental laws and
regulations, or claims for damages to persons, property, natural resources or the environment,
could result in substantial costs and liabilities to us. These laws and regulations may
substantially increase the cost of exploring for, developing, producing or processing oil and gas
and may prevent or delay the commencement or continuation of a given project and thus generally
could have a material adverse effect upon our capital expenditures, earnings, or competitive
position. We believe that we are in substantial compliance with current applicable environmental
laws and regulations. Nevertheless, changes in existing environmental laws and regulations or in
the interpretations thereof could have a significant impact on us and the oil and gas industry in
general. Water discharge regulations and waste discharge permitting requirements have been adopted or are
expected in the future to prohibit the discharge of produced water and sand and some other
substances related to the oil and gas industry. Although the costs to comply with such mandates
under applicable laws may be significant, the entire industry will experience similar costs, and we
do not believe that these costs will have a material adverse impact on our financial condition and
operations. Operational Hazards and Insurance Our operations are subject to particular hazards incident to the drilling and production of
oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires and pollution and other risks. These hazards can cause personal injury or death,
damage or destruction of property and equipment, pollution or environmental damage and suspension
of operation. In the projects that we own a non-operating interest directly or own an equity interest in a
limited partnership which owns a non-operating interest, either the operator for the project or we
may maintain insurance of various types to cover our operations with policy limits and retention
liability customary in 7




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the industry. In other cases, we may separately retain insurance coverages. We believe the
coverage and types of insurance are currently adequate. The occurrence of a significant adverse
event, the risks of which are not fully covered by insurance, could have a material adverse effect
on our ownership interests and thereby financial condition and results of operations. Employees As of March 7, 2005, we have 40 full-time employees. We believe that we maintain good
relationships with our employees, none of whom are covered by a collective bargaining agreement.
We also utilize the services of various consultants who provide us, among other things, technical
support and accounting services. Risk Factors The following material risk factors, among others, may affect our financial condition and
results of operations. We have had operating losses to date and do not expect to be profitable in the foreseeable future. We have been operating at a loss each year since our inception, and we expect to continue to incur
substantial losses for the foreseeable future. Net loss applicable to common stockholders for the
years ended December 31, 2004, 2003 and 2002 was $23.8 million, $41.2 million and $4.8 million,
respectively. We expect to incur substantial expenditures in connection with our oil and gas
exploration activities. Further, we expect to continue to experience negative cash flow for the
foreseeable future and cannot predict when, or if, we might become profitable. If we are unable to generate additional financing, we will not be able to adequately fund our
existing development and exploration projects, acquire additional oil and gas interests, or
maintain our rights in such projects. We may not have an adequate amount of financial resources to adequately fund our development and
exploration projects on a long-term basis. In the past, we have relied on the sale of our debt and
equity securities to fund the acquisition, exploration and development of our petroleum properties.
To continue funding these projects and to have the ability to fund additional projects, we will
need to raise additional capital. We cannot assure you that additional funding will be available
to us for exploration and development of our projects or to fulfill our obligations under any
agreements. We also cannot assure you that we will be able to generate sufficient operating cash
flow or obtain adequate financing in the future or that the terms of any such financing will be
favorable. Failure to generate such additional operating cash flow or obtain such additional
financing could result in delay, postponement or cancellation of further exploration and
development of our projects or the loss of our interest in such properties. Acquiring interests in properties for oil and natural gas exploration is speculative in nature and
may not ever result in operating revenues or profits. We cannot assure you that we will discover oil and gas in commercial quantities in our current
properties or properties we acquire in the future. Our success depends upon our ability to acquire
working and revenue interests in properties upon which gas and oil reserves are ultimately
discovered. We expect to 8




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ultimately derive the cash flow necessary to fund our operations from the oil and gas produced from
our producing properties and/or the sale of our properties, but there is no assurance we will be
able to do so. In the event we are unable to identify additional gas and oil prospects in which we can acquire an
interest at an affordable price, we may not be able to sustain our growth rate and ability to
spread risk. One element of our strategy is to continue to grow and spread risk through selected acquisitions of
additional ownership interests in gas and oil prospects. If we are unable to execute this aspect
of our strategy in a timely manner, we may not be able to manage our risks and our operations may
be adversely affected. Some of the consequences could be:  
    we may not be able to identify additional desirable gas and oil prospects and
acquire leasehold or other ownership interests in such prospects at a desirable price;
    any of our completed, currently planned, or future acquisitions of ownership
interests in gas and oil prospects may not include prospects that contain proven gas or
oil reserves;
    we may not have the ability to develop prospects which contain proven gas or oil
reserves to the point of commercial production;
    we may not have the financial ability to consummate additional acquisitions of
ownership interests in gas and oil prospects or to develop the prospects which we
acquire to the point of production; and
    we may not be able to consummate such additional acquisitions on terms favorable to
us. We may not be able to replace production with new reserves. In general, the volume of production from oil and gas properties declines as reserves are depleted.
The decline rates depend on reservoir characteristics. Our reserves will decline as they are
produced unless we acquire properties with proved reserves or conduct successful development and
exploration drilling activities. Our future natural gas and oil production is highly dependent
upon our level of success in finding or acquiring additional reserves. Our recent growth is due in large part to acquisitions of producing properties. The successful
acquisition of producing properties requires an assessment of a number of factors, some of which
are beyond our control. These factors include recoverable reserves, future oil and gas prices,
operating costs, and potential environmental and other liabilities, and other factors. Such
assessments are inexact and their accuracy is inherently uncertain. In connection with such
assessments, we perform a review of the subject properties, which we believe is generally
consistent with industry practices. However, such a review will not reveal all existing or
potential problems. In addition, the review will not permit a buyer to become sufficiently
familiar with the properties to fully assess their deficiencies and capabilities. We cannot assure
you that we will be able to acquire properties at acceptable prices because the competition for
producing oil and gas properties is intense and many of our competitors have financial and other
resources that are substantially greater than those available to us. Market fluctuations in the prices of oil and gas could adversely affect the price at which we can
sell gas or oil discovered on our properties. Market fluctuations in the prices of oil and gas can adversely affect the price that we can sell
gas and oil discovered on our properties. In recent decades, there have been periods of both
worldwide over-production and underproduction of hydrocarbons and periods of both increased and
relaxed energy conservation efforts. These conditions have resulted in periods of excess supply
of, and reduced demand 9




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for, crude oil on a worldwide basis and for natural gas on a domestic basis. These periods have
historically been followed by periods of short supply of, and increased demand for, crude oil and,
to a lesser extent, natural gas. The excess or short supply of natural gas and crude oil has
placed pressures on prices and has resulted in dramatic price fluctuations, even during relatively
short periods of seasonal market demand. We cannot predict with any degree of certainty future oil
and natural gas prices. Changes in oil and natural gas prices significantly affect our revenues,
operating results, profitability and the value of our oil and gas reserves. Lower prices may
reduce the amount of oil and natural gas that we can produce economically. In an attempt to reduce
our price risk, we periodically enter into hedging transactions with respect to a portion of our
expected future production. We cannot assure you that such transactions will reduce the risk or
minimize the effect of any decline in oil or natural gas prices. Lower oil and gas prices may cause us to record ceiling test write-downs. We use the full cost method of accounting for our oil and gas operations. Accordingly, we
capitalize the cost to acquire, explore for and develop oil and gas properties. Under full cost
accounting rules, the net capitalized costs of oil and gas properties (net of related deferred
taxes), including estimated capitalized abandonment costs, may not exceed a ceiling limit which
is based upon the present value of estimated future net cash flows from proved reserves, discounted
at 10% and excluding cash flows related to estimated abandonment costs, plus the lower of cost or
fair value of unproved properties. If net capitalized costs of oil and gas properties exceed the
ceiling limit, we must charge the amount of the excess to earnings. This is called a ceiling test
write-down. This charge does not impact cash flow from operating activities, but does reduce net
income. The risk that we will be required to write down the carrying value of oil and gas
properties increases when oil and natural gas prices are low. In addition, write-downs may occur if
we experience substantial downward adjustments to our estimated proved reserves. We cannot assure
you that we will not experience ceiling test write-downs in the future. The oil and gas exploration industry is extremely competitive, which may adversely affect our
profitability. The oil and gas industry is intensely competitive and we compete with other companies that have
longer operating histories and greater financial and other resources than we do. Many of these
companies not only explore for and produce crude oil and natural gas but also conduct refining
operations and market petroleum and other products on a worldwide basis. These competitors can
sustain longer periods of reduced prices of gas and oil and may also be in a better position to
outbid us to purchase particular interests in oil and gas properties. Our ability to produce sufficient quantities of oil and gas from our properties may be adversely
affected by a number of factors outside of our control. If we are unable to produce oil and gas
from our properties in commercial quantities, our operations will be severely affected. Our business of exploring for and producing oil and gas involves a substantial risk of investment
loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that the
wells, although productive, do not produce oil or gas in economic quantities. Other hazards, such
as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of
drilling fluids, or other conditions may substantially delay or prevent completion of any well.
This could result in a total loss of our investment in a particular property. Adverse weather
conditions can also hinder drilling operations. A productive well may become uneconomic if water
or other deleterious substances are encountered, which impair or prevent the production of oil and
gas from the well. In addition, production from any well may be unmarketable if it is impregnated
with water or other deleterious substances. As with any petroleum property, we cannot assure you
that oil and gas will be produced from the properties in which 10




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we have interests, nor can we assure the marketability of oil and gas which may be acquired or
discovered. There are numerous factors beyond our control, including the proximity and capacity of
oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties,
allowable production and environmental protection. We cannot predict how these factors will
adversely affect our business. We operate in foreign countries and are subject to political, economic and other uncertainties. We currently have operations in the United Kingdom, Norway, the Netherlands and, through our
subsidiary PHT Partners, L.P., the Kingdom of Thailand. We may expand international operations to
other countries or regions in the future. International operations are subject to political,
economic and other uncertainties, including:  
    the risk of war, acts of terrorism, revolution, border disputes, expropriation,
renegotiation or modification of existing contracts, 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 having to be 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. Foreign countries have occasionally asserted rights to land, including oil and gas properties,
through border disputes. If a country claims superior rights to oil and gas leases or concessions
granted to us by another country, our interests could be lost or decreased in value. Various
regions of the world have a history of political and economic instability. This instability could
result in new governments or the adoption of new policies that might assume a substantially more
hostile attitude toward foreign investment. In an extreme case, such a change could result in
termination of contract rights and expropriation of foreignowned assets. This could adversely
affect our interests. If the operator of a prospect in which we participate does not maintain or fails to obtain adequate
insurance, our interest in such prospect could be materially and adversely affected. Oil and gas operations are subject to particular hazards incident to the drilling and production of
oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires and pollution and other environmental risks. These hazards can cause personal injury
and loss of life, severe damage to and destruction of property and equipment, pollution or
environmental damage and suspension of operation. We do not currently operate all of our oil and gas properties. In the projects in which we own a
non-operating interest directly or own an equity interest in a limited partnership which in turn
owns a non-operating interest, the operator for the prospect may maintain insurance of various
types to cover our operations with policy limits and retention liability customary in the industry.
The occurrence of a significant adverse event that is not fully covered by insurance could result
in the loss of our total investment in a particular prospect which could have a material adverse
effect on our financial condition and results of operations. 11




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##### Table of Contents



The cost of decommissioning is uncertain. As a result of our business strategy, we expect to incur obligations to abandon and decommission
certain structures in the North Sea. To date the industry has little experience of removing oil
and gas structures in the North Sea. Fewer than 10% of the 400 structures have been removed and
these were small steel structures and sub sea installations in the shallower waters of the Southern
North Sea. In addition, certain groups have been established to study issues relating to
decommissioning and abandonment and how the costs will be borne. Because the experience is
limited, it is difficult to predict the costs of any future decommissions for which we might become
obligated. Our failure to comply with environmental regulations could result in significant fines and
penalties and our cost of compliance with such regulations could result in large expenses, either
of which could adversely affect our operations. Our operations are subject to a variety of national, state, local, and international laws and
regulations governing the discharge of materials into the environment or otherwise relating to
environmental protection. Significant fines and penalties may be imposed for the failure to comply
with environmental laws and regulations. Some environmental laws provide for joint and several
strict liability for remediation of releases of hazardous substances, rendering a person liable for
environmental damage without regard to negligence or fault on the part of such person. In
addition, we may be subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances such as oil and gas related products. Some environmental protection laws and regulations may expose us to liability arising out of the
conduct of operations or conditions caused by others, or for acts which were in compliance with all
applicable laws at the time the acts were performed. Changes in the environmental laws and
regulations, or claims for damages to persons, property, natural resources or the environment,
could result in substantial costs and liabilities to us. Therefore, we may incur significant
environmental compliance costs in the future. Our failure to comply with various levels of governmental regulations to which we are subject could
result in significant fines and/or penalties and our cost of compliance with such regulations could
result in large expenses, either of which would adversely affect our operations. Oil and gas exploration, development and production are subject to various types of regulation by
local, state and federal agencies. Regulations and laws affecting the oil and gas industry are
comprehensive and under constant review for amendment and expansion. These regulations and laws
carry substantial penalties for failure to comply. The regulatory burden on the oil and gas
industry increases our cost of doing business and, consequently, adversely affects our
profitability. We are dependent on our executive officers and need to attract and retain additional qualified
personnel. Our future success depends in large part on the service of William L. Transier and John N. Seitz,
both of whom have substantial experience in the oil and gas industry. If either were to resign it
could have a material adverse effect on our business, operating results and financial condition.
While we have employment agreements with each of Mr. Transier and Mr. Seitz, there can be no
assurance that such agreements will be enforceable in all circumstances, that we will have the
resources to enforce such agreements or that we will have the ability to retain their services due
to resignation or otherwise. Further, we do not intend to maintain key-person life insurance on
either Mr. Transier or Mr. Seitz. Our future success also depends upon our ability to attract,
assimilate and retain highly qualified technical and 12




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other management personnel. There can be no assurance that we will continue to attract, assimilate
and retain key personnel, and the failure to do so will have a material adverse effect on our
business, operating results and financial condition. You may experience dilution of your ownership interests due to the future issuance of additional
shares of our common stock. We may in the future issue our previously authorized and unissued securities which will result in
the dilution of the ownership interests of our present stockholders. We are currently authorized
to issue 150,000,000 shares of common stock and 376,287 shares of preferred stock with such
designations, preferences and rights as determined by our board of directors. At March 7, 2005, we
have issued 74,035,162 shares of common stock, and outstanding options and warrants to purchase an
additional 6,653,500 shares of our common stock. We also have additional shares available for
grant under the Companys recently adopted Incentive Plan, which was approved at our 2004 annual
meeting of stockholders. Additional incentive plans for employees may be adopted in the future.
Issuance of these shares of common stock may substantially dilute the ownership interests of our
existing stockholders. The potential issuance of such additional shares of common stock may create
downward pressure on the trading price of our common stock. We may also issue additional shares of
our stock in connection with the hiring of personnel, future acquisitions, future private
placements of our securities for capital raising purposes, or for other business purposes. This
would further dilute the interests of our existing stockholders. In the first quarter of 2005, we
issued $81.25 million of convertible senior notes that are convertible into shares of our common
stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal amount
of notes, subject to adjustment. Should the noteholders choose to convert their senior notes into
common stock, this would further dilute the interests of our existing stockholders. We do not intend to pay dividends in the foreseeable future. We have never declared or paid a dividend on our common stock. We intend to retain earnings, if
any, for use in the operation and expansion of our business and therefore do not anticipate
declaring or paying any dividends in the foreseeable future. The trading price of our common stock may be volatile. The trading price of our shares has from time to time fluctuated significantly and in the future
may be subject to similar fluctuations. The trading price may be affected by a number of factors,
including the risk factors set forth herein, as well as our operating results, financial condition,
announcements or drilling activities, general conditions in the oil and gas exploration and
development industry, and other events or factors. In recent years, broad stock market indices, in
general, and smaller capitalization companies, in particular, have experienced substantial price
fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our
common stock. These fluctuations may have an extremely negative effect on the market price of our
common stock. There is a limited market for our common stock. Our common stock is trading on the American Stock Exchange. Historically, there has not been an
active trading market for significant volumes of our common stock. We are not certain that an
active trading market for significant volumes of our common stock will develop, or if such a market
develops, that it will be sustained. 13




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##### Table of Contents



If we are unable to fulfill commitments under any of our licenses, we will lose our interest in
such license which will result in the loss of our entire investment in such license. Our ability to retain licenses in which we obtain an interest will depend on our ability to fulfill
the commitments made with respect to each license. We cannot assure you that we or the other
participants in the projects will have the financial ability to fund these potential commitments. Our operations are extremely dependent on other companies and other service providers over which we
have no control. While we employ exploration and development personnel, we may also rely upon the services of
geologists, geophysicists, chemists, engineers and other scientists to assist in the exploration
and analysis of our prospects to determine a method in which the prospects may be developed in a
cost-effective manner. In addition, we rely upon the owners and operators of oil rigs and drilling
equipment to drill and develop our prospects to production. Although we have developed
relationships with a number of third party service providers, we cannot assure that we will be able
to continue to rely on such persons. If any of these relationships with third party service
providers are terminated or are unavailable on terms that are favorable to us, then we will not be
able to execute our business plan. Our debt level governing our debt could negatively impact our financial condition, results of
operations and business prospects. As of December 31, 2004, we had $4 million in outstanding indebtedness. In addition, we completed
a private placement of $81.25 million of senior indentures in the first quarter of 2005. Our level
of indebtedness could have important consequences on our operations, including:  
    making it more difficult for us to satisfy our obligations under the indentures or
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;
    limiting our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
    decreasing our ability to successfully withstand a downturn in our business or the
economy generally; and
    placing us at a competitive disadvantage against other less leveraged competitors. We may be required to repay all or a portion of our debt on an accelerated basis in certain
circumstances. If we fail to comply with the covenants and other restrictions in the agreements
governing our debt, it could lead to an event of default and the acceleration of our repayment of
outstanding debt. Our ability to comply with these covenants and other restrictions may be
affected by events beyond our control, including prevailing economic and financial conditions. We may not have sufficient funds to make such repayments. If we are unable to repay our debt out
of cash on hand, we could attempt to refinance such debt, sell assets or repay such debt with the
proceeds from an equity offering. We cannot assure you that we will be able to generate sufficient
cash flow from operating activities to pay the interest on our debt or that future borrowings,
equity financings or proceeds from the sale of assets will be available to pay or refinance such
debt. Factors that will affect our ability to raise cash through an offering of our capital stock,
a refinancing of our debt or a sale of assets include 14




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financial market conditions and our market value and operating performance at the time of such
offering or other financing. We cannot assure you that any such offering, refinancing or sale of
assets can be successfully completed. 
 Item 2. Properties United Kingdom Endeavour currently anticipates serving as operator of five production licenses we hold
located in the Central North Sea. These include licenses covering:  
    Blocks 21/11c and 20/15b (100% equity);
    Block 21/20c (100% equity);
    Block 22/24e (60% equity);
    Block 30/23b (60% equity); and
    Blocks 31/26b and 39/1b (60% equity). Other non-operated licenses in which we currently hold interests include licenses covering the
following: Southern Gas Basin:  
    Blocks 42/10 and 42/15 (50% equity);
    Blocks 43/22, 43/23, 43/27b, 43/28 and 43/29 (25% equity);
    Blocks 44/21c and 44/25b (25% equity) Central North Sea:  
    Block 23/16e (47.5% equity); and
    Block 23/17b (47.5% equity). These licenses cover more than a half million acres, approximately 2,160 square kilometers, or
equivalent to more than 100 Gulf of Mexico blocks. Of the licenses, four licenses covering eight
blocks were granted under traditional terms that require the company to fulfill a work program
within four years from the date of award. The remaining five licenses covering 10 blocks are under
promote terms that require the company to pay reduced license fees for a two-year period as
exploratory evaluations are conducted. It is anticipated that the above percentages will be
reduced in most of these blocks through farm-outs or bringing in partners prior to extensive work
being carried out in the blocks. Norway As a result of our recent acquisition of OER, we have interests in three fields in the
Norwegian sector of the North Sea:  
    a 4.4% working interest in the Brage field (Norsk Hydro is the operator);
    a 2.5% working interest in the Njord field (Norsk Hydro is the operator); and
    a 49% working interest in the Agat (non-producing) field (RWE is the operator). We also have a 7.5% ownership in two licenses awarded as part of the 2004 Awards in Predefined
Areas. The awarded areas cover approximately 600 square kilometers or 232 square miles, equivalent
to 30 Gulf of Mexico blocks, in area near the Njord field where we hold an interest. The Company

and its partners are currently conducting exploration and exploitation activities in the Njord area
that are expected to extend the life of the field beyond 2013. 15




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##### Table of Contents



Thailand - Khorat Plateau We have interests in the Kingdom of Thailand through our ownership interest in PHT Partners,
L.P. (PHT), a limited partnership. We have a 93.77% limited partnership interest in PHT and a
100% interest in PHT Holding GP, LLC, which is the general partner of PHT and owns a 1% general
partnership interest in PHT. Certain other parties hold interests in PHT entitling them to 20% and
15% respectively of the distributions from PHT after return of all capital contributions and
expenditures. PHT has a 21.08% interest in APICO, LLC (APICO), which in turn has a 35% interest
in the Phu Horm licenses in Thailand. During 2003, the Phu Horm 3 well was redrilled and the
45-day test of the well established that the well was capable of production in excess of 30,000 Mcf
per day. In May 2004, the Phu Horm Project was approved as a Production Area by the Thailand Department of
Mineral Fuels. Drilling of two additional appraisal wells commenced during the second quarter of
2004. These wells have been completed successfully and tested gas and have expanded the known
limits of the reservoir. Engineering, design and permitting for the gas production facilities for
the project are continuing. First gas sales are expected to commence from the Phu Horm Project in
2006. APICO also has a 100% interest in Onshore Exploration Block Nos. L15/43 and L27/43, covering an
area of approximately 7,500 square kilometers. Planned Exploration and Development Expenditures We anticipate exploration and development expenditures in 2005 to be approximately $36.6
million. These anticipated expenditures include $14.1 million in the United Kingdom, $8.4 million
in Norway, $4 million in Thailand, $1.2 million in the Netherlands, $1.9 million on other
exploration expenditures and $7.0 million in capitalized employee costs and interest. We may
increase or decrease our planned activities for 2005, depending upon drilling results, potential
acquisition candidates, product prices, the availability of capital resources, and other factors
affecting the economic viability of such activities. Reserves For 2004, our oil and gas reserves were estimated by the independent reserve engineers
Gaffney, Cline & Associates Ltd. Our proved oil and gas reserves at December 31, 2004 and 2003
included the following: Oil
    
    
    Gas
    
    
    Oil Equivalents(MBbls)
    
    
    (MMcf)
    
    
    (MBOE)2004:Norway
    
    
    1,543
    
    
    
    6,725
    
    
    
    2,664Equity Interest in Entities
with Oil and Gas Properties
(Thailand)
    
    
    75
    
    
    
    25,006
    
    
    
    4,2432003:United States
    
    
    
    
    
    
    52
    
    
    
    9
 16




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##### Table of Contents



Drilling Statistics A well is considered productive for purposes of the following table if it justifies the
installation of permanent equipment for the production of oil or gas. The information should not
be considered indicative of future performance, nor should it be assumed that there is necessarily
any correlation between the number of productive wells drilled, quantities of reserves found or
economic value. The following table shows the results of the oil and gas wells drilled and tested
during 2004: Productive Wells
    
    
    Dry Holes
    
    
    In Progress WellsGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetNorway
    
    
    1
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    0.07Equity Interest in
Entities with Oil
and Gas Properties
(Thailand)
    
    
    2
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 We do not own any drilling rigs, and all of our drilling activities are conducted by independent
drilling contractors. Productive Well Summary At December 31, 2004, our productive wells including the following: Oil
    
    
    GasGross
    
    
    Net
    
    
    Gross
    
    
    NetNorway
    
    
    25
    
    
    
    0.95
    
    
    
    
    
    
    
    Equity Interest in Entities with Oil
and Gas Properties (Thailand)
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    0.21
 Undeveloped Acreage The following table sets forth certain information regarding our developed and undeveloped
acreage as of December 31, 2004 in the areas indicated. Developed
    
    
    UndevelopedGross
    
    
    Net
    
    
    Gross
    
    
    NetUnited Kingdom
    
    
    
    
    
    
    
    
    
    
    307,387
    
    
    
    180,104Norway
    
    
    74,356
    
    
    
    2,873
    
    
    
    278,446
    
    
    
    70,279Total North Sea
    
    
    74,356
    
    
    
    2,873
    
    
    
    585,833
    
    
    
    250,383Equity Interest in Entities
with Oil and Gas Properties
(Thailand)
    
    
    
    
    
    
    
    
    
    
    1,969,564
    
    
    
    201,290
 17




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##### Table of Contents



Item 3. Legal Proceedings In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf
(collectively Plaintiffs) commenced an action against Endeavour International Corporation
(Endeavour), f/k/a Continental Southern Resources, Inc. (CSOR), as well as BWP Gas, L.L.C. and
HBA Gas, Inc. in state court in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that
in 2003, at a time when CSOR intended to acquire a majority of the membership interests in BWP,
that BWP entered into an agreement to assign to Plaintiffs 2.5 million common shares of Endeavour
stock upon compliance by Plaintiffs with certain contractual obligations including but not limited
to completion and initial commercial production of the Mary #2-34 well, along with the presentation
of a development plan and the commencement of the next exploration or development well in the
Potato Hills Deep Prospect. Plaintiffs allege in their petition that BWP, HBA and Endeavour are
alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver to
Plaintiffs the Endeavour common stock. Plaintiffs seek delivery of the stock as well as a
temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of
Plaintiffs rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all future stock
issuances and transfers of assets not in the ordinary course of business and (iii) prohibiting the
alienation or encumbrance of the Endeavour stock that is allegedly in HBAs possession. On April
6, 2004, the defendants removed the action from the state court to the United States District Court
for the Western District of Oklahoma. On October 21, 2004, the United States District Court
granted a motion to remand to state court filed by the Plaintiffs and remanded the matter to the
District Court of Oklahoma County, Oklahoma. While the outcome can not be predicted at this time,
management believes it has good and valid defenses in this litigation and intends to litigate
vigorously. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted for a vote of our stockholders during the fourth quarter of 2004. 
 Part II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock currently trades on the American Stock Exchange under the symbol END.
Between February and June 2004, our common stock traded on the OTC Bulletin Board under the symbol
EVOR. From February 27, 2002 to February 27, 2004, our common stock traded on the OTC Bulletin
Board under the symbol CSOR. The following table sets forth the range of high and low prices per
share of our common stock for each of the calendar quarters identified below as reported by the
American Stock Exchange or the OTC Bulletin Board. These quotations represent inter-dealer prices,
without retail mark-up, markdown or commission, and may not represent actual transactions. 18




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##### Table of Contents



2004
    
    2003High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    5.10
    
    
    $
    2.18
    
    
    $
    5.25
    
    
    $
    3.30Second Quarter
    
    
    4.35
    
    
    
    3.35
    
    
    
    3.47
    
    
    
    2.63Third Quarter
    
    
    3.50
    
    
    
    2.55
    
    
    
    2.90
    
    
    
    1.95Fourth Quarter
    
    
    4.55
    
    
    
    3.22
    
    
    
    2.29
    
    
    
    2.10
 Holders As of March 1, 2005, the number of holders of record of our common stock was 344. We believe
that there are a number of additional beneficial owners of our common stock who hold such shares in
street name. Dividends We have not paid any cash dividends to date, and have no intention of declaring or paying any
cash dividends on our common stock in the foreseeable future. Our Series B Preferred Stock is
subject to a cumulative 8% dividend. Unless the full amount of the foregoing dividends is paid in
full, we cannot declare or pay any dividend on our common stock. The declaration and payment of
dividends is subject to the discretion of our Board of Directors and to certain limitations imposed
under Nevada corporate laws. The timing, amount and form of dividends, if any, will depend on,
among other things, our results of operations, financial condition, cash requirements and other
factors deemed relevant by our Board of Directors. 
 Item 6. Selected Financial Data The following table sets forth some of our historical consolidated financial data. The
following data should be read in conjunction with Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere herein. The selected consolidated financial data provided below are not
necessarily indicative of our future results of operations or financial performance. 19




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##### Table of Contents



Selected Financial Data(1)(Amounts in thousands, except per share data)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000 (2)Revenues
    
    $
    3,663
    
    
    $
    27
    
    
    $
    16
    
    
    $
    
    
    
    $
    Net Loss
    
    
    (23,372
    )
    
    
    (36,829
    )
    
    
    (4,487
    )
    
    
    (68
    )
    
    
    (49
    )Net Loss Per Common Share - Basic and Diluted
    
    
    (0.37
    )
    
    
    (1.18
    )
    
    
    (0.24
    )
    
    
    (0.06
    )
    
    
    (0.11
    )Summary Balance Sheet Data:Total Assets
    
    
    101,737
    
    
    
    12,582
    
    
    
    25,019
    
    
    
    54
    
    
    
    1Long-term Debt
    
    
    2,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    Includes the following acquisitions and dispositions:  
    acquisition of NSNV in February 2004;  
    acquisition of OER in November 2004;  
    acquisition of BWP in May 2003;  
    disposition of BWP, Knox Miss and LSP in 2004; and  
    disposition of CSR-Waha in 2003.  (2)
    Represents the period from January 13, 2000 (Inception) through December 31, 2000. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations This Managements Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this report contain forward-looking statements that involve risks and uncertainties.
All forward-looking statements included in this report are based on information available to the
Company on the date hereof, and we assume no obligation to update any such forward-looking
statements. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those set forth in the
section captioned RISK FACTORS in Item 1 and elsewhere in this report. The following should be
read in conjunction with the audited financial statements and the notes thereto included elsewhere
herein. Overview As discussed previously, we significantly transformed the nature and scope of our business
through various transactions during 2004. These transactions had significant impacts on our
results of operations and financial conditions and include the NSNV and OER acquisitions, the
Offering, the Restructuring and the sales of LSP and Knox Miss, as discussed below. The NSNV Acquisition On February 26, 2004, we acquired NSNV, Inc. (NSNV), through a merger with a newly created
subsidiary of the Company, resulting in NSNV becoming a wholly-owned subsidiary of the Company (the
NSNV Acquisition). The NSNV Acquisition was accounted for as a purchase of assets and not a
business combination. Therefore, the consideration given was allocated to the fair value of the
identifiable assets and liabilities acquired with the excess of $10.8 million expensed. Prior to
the NSNV Acquisition, we had one employee and were focused on oil and gas operations in the United
States. With 20




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the NSNV Acquisition, we gained a new management team, technical and financial staff and a new
international focus in the North Sea. The OER Acquisition In November 2004, we purchased a 76.66% majority interest in OER oil AS (OER), a privately held
Norwegian exploration and production company based in Oslo (the OER Acquisition). The purchase
price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately $27.6 million,
plus $0.8 million in professional expenses for legal and accounting services. The OER Acquisition
provided oil and gas sales of $3.7 million for 2004. The Offering In an offering of common stock (the Offering) that closed on February 26, 2004, we issued 25
million shares of common stock at $2.00 per share in a private placement. The estimated net
proceeds of the Offering were $46 million after deduction of offering expenses. A portion of the
net proceeds were used in the Restructuring for the purchase of 14.1 million shares of our common
stock and 0.1 million shares of our Series B Preferred Stock for $5.3 million and for repayment of
the principal amount of debentures in the amount of $1.5 million. The remainder is being used for
general corporate purposes, including potential acquisitions. The Restructuring Simultaneous with the consummation of the NSNV Acquisition and the Offering, we restructured
various financial and stockholder related items (the Restructuring). Specifically, we completed
the following:  
    repaid $1.5 million principal amount of our outstanding convertible notes and issued 0.4
million shares of our common stock in exchange for the remaining principal balance due
under the Trident convertible debenture at a contractual conversion price of $1.60 per share;
    issued approximately one million shares of our common stock in exchange for the $1.55
million principal balance and accrued interest due under the Marcus convertible debenture
at a contractual conversion price of $1.75 per share;
    issued 2.8 million shares of our common stock upon conversion of all of the outstanding
Series C Preferred Stock, and accrued dividends, at a contractual conversion price of $1.70 per share;
    purchased 14.1 million shares of common stock and 103,500 shares of Series B Preferred
Stock for $5.3 million in cash; and
    purchased all outstanding shares of Series A Preferred Stock and a portion of the Series
B Preferred Stock in exchange for certain of our non-core assets, including:  
    100% of our ownership interest in BWP Gas, LLC;
    864,560 shares of restricted common stock of BPK Resources, Inc.;
    400,000 shares of common stock of Trimedia Group, Inc.;
    notes receivable due with a combined principal of $0.8 million; and
    subscription receivables with a combined principal of $0.4 million. The Sales of Knox Miss and LSP After completing the Restructuring, we sold our entire limited partnership interest in Knox Miss.
Partners, L.P., a Delaware limited partnership that owns a 50% interest in certain oil and gas
leases located in Mississippi, as well as our related interest in Knox Miss., LLC, the 1% sole
general partner of Knox Miss. Partners, L.P., for $5.0 million. The $5.0 million was payable
$500,000 in cash and by the issuance of a 21




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$4.5 million short-term note that was paid during 2004. During the second quarter of 2004, we sold
all of our equity interest in Louisiana Shelf Partners, L.P. (LSP) for $250,000 in cash and a $2
million contingent deferred payment that is payable from proceeds from production of drilling
activities on the oil and gas leases held by LSP. Results of Operations Revenues Revenues for 2004 consisted primarily of production of 92,982 BOE from assets acquired in the OER
Acquisition. Revenues for 2003 and 2002 consisted of production from Oklahoma properties and our
interest in CSR-Waha, respectively, both of which have been sold. Operating and DD&A Expenses Similar to revenues, operating expenses and DD&A expenses for 2004 are related to assets acquired
in the OER Acquisition while 2003 and 2002 operating expenses relate to properties which have been
sold. Unproved property impairment expenses were $25.2 million during 2003 due to the impairment of
Oklahoma properties and the unsuccessful drilling results in Louisiana. Bad Debt Expense Bad debt expense increased to $1.8 million in 2003 from $0.6 million in 2002. All of the bad debt
expense for 2003 and 2002 was related to our investment in Touchstone Resources, Ltd.
(Touchstone), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc.
As of December 31, 2003, we had recorded bad debt reserves for the full balance of our investment
in Touchstone. As discussed in Note 8 to the Consolidated Financial Statements herein, in 2004, we
received 1.2 million common shares of Touchstone Resources USA, Inc. (a public company trading on
the OTC Bulletin Board) in exchange for the promissory notes from Touchstone. As the net book
value of these notes was zero, we recorded a non-cash gain on the approximately $1.8 million
(included in other income), the market value of the shares received on the date of the exchange. General and Administrative Expenses With our acquisitions that occurred in 2004, we have over 35 employees at December 31, 2004 versus
a single employee for 2003 and 2002. Components of G&A expenses for these periods are as follows: 22




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(Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Compensation
    
    $
    4,544
    
    
    $
    168
    
    
    $
    119Non-cash stock-based compensation
    
    
    7,995
    
    
    
    
    
    
    
    Fair market value adjustment of stock options  non-cash
    
    
    1,183
    
    
    
    
    
    
    
    Consulting, legal and accounting fees
    
    
    2,893
    
    
    
    1,540
    
    
    
    802Occupancy costs
    
    
    439
    
    
    
    19
    
    
    
    6Other expenses
    
    
    2,057
    
    
    
    534
    
    
    
    298Gross G&A expenses
    
    
    19,111
    
    
    
    2,261
    
    
    
    1,225Less: capitalized G&A expenses
    
    
    (4,403
    )
    
    
    
    
    
    
    Net G&A expenses
    
    $
    14,708
    
    
    $
    2,261
    
    
    $
    1,225
 Other (Income) and Expense Other (income) expense increased to $7.3 million during the year ended December 31, 2004 as
compared to $5.0 million for the corresponding period in 2003. The 2004 expense consisted of a
$10.8 million expense for consideration given in excess of fair value of identifiable assets
acquired in the NSNV Acquisition, interest expense of $0.3 million incurred primarily on
outstanding convertible debt and a $0.2 million loss in on the sale of marketable securities as
part of the Restructuring, partially offset by $0.4 million net gain in connection with our sales
of assets, $1.8 million in income related to the gain on the exchange of shares from Touchstone,
$1.4 million gain on the settlement of an oil commodity swap, $0.5 million in interest income and $0.3 million in foreign currency exchange losses. All of the
convertible debt was sold or converted to common stock as part of the Restructuring. Other (income) expense was $5.0 million during the fiscal year ended December 31, 2003 as compared
to $2.7 million for the fiscal year ended December 31, 2002. The increase was primarily due to
$1.7 million in losses on the sale of marketable securities. Income Taxes Our tax expense in 2004 of $0.7 million, including $0.5 million of foreign currency losses
attributable to tax liability balances, relates to our Norwegian operations. In 2004, our
Norwegian operations had income before taxes of $0.1 million as compared to a net loss before taxes
of $22.7 million for the total company. During 2003 and 2002, we did not record any income tax
benefits as there was no assurance that we could generate any taxable earnings, and therefore
recorded valuation allowances on the full amount of deferred tax assets generated. Liquidity and Capital Resources (Amounts in thousands)
    
    December 31, 2004
    
    
    December 31, 2003Net working capital
    
    $
    4,699
    
    
    $
    (6,051
    )Long-term debt
    
    $
    2,150
    
    
    $
    
 23




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##### Table of Contents



Year Ended December 31,(Amounts in thousands)
    
    2004
    
    
    2003
    
    
    2002Net cash provided by (used in):Operating activities
    
    $
    6,918
    
    
    $
    (3,179
    )
    

    $
    (900
    )Investing activities
    
    $
    (35,233
    )
    
    $
    (7,475
    )
    
    $
    (23,959
    )Financing activities
    
    $
    36,487
    
    
    $
    10,381
    
    
    $
    25,150
 We have historically funded our operations and acquisitions through issuances of debt and equity
securities. Some of the significant issuances of debt and equity, as well as the uses of the
proceeds, in 2004, 2003 and 2002 are as follows:  
    in November 2004, we purchased OER for $27.6 million in cash;
    in February 2004, we issued 25 million shares of common stock and 0.7 million warrants
at an exercise price of $2.00 per share;
    in February 2004, we funded the purchase of NSNV through
the issuance of 12.5 million shares of common stock;
    during 2004 and 2003, we issued 1.8 million shares of our common stock to RAM for $2.2
million;
    between May and July 2003, we issued 477,500 shares of Series C Convertible Preferred
Stock for $10.00 per share;
    in May 2003, we funded the purchases of BWP through the issuance of 3.3 million shares
of common stock and 1.7 million warrants at an exercise price of $2.00 per share expiring
in three years;
    in April 2002, we borrowed $1.5 million from Trident through a 12% secured convertible
promissory note; and
    in July 2003, we increased the principal amount of the promissory note to Trident to
$2.1 million and extended the maturity date to July 31, 2004. Subsequent Events In January 2005, we purchased the remaining 23.34% minority interest, 1,299,772 shares, in OER
for consideration of NOK 6.98 and 1.68 shares of our common stock per share of OER. The aggregate
consideration paid was approximately US$ 1.4 million in cash and 2,183,617 shares of our common
stock. In January and February 2005, we issued $81.25 million aggregate principal amount of convertible
senior notes due 2012 in a private placement to qualified institutional buyers, pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as amended. The notes
bear interest at a rate of 6.00% per annum and are convertible into shares of our common stock at
an initial conversion rate of 199.2032 shares of common stock per $1,000 principal amount of notes,
subject to adjustment, which is equal to an initial conversion price of approximately $5.02 per
share. The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas
properties, working capital and general corporate purposes, which may include future acquisitions
of interests in oil and gas properties. 24




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##### Table of Contents



In January 2005, we entered into an oil commodity swap where we pay market Brent and receive a
fixed price that ranges from $46.20 per barrel in the initial month to $40.00 per barrel at the end
of the contract. The contract covers 600 barrels per day from February 2005 through December 2006.
The contract requires us to provide $2 million in collateral, subject to possible adjustment. Outlook Anticipated Capital Expenditures We anticipate exploration and development expenditures in 2005 to be $36.6 million. These
expenditures include $14.1 million in the United Kingdom, $8.4 million in Norway, $4 million in
Thailand, $1.2 million in the Netherlands, $1.9 million on other exploration expenditures and $7.0
million in capitalized employee costs and interest. We may increase or decrease our planned
activities for 2005, depending upon drilling results, potential acquisition candidates, product
prices, the availability of capital resources, and other factors affecting the economic viability
of such activities. Liquidity and Financial Resources The $81.25 million of convertible senior notes issued in 2005 bear interest at 6% and are due in
2012. Combined with the existing debt from our newly acquired Norwegian subsidiary, we expect to
incur approximately $5 million in interest expense during 2005. In addition, the debt from our
newly acquired Norwegian subsidiary, with approximately $4 million outstanding at December 31,
2004, is payable in equal installments in July 2005 and January 2006. Critical Accounting Policies and Estimates The accompanying financial statements have been prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of America (US
GAAP) and have been presented on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. These accounting
principles require management to use estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements, and revenues and
expenses during the reporting period. Management reviews its estimates, including those related to
the determination of proved reserves, estimates of future dismantlement costs, income taxes and
litigation. Actual results could differ from those estimates. Management believes that it is reasonably possible the following material estimates affecting the
financial statements could significantly change in the coming year: (1) estimates of proved oil and
gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties,
and (3) estimates of future dismantlement and restoration costs. In addition, alternatives may
exist among various accounting methods. In such cases, the choice of accounting method may also
have a significant impact on reported amounts. Our critical accounting policies are as follows: Full Cost Accounting Under the full cost method, all acquisition, exploration and development costs, including certain
directly related employee costs and a portion of interest expense, incurred for the purpose of
finding oil and gas are capitalized. These capitalized costs are accumulated in pools on a
countrybycountry basis. Capitalized costs include the cost of drilling and equipping productive
wells, including the estimated costs of dismantling and abandoning these assets, dry hole costs,
lease acquisition costs, seismic and other 25




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geological and geophysical costs, delay rentals and costs related to such activities. Employee
costs associated with production and other operating activities and general corporate activities
are expensed in the period incurred. Where proved reserves are established, capitalized costs are limited on a countrybycountry basis
(the ceiling test). The ceiling test is calculated as the sum of the present value of future net
cash flows related to estimated production of proved reserves, using endofthecurrentperiod
prices, discounted at 10%, plus the lower of cost or estimated fair value of unproved properties,
all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the
full cost pool exceeds the ceiling limitation, the excess is charged as an impairment expense. In countries where the existence of proved reserves has not yet been determined, leasehold costs,
seismic costs and other costs incurred during the exploration phase remain capitalized in unproved
property cost centers until proved reserves have been established or until exploration activities
cease. If exploration activities result in the establishment of a proved reserve base, amounts in
the unproved property cost center are reclassified as proved properties and become subject to
depreciation, depletion and amortization and the application of the ceiling test. If exploration
efforts in a country are unsuccessful in establishing proved reserves, it may be determined that
the value of exploratory costs incurred there have been permanently diminished in part or in whole.
Therefore, based on the impairment evaluation and future exploration plans, the unproved property
cost centers related to the area of interest could be impaired, and accumulated costs charged
against earnings. Capitalized Interest We capitalize interest on expenditures for significant exploration and development projects while
activities are in progress to bring the assets to their intended use. Capitalized interest is
calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying
costs and is limited to gross interest expense. As costs are transferred to the full cost pool,
the associated capitalized interest is also transferred to the full cost pool. Dismantlement, Restoration and Environmental Costs Effective January 1, 2003, we recognize liabilities for asset retirement obligations associated
with tangible long-lived assets, such as producing well sites, offshore production platforms, and
natural gas processing plants, with a corresponding increase in the related long-lived asset. The
asset retirement cost is depreciated along with the property and equipment in the full cost pool.
The asset retirement obligation is recorded at fair value and accretion expense, recognized over
the life of the property, increases the liability to its expected settlement value. If the fair
value of the estimated asset retirement obligation changes, an adjustment is recorded for both the
asset retirement obligation and the asset retirement cost. Revenue Recognition We use the entitlements method to account for sales of gas production. We may receive more or less
than our entitled share of production. Under the entitlements method, if we receive more than our
entitled share of production, the imbalance is treated as a liability at the market price at the
time the imbalance occurred. If we receive less than our entitled share, the imbalance is recorded
as an asset at the lower of the current market price or the market price at the time the imbalance
occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed or
determinable price, when delivery has occurred and title has transferred, and if collectibility of
the revenue is probable. 26




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Derivative Instruments and Hedging Activities From time to time, we may utilize derivative financial instruments to hedge cash flows from
operations or to hedge the fair value of financial instruments. We may use derivative financial
instruments with respect to a portion of our oil and gas production to achieve a more predictable
cash flow by reducing our exposure to price fluctuations. These transactions are likely to be
swaps, collars or options and to be entered into with major financial institutions or commodities
trading institutions. Derivative financial instruments are intended to reduce our exposure to
declines in the market prices of crude oil and natural gas that we produce and sell, and to manage
cash flows in support of our annual capital expenditure budget. Derivative instruments (including certain derivative instruments embedded in other contracts) are
recorded at fair market value and included in the balance sheets as assets or liabilities. The
accounting for changes in the fair value of a derivative instrument depends on the intended use of
the derivative and the resulting designation, which is established at its inception. We document,
at the inception of a hedge, the hedging relationship, the risk management objective and the
strategy for undertaking the hedge. The documentation includes the identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged, and the method
that will be used to assess effectiveness of derivative instruments that receive hedge accounting
treatment. Derivative instruments designated as cash flow hedges are reflected at fair value in our
Consolidated Balance Sheets. Changes in fair value, to the extent the hedge is effective, are
recognized in other comprehensive income until the forecasted transaction occurs. Hedge
effectiveness is assessed at least quarterly based on total changes in the derivatives fair value.
Any ineffective portion of the derivative instruments change in fair value is recognized
immediately in other (income) expense. Income Taxes We use the liability method of accounting for income taxes under which deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of
the provision for income taxes in the period that includes the enactment date. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not
that some portion of, or all of, the deferred tax assets will not be realized. Stock-Based Compensation Arrangements We account for stockbased compensation plans for employees and directors using the intrinsic value
method. Under this method, we record no compensation expense for stock options granted when the
exercise price of options granted is equal to or greater than the fair market value of our common
stock on the date of grant. We apply the fair value method in accounting for stock-based grants to
non-employees using the Black-Scholes Method. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued a revised Statement of
Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment(SFAS 123R), which
replaces 27




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SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values. The pro forma disclosures previously permitted under SFAS 123 will no
longer be an alternative to financial statement recognition. SFAS 123R is effective for periods
beginning after June 15, 2005. The guidance also provides for classifying awards as either
liabilities or equity, which impacts when and if the awards must be remeasured to fair value
subsequent to the grant date. We plan to adopt SFAS 123R on July 1, 2005. At the time of adoption, companies can select from three transition methods, two of which would
allow for restatement of certain prior periods. Management anticipates selecting the transition
method in which prior period financial statements would not be restated. The adoption of SFAS No.
123R is not expected to have a significant effect on our financial condition and will not affect
our consolidated cash flows. The future impact on our consolidated results of operations of the
adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated
as liabilities and are currently accounted for using the variable method of accounting. However,
had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share included
in Note 2 to our consolidated financial statements herein. Disclosures about Contractual Obligations and Commercial Commitments The following table sets forth the Companys obligations and commitments to make future
payments under its lease agreements and other long-term obligations as of December 31, 2004: (Amounts in thousands)
    
    Payments due by PeriodAfter 5Contractual Obligations
    
    Total
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    YearsLong-term debt
    
    $
    4,276
    
    
    $
    2,138
    
    
    $
    2,138
    
    
    $
    
    
    
    $
    Operating leases for
office leases and
equipment
    
    
    1,207
    
    
    
    613
    
    
    
    342
    
    
    
    252
    
    
    
    Capital leases for
computer equipment
    
    
    130
    
    
    
    118
    
    
    
    12
    
    
    
    
    
    
    
    Purchase commitment  PGS
    
    
    4,500
    
    
    
    2,500
    
    
    
    2,000
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    10,113
    
    
    $
    5,369
    
    
    $
    4,492
    
    
    $
    252
    
    
    $
    
 Commonly Used Oil and Gas Terms Below are explanations of some commonly used terms in the oil and gas business. Basis risk The risk associated with the sales point price for oil or gas production
varying from the reference (or settlement) price for a particular hedging transaction. Bbl One stock tank barrel, or 42 U.S. gallons liquid volume, of crude oil or other liquid
hydrocarbons. BOE Barrel of oil equivalent, determined using the ratio of one Bbl of crude oil or
condensate to six Mcf of natural gas. 28




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BOPD Barrels of oil per day. BOEPD Barrels of oil equivalent per day. Completion The installation of permanent equipment for the production of oil or natural
gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency. Developed acreage The number of acres that are allocated or assignable to producing wells
or wells capable of production. Development well A well drilled within the proved area of an oil or natural gas field to
the depth of a stratigraphic horizon known to be productive, including a well drilled to find and
produce probable reserves. Dry hole or well A well found to be incapable of producing hydrocarbons in sufficient
quantities such that proceeds from the sale of such production exceed production expenses and
taxes. Exploration or exploratory well A well drilled to find and produce oil or natural gas
reserves that is not a development well. Farm-in or farm-out An agreement whereunder the owner of a working interest in an oil and
gas lease assigns the working interest or a portion thereof to another party who desires to drill
on the leased acreage. Generally, the assignee is required to drill one or more wells in order to
earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest
in the lease. The interest received by an assignee is a farm-in, while the interest transferred
by the assignor is a farm-out. FPSO A floating production, storage and off-loading vessel, commonly used overseas to
produce oil locations where pipeline infrastructure may not exist. Field An area consisting of a single reservoir or multiple reservoirs all grouped on or
related to the same individual geological structural feature or stratigraphic condition. Gas lift The process of injecting natural gas into the wellbore to facilitate the flow of
produced fluids from the reservoir to the production train. Gross acres or gross wells The total acres or wells in which we own a working interest. In progress wells Wells where drilling activity is ongoing, wells awaiting installation
of permanent equipment and wells awaiting the drilling of additional delineation wells. MBbls One thousand barrels of crude oil or other liquid hydrocarbons. MBOE One thousand barrels of oil equivalent, determined using the ratio of one Bbl of
crude oil or condensate to six Mcf of natural gas. Mcf One thousand cubic feet of natural gas. MMcf One million cubic feet of natural gas. Net acres or net wells The sum of the fractional working interests we own in gross acres
or gross wells, as the case may be. 29




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##### Table of Contents



Productive well A well that is found to be capable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed production
expenses and taxes. Prospect A specific geographic area which, based on supporting geological, geophysical or
other data and also preliminary economic analysis using reasonably anticipated prices and costs, is
deemed to have potential for the discovery of commercial hydrocarbons. Proved developed producing reserves Proved developed reserves that are expected to be
recovered from completion intervals currently open in existing wells and capable of production to
market. Proved developed reserves Proved reserves that can be expected to be recovered from
existing wells with existing equipment and operating methods. Proved developed nonproducing reserves Proved developed reserves expected to be recovered
from zones behind casing in existing wells. Proved reserves The estimated quantities of crude oil or natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved undeveloped reserves Proved reserves that are expected to be recovered from new
wells on undrilled acreage or from existing wells where a relatively major expenditure is required
for recompletion. Reservoir A porous and permeable underground formation containing a natural accumulation
of producible oil and/or gas that is confined by impermeable rock or water barriers and is
individual and separate from other reservoirs. Undeveloped acreage Lease acreage on which wells have not been drilled or completed to a
point that would permit the production of commercial quantities of oil and natural gas regardless
of whether such acreage contains proved reserves. Working interest The operating interest that gives the owner the right to drill, produce
and conduct operating activities on the property and a share of production. Workover Operations on a producing well to restore or increase production. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk The international scope of our business operations exposes us to the risk of fluctuations in
foreign currency markets. As a result, we are subject to foreign currency exchange rate risk due
to effects that foreign exchange rate movements of those currencies have on our costs and on the
cash flows that we receive from foreign operations. We operate a centralized currency management
operation to take advantage of potential opportunities to naturally offset exposures against each
other. To date, we have 30




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addressed our foreign currency exchange rate risks principally by maintaining our liquid assets in
interest-bearing accounts in U.S. dollars, until payments in foreign currency are required, but we
have not reduced this risk by hedging to date. Commodity Price Risk We produce and sell crude oil and natural gas. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot market prices applicable which has been volatile
and unpredictable for several years. As a result, our financial results can be significantly
impacted as these commodity prices fluctuate widely in response to changing market forces. We may
engage in oil and gas hedging activities to realize commodity prices which we consider favorable. Interest Rate Risk We are exposed to changes in interest rates. Changes in interest rates affect the interest earned
on cash and cash equivalents and the interest rate paid on borrowings under debt from our newly
acquired Norwegian subsidiary. This debt, with approximately $4 million outstanding at December
31, 2004, bears interest at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%,
currently 3.43%, and is payable in equal installments in July 2005 and January 2006. We do not
currently use interest rate derivative financial instruments to manage exposure to interest rate
changes, but may do so in the future. 31




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Endeavour International Corporation: We have audited the accompanying consolidated balance sheet of Endeavour International Corporation
and subsidiaries as of December 31, 2004, and the related consolidated statements of operations,
stockholders equity and cash flows for the year ended December 31, 2004. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Endeavour International Corporation and subsidiaries
as of December 31, 2004, and the results of their operations and
their cash flows for the year ended
December 31, 2004, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Endeavour International Corporations internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 7, 2005 expressed an unqualified opinion on
managements assessment of, and the effective operation of, internal control over financial
reporting. KPMG LLP Houston, Texas
March 7, 2005 32




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders
Endeavour International Corporation
Houston, Texas We have audited the accompanying consolidated balance sheet of Endeavour International Corporation
(formerly, Continental Southern Resources, Inc.) as of December 31, 2003, and the related
consolidated statements of operations, stockholders equity, and cash flows for the years ended
December 31, 2003 and 2002. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Endeavour International Corporation as of December 31, 2003,
and the results of operations, changes in stockholders equity and its cash flows for the years
ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the
United States of America. In 2004 and as described in Note 2 of the financial statements, the Company changed its method of
accounting for oil and gas operations from the successful efforts method originally used to the
full cost method. In accordance with the guidance of Accounting Principles Board Opinion 20
Reporting a Change in Accounting Principlethis change was retroactively applied to all periods
presented in these financial statements. L J SOLDINGER ASSOCIATES LLC Deer Park, Illinois
March 16, 2004 (Except for Note 2,
as to which the date is June 15, 2004) 33




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Endeavour International Corporation
Consolidated Balance Sheets
(Amounts in thousands, except share data) December 31,2004
    
    
    2003AssetsCurrent Assets:Cash and cash equivalents
    
    $
    8,975
    
    
    $
    57Accounts receivable
    
    
    4,286
    
    
    
    87Notes receivable - related party
    
    
    
    
    
    
    838Interest receivable  related party
    
    
    
    
    
    
    158Marketable securities
    
    
    
    
    
    
    512Marketable securities  related party
    
    
    
    
    
    
    207Prepaid expenses and other current assets
    
    
    3,814
    
    
    
    1,461Total Current Assets
    
    
    17,075
    
    
    
    3,320Equity Interests in Entities with Oil and Gas Properties
    
    
    3,688
    
    
    
    2,839Property and Equipment, Net (Notes 2 and 7)
    
    
    50,228
    
    
    
    6,423Goodwill
    
    
    20,119
    
    
    
    Other Assets
    
    
    10,627
    
    
    
    Total Assets
    
    $
    101,737
    
    
    $
    12,582
 The accompanying notes are an integral part of these consolidated financial statements. 34




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Endeavour International Corporation
Consolidated Balance Sheets
(Amounts in thousands, except share data) December 31,2004
    
    
    2003Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    2,909
    
    
    $
    2,529Current portion of long-term debt
    
    
    2,138
    
    
    
    3,243Deferred equity option
    
    
    
    
    
    
    870Accrued expenses and other
    
    
    7,329
    
    
    
    2,729Total Current Liabilities
    
    
    12,376
    
    
    
    9,371Long-Term Debt
    
    
    2,150
    
    
    
    Deferred Taxes
    
    
    18,012
    
    
    
    Other Liabilities
    
    
    8,979
    
    
    
    Total Liabilities
    
    
    41,517
    
    
    
    9,371Minority Interest
    
    
    3,248
    
    
    
    30Commitments and ContingenciesStockholders Equity:Preferred stock (Liquidation preference: $2,300)
    
    
    
    
    
    
    5Common stock; shares issued and outstanding 
69,995,165 shares at 2004 and 37,144,668 at 2003
    
    
    70
    
    
    
    37Additional paid-in capital
    
    
    133,919
    
    
    
    50,175Less stock subscription receivables
    
    
    
    
    
    
    (250
    )Less stock subscription receivable  related party
    
    
    
    
    
    
    (175
    )Accumulated other comprehensive loss
    
    
    (528
    )
    
    
    (489
    )Deferred compensation
    
    
    (6,570
    )
    
    
    Accumulated deficit
    
    
    (69,919
    )
    
    
    (46,122
    )Total Stockholders Equity
    
    
    56,972
    
    
    
    3,181Total Liabilities and Stockholders Equity
    
    $
    101,737
    
    
    $
    12,582
 The accompanying notes are an integral part of these consolidated financial statements. 35




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Endeavour International Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data) For the Year Ended December 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    3,663
    
    
    $
    27
    
    
    $
    16Expenses:Operating expenses
    
    
    2,066
    
    
    
    6
    
    
    
    17Depreciation, depletion and amortization
    
    
    2,180
    
    
    
    1,497
    
    
    
    Impairment of oil and gas properties
    
    
    
    
    
    
    25,168
    
    
    
    Bad debt expense  related party
    
    
    
    
    
    
    1,800
    
    
    
    551Equity loss from entities with oil and gas
properties
    
    
    201
    
    
    
    1,217
    
    
    
    28General and administrative
    
    
    14,708
    
    
    
    2,132
    
    
    
    1,135General and administrative  related party
    
    
    
    
    
    
    129
    
    
    
    90Total expenses
    
    
    19,155
    
    
    
    31,949
    
    
    
    1,821Loss From Operations
    
    
    (15,492
    )
    
    
    (31,922
    )
    
    
    (1,805
    )Other (Income) Expense:Consideration given in excess of fair market
value of assets acquired
    
    
    10,779
    
    
    
    
    
    
    
    Interest expense
    
    
    295
    
    
    
    3,570
    
    
    
    3,312Interest income
    
    
    (536
    )
    
    
    (240
    )
    
    
    (460
    )Loss on marketable securities  related party
    
    
    207
    
    
    
    1,659
    
    
    
    Gain on collection of promissory notes
    
    
    (1,848
    )
    
    
    
    
    
    
    (165
    )Other
    
    
    (1,565
    )
    
    
    
    
    
    
    (1
    )Total Other Expense
    
    
    7,332
    
    
    
    4,989
    
    
    
    2,686Loss Before Minority Interest
    
    
    (22,824
    )
    
    
    (36,911
    )
    
    
    (4,491
    )Minority Interest
    
    
    122
    
    
    
    82
    
    
    
    4Loss Before Income Taxes
    
    
    (22,702
    )
    
    
    (36,829
    )
    
    
    (4,487
    )Income Tax Expense
    
    
    670
    
    
    
    
    
    
    
    Net Loss
    
    
    (23,372
    )
    
    
    (36,829
    )
    
    
    (4,487
    )Preferred Stock Dividends
    
    
    (425
    )
    
    
    (4,406
    )
    
    
    (284
    )Net Loss to Common Stockholders
    
    $
    (23,797
    )
    
    $
    (41,235
    )
    
    $
    (4,771
    )Net Loss Per Common Share  Basic and Diluted
    
    $
    (0.37
    )
    
    $
    (1.18
    )
    
    $
    (0.24
    )Weighted Average Number of Common Shares
Outstanding  Basic and Diluted
    
    
    64,400
    
    
    
    35,076
    
    
    
    20,174
 The accompanying notes are an integral part of these consolidated financial statements. 36




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Endeavour International Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands) For the Year Ended December 31,2004
    
    
    2003
    
    
    2002Cash Flows from Operating Activities:Net loss
    
    $
    (23,372
    )
    
    $
    (36,829
    )
    
    $
    (4,487
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    2,180
    
    
    
    1,497
    
    
    
    10Impairment of oil and gas properties
    
    
    
    
    
    
    25,168
    
    
    
    Consideration given in excess of fair value of
identifiable assets acquired
    
    
    10,779
    
    
    
    
    
    
    
    Deferred tax expense
    
    
    199
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    6,830
    
    
    
    539
    
    
    
    Gain on collection of promissory notes
    
    
    (1,848
    )
    
    
    
    
    
    
    Fair market value adjustment of stock options
    
    
    1,183
    
    
    
    
    
    
    
    Gain on sale of assets
    
    
    (355
    )
    
    
    
    
    
    
    Bad debt expense  related party
    
    
    
    
    
    
    1,800
    
    
    
    551Amortization of discount on marketable securities
    
    
    
    
    
    
    
    
    
    
    (343
    )Amortization of discount on note payable
    
    
    195
    
    
    
    2,857
    
    
    
    2,152Amortization of loan costs
    
    
    
    
    
    
    263
    
    
    
    75Equity loss from entities with oil and gas properties
    
    
    201
    
    
    
    1,217
    
    
    
    28Realized loss on marketable securities
    
    
    207
    
    
    
    1,659
    
    
    
    Realized gain on share exchange
    
    
    
    
    
    
    
    
    
    
    (165
    )Shares and options issued for services rendered
    
    
    160
    
    
    
    258
    
    
    
    Other
    
    
    (108
    )
    
    
    (31
    )
    
    
    288Changes in assets and liabilities:(Increase) Decrease in receivables
    
    
    1,859
    
    
    
    (129
    )
    
    
    (107
    )(Increase) Decrease in prepaid expenses and other
    
    
    3,847
    
    
    
    (1,271
    )
    
    
    (155
    )Increase (Decrease) in current liabilities
    
    
    4,961
    
    
    
    (177
    )
    
    
    1,253Net Cash Provided by (Used in) Operating Activities
    
    
    6,918
    
    
    
    (3,179
    )
    
    
    (900
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (7,064
    )
    
    
    (3,835
    )
    
    
    (17,618
    )Investment in entities with oil and gas properties
    
    
    (2,081
    )
    
    
    (2,828
    )
    
    
    (1,401
    )Acquisitions, net of cash acquired
    
    
    (26,817
    )
    
    
    
    
    
    
    Acquisition of entities with oil and gas properties, net
of cash acquired
    
    
    
    
    
    
    (2,350
    )
    
    
    Acquisition of notes receivable
    
    
    
    
    
    
    (10
    )
    
    
    (1,428
    )Acquisition of notes receivable  related party
    
    
    
    
    
    
    (176
    )
    
    
    Repayment of notes receivable
    
    
    
    
    
    
    152
    
    
    
    792Repayment of notes receivable  related party
    
    
    
    
    
    
    1,316
    
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (5
    )
    
    
    (4,304
    )Proceeds from sale of assets
    
    
    740
    
    
    
    261
    
    
    
    Other investing activities
    
    
    (11
    )
    
    
    
    
    
    
    Net Cash Used in Investing Activities
    
    $
    (35,233
    )
    
    $
    (7,475
    )
    
    $
    (23,959
    )
 The accompanying notes are an integral part of these consolidated financial statements. 37




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Endeavour International Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands) For the Year Ended December 31,2004
    
    
    2003
    
    
    2002Cash Flows From Financing Activities:Repayment of borrowings
    
    $
    (6,156
    )
    
    $
    (1,200
    )
    
    $
    Repayment of borrowings  related party
    
    
    
    
    
    
    (1,399
    )
    
    
    Proceeds from borrowings
    
    
    
    
    
    
    1,764
    
    
    
    15,436Proceeds from borrowings  related party
    
    
    
    
    
    
    1,254
    
    
    
    Proceeds from deferred equity option
    
    
    
    
    
    
    870
    
    
    
    Financing costs paid
    
    
    
    
    
    
    
    
    
    
    (245
    )Receipts of subscription receivable
    
    
    
    
    
    
    1,430
    
    
    
    Receipts of subscription receivable  related party
    
    
    
    
    
    
    1,924
    
    
    
    Purchase and retirement of common stock and Series B
preferred stock
    
    
    (5,031
    )
    
    
    
    
    
    
    Proceeds from warrant exercises
    
    
    1,250
    
    
    
    
    
    
    
    Proceeds from common and preferred stock issued and
issuable, net of issuance costs
    
    
    46,539
    
    
    
    5,738
    
    
    
    9,959Other financing activities
    
    
    (115
    )
    
    
    
    
    
    
    Net Cash Provided by Financing Activities
    
    
    36,487
    
    
    
    10,381
    
    
    
    25,150Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    8,171
    
    
    
    (273
    )
    
    
    291Effect of foreign currency changes on cash
    
    
    747
    
    
    
    
    
    
    
    Cash and Cash Equivalents, Beginning of Period
    
    
    57
    
    
    
    330
    
    
    
    39Cash and Cash Equivalents, End of Period
    
    $
    8,975
    
    
    $
    57
    
    
    $
    330
 The accompanying notes are an integral part of these consolidated financial statements. 38




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Endeavour International Corporation
Consolidated Statements of Stockholders Equity  Additional
    
    
    StockPreferred
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    SubscriptionStock - A
    
    
    Stock - B
    
    
    Stock - C
    
    
    Stock
    
    
    Capital
    
    
    ReceivableBalance at December 31, 2001
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2
    
    
    $
    150
    
    
    $
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    4,427
    
    
    
    Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,312
    
    
    
    Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    (12
    )
    
    
    Conversion of notes payable
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    22,137
    
    
    
    Stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,480
    )Stock subscription receivable 
related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,156
    )Additional financing costs to
be amortized on convertible
debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,947
    
    
    
    Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income
(net of tax):Unrealized gain
(loss) on
available-for- sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2002
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    30,961
    
    
    
    (3,636
    )Payment of subscription
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,781Payment of subscription
receivable  related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    8,434
    
    
    
    Issuance of warrants and options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,198
    
    
    
    Issuance of Series C preferred
stock
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    7,231
    
    
    
    Additional financing expense on
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351
    
    
    
    Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income
(net of tax):Unrealized gain
(loss) on
available-for- sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2003
    
    $
    4
    
    
    $
    
    
    
    $
    1
    
    
    $
    37
    
    
    $
    50,175
    
    
    
    (425
    )
 The accompanying notes are an integral part of these consolidated financial statements. 39




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##### Table of Contents



Endeavour International Corporation
Consolidated Statements of Stockholders Equity  Additional
    
    
    StockPreferred
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    SubscriptionStock - A
    
    
    Stock - B
    
    
    Stock - C
    
    
    Stock
    
    
    Capital
    
    
    ReceivableBalance, December 31, 2003
    
    $
    4
    
    
    $
    
    
    
    $
    1
    
    
    $
    37
    
    
    $
    50,175
    
    
    $
    (425
    )Exchange of non-core assets in
the Restructuring
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,352
    )
    
    
    425Conversion of preferred stock
in the Restructuring
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    3
    
    
    
    211
    
    
    
    Conversion of notes in the
Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,958
    
    
    
    Issuance of common stock and
warrants in the Offering, net
of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    46,064
    
    
    
    Issuance of common stock and
warrants for acquisition of
NSNV, net of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    25,687
    
    
    
    Issuance of common stock and
stock options as deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    13,397
    
    
    
    Other issuances of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,352Repurchase and retirement of
common and preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (5,005
    )
    
    
    Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,249
    
    
    
    Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair market value adjustment of
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,183
    
    
    
    Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income
(net of tax):Unrealized gain (loss) on
available-for- sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    70
    
    
    $
    133,919
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements. 40




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##### Table of Contents



Endeavour International Corporation
Consolidated Statements of Stockholders Equity  AccumulatedOther
    
    
    
    
    
    
    Total
    
    
    TotalDeferred
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Stockholders
    
    
    ComprehensiveCompensation
    
    
    Loss
    
    
    Deficit
    
    
    Equity
    
    
    LossBalance at December 31, 2001
    
    $
    
    
    
    $
    
    
    
    $
    (116
    )
    
    $
    36Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,437Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,312Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,150Stock subscription
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,480
    )Stock subscription
receivable  related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,156
    )Additional financing costs
to be amortized on
convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,947Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (284
    )
    
    
    (284
    )Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    (4,487
    )
    
    
    (4,487
    )
    
    $
    (4,487
    )Other comprehensive
income (net of tax):Unrealized gain
(loss) on
available-for-
sale securities
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,000
    )Balance, December 31, 2002
    
    
    
    
    
    
    (1,000
    )
    
    
    (4,887
    )
    
    
    21,475
    
    
    $
    (5,487
    )Payment of subscription
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,781Payment of subscription
receivable  related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,438Issuance of warrants and
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,198Issuance of Series C
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,232Additional financing
expense on convertible
notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (4,406
    )
    
    
    (4,406
    )Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    (36,829
    )
    
    
    (36,829
    )
    
    $
    (36,829
    )Other comprehensive
income (net of tax):Unrealized gain
(loss) on
available-for-
sale securities
    
    
    
    
    
    
    511
    
    
    
    
    
    
    
    511
    
    
    
    511Balance, December 31, 2003
    
    $
    
    
    
    $
    (489
    )
    
    $
    (46,122
    )
    
    $
    3,181
    
    
    $
    (36,318
    )
 The accompanying notes are an integral part of these consolidated financial statements. 41




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Endeavour International Corporation
Consolidated Statements of Stockholders Equity
(Amounts in thousand) AccumulatedOther
    
    
    
    
    
    
    Total
    
    
    TotalDeferred
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Stockholders
    
    
    ComprehensiveCompensation
    
    
    Loss
    
    
    Deficit
    
    
    Equity
    
    
    LossBalance, December 31, 2003
    
    $
    
    
    
    $
    (489
    )
    
    $
    (46,122
    )
    
    $
    3,181Exchange of non-core
assets in the
Restructuring
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    (1,724
    )Conversion of preferred
stock in the Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Conversion of notes in the
Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959Issuance of common stock
and warrants in the
Offering, net of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,089Issuance of common stock
and warrants for
acquisition of NSNV, net
of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,700Issuance of common stock
and stock options as
deferred compensation
    
    
    (13,400
    )
    
    
    
    
    
    
    
    
    
    
    Other issuances of common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,353Repurchase and retirement
of common and preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,019
    )Amortization of deferred
compensation
    
    
    6,830
    
    
    
    
    
    
    
    
    
    
    
    6,830Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    (425
    )
    
    
    (425
    )Fair market value
adjustment of stock
options
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    1,183Comprehensive Loss:Net Loss

    
    
    
    
    
    
    




    
    
    
    (23,372
    )
    
    
    (23,372
    )
    
    $
    (23,372
    )Other comprehensive
income (net of tax):Unrealized gain
(loss) on
available-for-
sale securities
    
    
    
    
    
    
    (246
    )
    
    
    
    
    
    
    (246
    )
    
    
    (246
    )Balance, December 31, 2004
    
    $
    (6,570
    )
    
    $
    (528
    )
    
    $
    (69,919
    )
    
    $
    56,972
    
    
    $
    (23,618
    )
 The accompanying notes are an integral part of these consolidated financial statements. 42




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 1 - Description of Business Endeavour International Corporation, formerly Continental Southern Resources, Inc. and
Expression Graphics, Inc., was incorporated under the laws of the state of Nevada on January 13,
2000. The Company was in the development stage through September 30, 2004. The year 2004 is the
first year during which it is considered an operating company. As used in these Notes to
Consolidated Financial Statements, the terms the Company, Endeavour, we, us, our and
similar terms refer to Endeavour International Corporation and, unless the context indicates
otherwise, its consolidated subsidiaries. On February 26, 2004, we completed a series of transactions that significantly transformed the
nature and scope of our business. These changes include:  
    a new management team;
    a new business strategy of exploration, exploitation and acquisition that is focused on
the North Sea;
    the acquisition of NSNV, Inc. which possessed the seismic data and management team that
is central to the Companys new strategy; and
    a restructuring which resulted in the sale of all interests in U.S. oil and gas
properties. Note 2 - Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of America (US
GAAP) and have been presented on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. These accounting
principles require management to use estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements, and revenues and
expenses during the reporting period. Management reviews its estimates, including those related to
the determination of proved reserves, estimates of future dismantlement costs, income taxes and
litigation. Actual results could differ from those estimates. Management believes that it is reasonably possible the following material estimates affecting the
financial statements could significantly change in the coming year: (1) estimates of proved oil and
gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties,
and (3) estimates of future dismantlement and restoration costs. Principles of Consolidation The accompanying consolidated financial statements include all of the accounts of Endeavour
and our consolidated subsidiaries. All significant intercompany accounts and transactions have
been eliminated. We use the equity method to account for all limited ownership interests that
range up to 50%. Affiliate companies in which we directly or indirectly own more than 50% of the
outstanding voting interest are accounted for under the consolidation method of accounting. 43




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Endeavour International Corporation
Notes to Consolidated Financial Statements Change in Method of Accounting for Oil and Gas Operations During the second quarter of 2004, we changed from the successful efforts method of accounting
for oil and gas properties to the full cost method. We believe that the full cost method of
accounting is more appropriate for Endeavour in light of the significant changes in our operations
that have occurred. We believe capitalization of seismic and other exploration technology
expenditures as well as the cost of all wells recognizes the value these expenditures add to the
program of an exploration focused company like Endeavour. Amortization of these costs over the
life of the discovered reserves provides a more appropriate method of matching revenues and
expenses related to our exploration strategy. Our technical strategy is founded on a philosophy
that regional petroleum systems analyses improve competitive advantage, reduce exploration risk and
optimize value creation. Regional petroleum systems analysis has been successfully employed by our
new management and technical team in their past experiences to identify and commercialize reserves
in basins worldwide. Prior to February 2004, the Company had no technical exploration and production staff and did not
have any production until the fourth quarter of 2003. The only producing property, which had
minimal production, was sold in the February 2004 restructuring. We believe the full cost method of accounting will more accurately reflect the results of our
future operations. The full cost method of accounting is used by many independent oil and gas
companies and its use will allow investors to better assess the performance of the company. We have restated all prior financial statements as a result of the conversion to full cost
accounting. As a part of this process, all previous charges related to the successful efforts
method of accounting for oil and gas assets were reversed, raising the book value of those
properties as well as our stockholders equity. The full cost method, however, requires performing
quarterly ceiling tests to ensure that the carrying value of oil and gas assets on the balance
sheet is not overstated. In ceiling tests performed for the quarter ended December 31, 2003, a
$10.1 million impairment was recorded as capitalized costs exceeded the ceiling test limits. The
ceiling test was based on natural gas prices of $4.74 per thousand cubic feet (Mcf) for natural gas
that included adjustments for basis differentials and other pricing factors. Quarterly full cost
ceiling tests will be based on the then-current market prices for both natural gas and oil, after
adjustments. The end result of the full cost conversion is that both the book value of our
properties and stockholders equity are at approximately the same levels that would have existed if
we had continued with the successful efforts method of accounting. The effect of the accounting change on net loss follows: (Amounts in thousands, except per share data)
    
    Year Ended December 31,2003
    
    
    2002Net loss to common shareholders under successful efforts
    
    $
    (37,248
    )
    
    $
    (8,671
    )Adjustments to full cost
    
    
    (3,986
    )
    
    
    3,900Net loss to common shareholders under full cost
    
    $
    (41,234
    )
    
    $
    (4,771
    )Loss per basic and diluted share under successful efforts
    
    $
    (1.06
    )
    
    $
    (0.43
    )Loss per basic and diluted share under full cost
    
    $
    (1.18
    )
    
    $
    (0.24
    )
 44




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Endeavour International Corporation
Notes to Consolidated Financial Statements The effect of the accounting change on the balance sheet follows: Net Oil and Gas Property and
    
    
    Deficit Accumulated During the(Amounts in thousands)
    
    Equipment
    
    
    Development StageDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2002
    
    
    2003
    
    
    2002Under successful efforts
    
    $
    6,499
    
    
    $
    15,078
    
    
    $
    (46,036
    )
    
    $
    (8,788
    )Adjustments to full cost
    
    
    (86
    )
    
    
    3,900
    
    
    
    (86
    )
    
    
    3,900Under full cost
    
    $
    6,413
    
    
    $
    18,978
    
    
    $
    (46,122
    )
    
    $
    (4,888
    )
 Cash and Cash Equivalents We consider all highly liquid instruments with an original maturity of 90 days or less at the
time of purchase to be cash equivalents. Inventories Materials and supplies and oil inventories are valued at the lower of cost or market value
(net realizable value). Full Cost Accounting for Oil and Gas Operations Under the full cost method, all acquisition, exploration and development costs, including
certain directly related employee costs and a portion of interest expense, incurred for the purpose
of finding oil and gas are capitalized and accumulated in pools on a countrybycountry basis.
During 2004, we capitalized $4.4 million in certain directly related employee costs. Capitalized
costs include the cost of drilling and equipping productive wells, including the estimated costs of
dismantling and abandoning these assets, dry hole costs, lease acquisition costs, seismic and other
geological and geophysical costs, delay rentals and costs related to such activities. Employee
costs associated with production and other operating activities and general corporate activities
are expensed in the period incurred. Where proved reserves are established, capitalized costs are limited on a countrybycountry basis
(the ceiling test). The ceiling test is calculated as the sum of the present value of future net
cash flows related to estimated production of proved reserves, using endofthe-current-period
prices, discounted at 10%, plus the lower of cost or estimated fair value of unproved properties,
all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the
full cost pool exceeds the ceiling limitation, the excess is charged as an impairment expense. We utilize a single cost center for each country where we have operations for amortization
purposes. Any conveyances of properties are treated as adjustments to the cost of oil and gas
properties with no gain or loss recognized unless the operations are suspended in the entire cost
center or the conveyance is significant in nature. 45




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Endeavour International Corporation
Notes to Consolidated Financial Statements The costs of investments in unproved properties and portions of costs associated with major
development projects are excluded from the depreciation, depletion and amortization (DD&A)
calculation until the project is evaluated. Unproved property costs include leasehold costs, seismic costs and other costs incurred during the
exploration phase. In areas where proved reserves are established, significant unproved properties
are evaluated periodically for impairment. If a reduction in value has occurred, these property
costs are considered impaired and are transferred to the related full cost pool. Unproved
properties whose acquisition costs are not individually significant are aggregated, and the portion
of such costs estimated to be ultimately nonproductive, based on experience, are amortized to the
full cost pool over an average holding period. In countries where the existence of proved reserves has not yet been determined, leasehold costs,
seismic costs and other costs incurred during the exploration phase remain capitalized in unproved
property cost centers until proved reserves have been established or until exploration activities
cease. If exploration activities result in the establishment of a proved reserve base, amounts in
the unproved property cost center are reclassified as proved properties and become subject to
depreciation, depletion and amortization and the application of the ceiling test. If exploration
efforts in a country are unsuccessful in establishing proved reserves, it may be determined that
the value of exploratory costs incurred there have been permanently diminished in part or in whole.
Therefore, based on the impairment evaluation and future exploration plans, the unproved property
cost centers related to the area of interest could be impaired, and accumulated costs charged
against earnings. Other Property and Equipment Other oil and gas assets, computer equipment and furniture and fixtures are recorded at cost,
less accumulated depreciation. The assets are depreciated using the straight-line method over
their estimated useful lives of two to five years. Capitalized Interest We capitalize interest on expenditures for significant exploration and development projects
while activities are in progress to bring the assets to their intended use. Capitalized interest
is calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying
costs and is limited to gross interest expense. As costs are transferred to the full cost pool,
the associated capitalized interest is also transferred to the full cost pool. Marketable Securities The marketable securities reflected in these financial statements are deemed by management to
be available-for-sale and, accordingly, are reported at fair value, with unrealized gains and
losses reported in other comprehensive income and reflected as a separate component within the
Statement of Stockholders Equity. Realized gains and losses on securities available-for-sale are
included in other income/expense and, when applicable, are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of
available-for-sale securities are determined using the specific-identification method. 46




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Endeavour International Corporation
Notes to Consolidated Financial Statements Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of the
assets acquired and liabilities assumed in the acquisition of OER oil AS, subsequently renamed
Endeavour Energy Norge AS. Intangible assets represent the purchase price allocation to the
assembled workforce as a result of the acquisition of NSNV, Inc. We assess the carrying amount of
goodwill and other indefinite-lived intangible assets by testing the asset for impairment annually
at year-end, or more frequently if events or changes in circumstances indicate that the asset might
be impaired. The impairment test requires allocating goodwill and all other assets and liabilities
to reporting units. The fair value of each reporting unit is determined and compared to the book
value of the reporting unit. An impairment loss is recognized to the extent that the carrying
amount exceeds the assets fair value. Dismantlement, Restoration and Environmental Costs Effective January 1, 2003, we recognize liabilities for asset retirement obligations
associated with tangible long-lived assets, such as producing well sites, offshore production
platforms, and natural gas processing plants, with a corresponding increase in the related
long-lived asset. The asset retirement cost is depreciated along with the property and equipment
in the full cost pool. The asset retirement obligation is recorded at fair value and accretion
expense, recognized over the life of the property, increases the liability to its expected
settlement value. If the fair value of the estimated asset retirement obligation changes, an
adjustment is recorded for both the asset retirement obligation and the asset retirement cost. Revenue Recognition We use the entitlements method to account for sales of gas production. We may receive more or
less than our entitled share of production. Under the entitlements method, if we receive more than
our entitled share of production, the imbalance is treated as a liability at the market price at
the time the imbalance occurred. If we receive less than our entitled share, the imbalance is
recorded as an asset at the lower of the current market price or the market price at the time the
imbalance occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed
or determinable price, when delivery has occurred and title has transferred, and if collectibility
of the revenue is probable. Significant Customers Substantially all of our oil sales are to one customer, Statoil ASA, and substantially all of
our gas and natural gas liquids sales are to one customer, Norsk Hydro. Derivative Instruments and Hedging Activities From time to time, we may utilize derivative financial instruments to hedge cash flows from
operations or to hedge the fair value of financial instruments. We may use derivative financial
instruments with respect to a portion of our oil and gas production to achieve a more predictable
cash flow by reducing our exposure to price fluctuations. These transactions are likely to be
swaps, collars or options and to be entered into with major financial institutions or commodities
trading institutions. Derivative financial instruments are intended to reduce our exposure to
declines in the market prices of crude oil and natural 47




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Endeavour International Corporation
Notes to Consolidated Financial Statements gas that we produce and sell, and to manage cash flows in support of our annual capital expenditure
budget. Derivative instruments (including certain derivative instruments embedded in other contracts) are
recorded at fair market value and included in the balance sheets as assets or liabilities. The
accounting for changes in the fair value of a derivative instrument depends on the intended use of
the derivative and the resulting designation, which is established at its inception. We document,
at the inception of a hedge, the hedging relationship, the risk management objective and the
strategy for undertaking the hedge. The documentation includes the identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged, and the method
that will be used to assess effectiveness of derivative instruments that receive hedge accounting
treatment. Derivative instruments designated as cash flow hedges are reflected at fair value in our
Consolidated Balance Sheets. Changes in fair value, to the extent the hedge is effective, are
recognized in other comprehensive income until the forecasted transaction occurs. Hedge
effectiveness is assessed at least quarterly based on total changes in the derivatives fair value.
Any ineffective portion of the derivative instruments change in fair value is recognized
immediately in other (income) expense. Concentrations of Credit and Market Risk Financial instruments that potentially subject us to concentrations of credit risk consist
principally of cash deposits at financial institutions. At various times during the year, we may
exceed the federally insured limits. To mitigate this risk, we place our cash deposits only with
high credit quality institutions. Management believes the risk of loss is minimal. Derivative financial instruments that hedge the price of oil and gas will be generally executed
with major financial or commodities trading institutions which expose us to market and credit
risks, and may at times be concentrated with certain counterparties or groups of counterparties.
Although notional amounts are used to express the volume of these contracts, the amounts
potentially subject to credit risk, in the event of nonperformance by the counterparties, are
substantially smaller. The creditworthiness of counterparties is subject to continuing review and
full performance is anticipated. As an independent oil and gas producer, our revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas, which are dependent upon numerous
factors beyond our control, such as economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically been very volatile, and there
can be no assurance that oil and gas prices will not be subject to wide fluctuations in the future.
A substantial or extended decline in oil and gas prices could have a material adverse effect on our
financial position, results of operations, cash flows and our access to capital and on the
quantities of oil and gas reserves that may be economically produced. Foreign Currency Translation The U.S. dollar is the functional currency for all of our existing foreign operations, as
predominantly all revenue transactions in these operations are denominated in U.S. dollars. For
foreign operations with the U.S. dollar as the functional currency, monetary assets and liabilities
are translated into U.S. dollars at the exchange rate on the balance sheet date. Nonmonetary
assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Income and
expense items are translated at average rates of exchange 48




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Endeavour International Corporation
Notes to Consolidated Financial Statements prevailing during each period. Translation adjustments are recognized currently as a component of
foreign currency gain or loss and deferred income taxes. To the extent that business transactions
are not denominated in U.S. dollars, we are exposed to foreign currency exchange rate risk. For
the year ended December 31, 2004, we had foreign currency losses of $0.3 million included in other
income and $0.5 million included in income tax expense. Financial Instruments The carrying amounts reflected in the consolidated balance sheets for cash and equivalents,
short-term receivables and short-term payables approximate their fair value due to the short
maturity of the instruments. The carrying value of the investment in equity securities
approximates fair value based on their market trading price. The carrying value of the note
receivable with detachable warrants reflects a discount for the value of warrants. The carrying
value of the convertible notes is recorded at the value of the underlying collateral. The carrying
value of remaining debt approximates fair value as the debt bears interest at a market rate. Income Taxes We use the liability method of accounting for income taxes under which deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of
the provision for income taxes in the period that includes the enactment date. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not
that some portion of, or all of, the deferred tax assets will not be realized. Stock-Based Compensation Arrangements We account for stockbased compensation plans for employees and directors using the intrinsic
value method. Under this method, we record no compensation expense for stock options granted when
the exercise price of options granted is equal to or greater than the fair market value of our
common stock on the date of grant. We apply the fair value method in accounting for stock-based
grants to non-employees using the Black-Scholes Method. During 2003, we granted 700,000 options to then-current directors. While all the options granted
had an exercise price higher than the market value of the stock on the date of grant, a subsequent
modification of these options has triggered variable accounting. We are required to record
compensation expense if the modified option price is lower than the market price of the stock at
the end of a reporting period until the options expire or are exercised. For the years ended
December 30, 2004 and 2003, we recorded non-cash general and administrative expenses of $1.2
million and none, respectively, related to these options. The net loss for 2003 also includes
stock-based compensation cost of $217,000 related to options and restricted stock granted to a
then-current director. Had compensation expense for the years ended December 31, 2004, 2003 and 2002 been determined under
fair value provisions, our net loss and net loss per share would have been the following: 49




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts in thousands, except per share data)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Net loss to common stockholders, as reported
    
    $
    (23,797
    )
    
    $
    (41,235
    )
    
    $
    (4,771
    )Add:Stock-based compensation expense as reported
    
    
    6,360
    
    
    
    
    
    
    
    Less:Total stock-based compensation expense
determined under fair-value-based method
for all awards, net of tax
    
    
    (6,503
    )
    
    
    (826
    )
    
    
    (1,305
    )Pro forma net loss
    
    $
    (23,940
    )
    
    $
    (42,061
    )
    
    $
    (6,076
    )Loss per share:Basic  as reported
    
    $
    (0.37
    )
    

    $
    (1.18
    )
    
    $
    (0.24
    )Basic  pro forma
    
    $
    (0.37
    )
    
    $
    (1.20
    )
    
    $
    (0.30
    )
 These pro forma amounts may not be representative of future disclosures since the estimated fair
value of stock options is amortized to expense over the vesting period and additional options may
be issued in future years. The estimated fair value of each option granted was calculated using
the Black-Scholes Method. The following summarizes the weighted average of the assumptions used in
the method. 2004
    
    
    2003
    
    
    2002Risk free rate
    
    
    4.0
    %
    
    
    1.63  3.84
    %
    
    
    1.23
    %Expected years until exercise
    
    
    5.0
    
    
    
    3.0 - 5.0
    
    
    
    2.0Expected stock volatility
    
    
    31
    %
    
    
    100
    %
    
    
    110
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Loss Per Share Basic loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted
loss per share includes the effect of our outstanding stock options, warrants and shares issuable
pursuant to convertible debt under the treasury stock method, if including such instruments is
dilutive. For each of the periods presented, shares associated with stock options, warrants and
convertible debt are not included because their inclusion would be antidilutive (i.e., reduce the
net loss per share). The common shares potentially issuable arising from these instruments, which were outstanding
during the periods presented in the financial statements, consisted of: 50




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts in thousands)
    
    December 31,2004
    
    
    2003
    
    
    2002Options
    
    
    1,093
    
    
    
    1,025
    
    
    
    500Warrants
    
    
    1,472
    
    
    
    2,758
    
    
    
    783Convertible Debt
    
    
    
    
    
    
    4,320
    
    
    
    1,414Common shares potentially issuable
    
    
    2,565
    
    
    
    8,103
    
    
    
    2,697
 Impairment of Loans We impair loans based on the present value of expected future cash flows discounted at the
loans effective interest rate or at the loans observable market price or the fair value of the
collateral if the loan is collateral dependent. We used the fair value of the loan collateral to
measure the impairment of the loans and ceased accruing interest income on the loans. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued a revised Statement of
Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment(SFAS 123R), which
replaces SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in the financial
statements based on their fair values. The pro forma disclosures previously permitted under SFAS
123 will no longer be an alternative to financial statement recognition. SFAS 123R is effective
for periods beginning after June 15, 2005. The guidance also provides for classifying awards as
either liabilities or equity, which impacts when and if the awards must be remeasured to fair value
subsequent to the grant date. We plan to adopt SFAS 123R on July 1, 2005. At the time of adoption, companies can select from three transition methods, two of which would
allow for restatement of certain prior periods. Management anticipates selecting the transition
method in which prior period financial statements would not be restated. The adoption of SFAS No.
123R is not expected to have a significant effect on our financial condition and will not affect
our consolidated cash flows. The future impact on our consolidated results of operations of the
adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated
as liabilities and are currently accounted for using the variable method of accounting. However,
had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share included
in Note 2 above. Note 3 - Acquisitions and Dispositions Acquisition of NSNV, Inc. On February 26, 2004, we acquired NSNV, Inc. (NSNV), through a merger with a newly created
subsidiary of the Company, resulting in NSNV becoming a wholly-owned subsidiary of the Company (the
NSNV Acquisition). NSNV was a private company owned by William L. Transier, John N. Seitz 51




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Endeavour International Corporation
Notes to Consolidated Financial Statements and PGS Exploration (UK) Limited (PGS), a United Kingdom corporation that is a provider of
geophysical services. The former shareholders of NSNV received an aggregate of 12.5 million of our
common shares in the merger, representing approximately 18.9% of our outstanding common stock
immediately after the closing of the merger. The NSNV Acquisition provided with us the following competitive advantages: (i) a pre-eminent
seismic and geological database of the North Sea region and (ii) a proven and experienced
management team comprised of Messrs. Transier and Seitz, each pursuant to three-year employment
agreements, and certain other former executives of Ocean Energy, Inc. and Anadarko Petroleum
Corporation. Upon consummation of the NSNV Acquisition, our sole officer, Stephen P. Harrington,
and directors Humbert Powell, Thomas Michael Curran and Gary Krupp resigned and William L. Transier
and John N. Seitz became the Co-Chief Executive Officers and Directors. The NSNV Acquisition was accounted for as a purchase of assets and not a business combination.
Therefore, the consideration given was allocated to the fair value of the identifiable assets and
liabilities acquired with the excess expensed. The following is a calculation of the consideration given: (Amounts in thousands, except per share data)Shares of common stock issued
    
    
    12,500Price per share
    
    $
    2.00Fair value of stock issued
    
    
    25,000Add: Capitalized acquisition costs
    
    
    452Consideration given
    
    $
    25,452
 Capitalized acquisition costs are professional expenses for legal and accounting services. The consideration given for the NSNV Acquisition was allocated as follows: (Amounts in thousands)Current assets
    
    $
    1,059Property and equipment
    
    
    11,386Intangible asset  workforce in place
    
    
    4,800Other assets
    
    
    3,500Current liabilities
    
    
    (2,478
    )Long-term commitments
    
    
    (3,594
    )Fair value of net identifiable assets acquired
    
    
    14,673Consideration
    
    
    (25,452
    )Consideration given in excess of fair value of identifiable assets acquired
    
    $
    (10,779
    )
 Acquisition of OER Oil AS In November 2004, we purchased a 76.66% majority interest in OER Oil AS (OER), a privately
held Norwegian exploration and production company based in Oslo, Norway (the OER Acquisition).
The 52




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Endeavour International Corporation
Notes to Consolidated Financial Statements purchase price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately $27.6
million, plus $0.8 million in professional expenses for legal and accounting services. We also entered into agreements with the twenty-four minority interest holders of OER, including
certain members of OERs management, to purchase the remaining 23.34% interest in OER. The
purchase of the interests of the minority shareholders was completed in January 2005 for a
combination of common stock and cash (see Note 24). The consideration given for the OER Acquisition was allocated as follows: (Amounts in thousands)Current assets
    
    $
    8,099Property and equipment
    
    
    34,032Goodwill
    
    
    20,119Other assets
    
    
    2,428Current liabilities
    
    
    (1,250
    )Long-term debt, including current portion of long-term debt
    
    
    (8,480
    )Deferred tax liability
    
    
    (16,646
    )Other long-term liabilities
    
    
    (6,720
    )Minority interest
    
    
    (3,224
    )Consideration given
    
    $
    28,358
 Unaudited Pro Forma Information The following table sets forth unaudited pro forma condensed combined financial and operating
data which are presented to give effect to the NSNV Acquisition and the OER Acquisition as if each
event had occurred as of January 1, 2003. The information does not purport to be indicative of
actual results, if any of these transactions had been in effect for the periods indicated, or of
future results. (Amounts in thousands, except per share data)
    
    Year Ended December 31,2004
    
    
    2003Revenues
    
    $
    30,467
    
    
    $
    20,882Net loss to common stockholders
    
    
    (21,065
    )
    
    
    (40,052
    )Net loss per share  basic and diluted
    
    $
    (0.29
    )
    
    
    (1.00
    )
 The Restructuring Simultaneous with the consummation of the NSNV Acquisition and an offering of $50 million in
common stock discussed in Note 15, we restructured various financial and stockholder related items
(the Restructuring). Specifically, we completed the following:  
    Repaid $1.5 million principal amount of our outstanding convertible notes and issued 0.4
million shares of our common stock in exchange for the remaining principal balance due
under the Trident convertible debenture at a contractual conversion price of $1.60 per share; 53




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Endeavour International Corporation
Notes to Consolidated Financial Statements  
    Issued approximately one million shares of our common stock in exchange for the $1.55
million principal balance and accrued interest due under the Marcus convertible debenture
at a contractual conversion price of $1.75 per share;
    Issued 2.8 million shares of our common stock upon conversion of all of the outstanding
Series C Preferred Stock, and accrued dividends, at a contractual conversion price of $1.70 per share;
    Purchased 14.1 million shares of common stock and 103,500 shares of Series B Preferred
Stock for $5.3 million in cash; and
    Purchased all outstanding shares of Series A Preferred Stock and a portion of the Series
B Preferred Stock in exchange for certain of our non-core assets, including:  
    100% of our ownership interest in BWP Gas, LLC;
    864,560 shares of restricted common stock of BPK Resources, Inc.;
    400,000 shares of common stock of Trimedia Group, Inc.;
    Notes receivable due from CSR Hackberry, LLC, Snipes, LLC and BPK Resources,
Inc. (BPK) with a combined principal of $0.8 million; and
    Subscription receivables due from FEQ Investments, Inc. (FEQ) and GWR Trust
with a combined principal of $0.4 million. Sale of Knox Miss. Partners, L.P. During the first quarter of 2004, we sold all of our limited partnership units in Knox Miss.
Partners, L.P (Knox Miss) for $5.0 million and received $500,000 in cash and a $4.5 million
short-term note that was secured by a pledge of the limited partnership interest. The short-term
note was paid in full during 2004. We recorded a gain on the sale of Knox Miss of $1.2 million
during the first quarter of 2004. Sale of Louisiana Shelf Partners, L.P. During the second quarter of 2004, we sold all of our equity interest in Louisiana Shelf
Partners, L.P. (LSP) for $250,000 in cash and a $2 million contingent deferred payment that is
payable from proceeds from production of drilling activities on the oil and gas leases held by LSP.
With the uncertainty of collection of the contingent deferred payment, no receivable was recorded
at the time of the sale. In connection with the sale, we recorded a loss of $895,000 during the
second quarter of 2004. Sale of CSR-WAHA Partners, LP In January 2003, we sold our 99% limited partnership interest in CSR-WAHA Partners, LP
(CSR-WAHA), a Delaware Limited Partnership to BPK and in return, received a cash payment of $0.2
million, a $1.5 million promissory note due on April 30, 2003, and 0.6 million shares of the common
stock of BPK. This resulted in a gain of $1.2 million. On April 14, 2003, we agreed to extend the
due date of the $1.5 million promissory note to June 30, 2004 for 0.1 million shares of BPKs
common stock. The note receivable, accrued interest and shares of BPK were included in the
exchange of our non-core assets in the Restructuring. The following reflects the results of operations of the disposed assets: 54




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002BWP:Revenues
    
    $
    8
    
    
    $
    27
    
    
    $
    Operating loss
    
    
    (2
    )
    
    
    (12,023
    )
    
    
    Knox Miss:Revenues
    
    $
    
    
    
    $
    
    
    
    $
    Operating loss
    
    
    (6
    )
    
    
    (632
    )
    
    
    (26
    )LSP:Revenues
    
    $
    
    
    
    $
    
    
    
    $
    Operating loss
    
    
    (1
    )
    
    
    (1,123
    )
    
    
    (3
    )CSR-Waha:Revenues
    
    $
    
    
    
    $
    
    
    
    $
    Operating loss
    
    
    
    
    
    
    
    
    
    
    (7
    )
 Note 4 - Liquidity and Capital Resources In January and February 2005, we completed a private debt offering in which we raised gross
proceeds of $81.25 million of convertible senior notes due 2012. The notes bear interest at a rate
of 6.00% per annum and are convertible into shares of our common stock at an initial conversion
rate of 199.2032 shares of common stock per $1,000 principal amount of notes, subject to
adjustment, which is equal to an initial conversion price of approximately $5.02 per share. The
purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas
properties, working capital and general corporate purposes, which may include future acquisitions
of interests in oil and gas properties. Restricted Cash Our Norwegian subsidiary maintains a restricted cash balance of approximately $2.5 million as
collateral for a bankers guarantee, adjusted for the Norwegian Consumer Price Index, associated
with abandonment and dismantlement costs. Should the guarantee exceed the amount in the restricted
cash account, including interest, we are required to deposit an amount sufficient for the security
to make up 100% of the guarantee liability of the bank. 55




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 5  Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: December 31,(Amounts in thousands)
    
    2004
    
    
    2003Deferred seismic and other costs  PGS
    
    $
    2,498
    
    
    $
    Crude oil inventory
    
    
    255
    
    
    
    Prepaid insurance
    
    
    252
    
    
    
    Deferred costs associated the NSNV Acquisition
    
    
    
    
    
    
    1,201Other
    
    
    809
    
    
    
    260$
    3,814
    
    
    $
    1,461
 Note 6  Equity Interests in Entities with Oil and Gas Properties The following table summarizes our interests in oil and gas non-public limited partnerships
accounted for under the equity method of accounting as of December 31, 2004 and 2003. (Amounts in thousands)
    
    December 31, 2004
    
    
    December 31, 2003Excess ofCarrying
    
    
    
    
    
    
    Excess ofCarrying
    
    
    Value Over
    
    
    
    
    
    
    Carrying ValueValue
    
    
    Net Assets
    
    
    Carrying Value
    
    
    Over Net AssetsAPICO, LLC
    
    $
    3,688
    
    
    $
    86
    
    
    $
    1,693
    
    
    $
    238Louisiana Shelf Partners, L.P.
    
    
    
    
    
    
    
    
    
    
    1,146
    
    
    
    $
    3,688
    
    
    $
    86
    
    
    $
    2,839
    
    
    $
    238
 The following table summarizes financial information for the limited partnerships accounted for
under the equity method of accounting at December 31, 2004 and 2003 and has been prepared from the
financial statements of the respective entities: (Amounts in thousands)
    
    December 31, 2004
    
    
    December 31, 2003Total Assets
    
    $
    16,780
    
    
    $
    11,545Total Liabilities
    
    $
    29
    
    
    $
    373
 56




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Endeavour International Corporation
Notes to Consolidated Financial Statements Year Ended December 31,(Amounts in thousands)
    
    2004
    
    
    2003
    
    
    2002Results of Operations:Revenue
    
    $
    
    
    
    $
    
    
    
    $
    Loss from operations
    
    $
    (956
    )
    
    $
    (4,962
    )
    
    $
    (130
    )Net Loss
    
    $
    (956
    )
    
    $
    (4,888
    )
    
    $
    (127
    )
 APICO, LLC On June 26, 2002, we entered into a limited partnership agreement with PHT Gas, LLC and formed
PHT Partners, L.P. (PHT). We have a 93.77% limited partnership interest and a 100% interest in
PHT Holding GP, LLC, which is the general partner of PHT and owns a 1% general partnership interest
in PHT. Prior to February 26, 2004, PH Gas LLC was the general partner of PHT. Certain other
parties hold interest in PHT entitling them to 20% and 15% respectively of the distributions from
PHT after return of all capital contributions and expenditures. PHT has a 21.08% interest in
APICO, LLC (APICO), which in turn has 35% interest in the Phu Horm licenses in Thailand. We are not subject to capital calls in connection with our limited partnership interest in PHT.
However, PHT is subject to cash calls from its investment in APICO. If PHT does not meet its cash
calls, then our investment in PHT may become impaired. Pursuant to the APICO membership agreement,
PHT and the other APICO members will be called upon from time to time for additional contributions
so as to meet the reasonable capital requirements of APICO. If PHT or any other member fails to
make required capital contributions or meet the required cash calls in the amounts and at the times
specified in the membership agreement, then they would be in default. If the default is not cured,
a defaulting member may lose its interests in APICO. As of December 31, 2004, PHT has funded its
proportional share of additional capital calls. Louisiana Shelf Partners, L.P. On December 31, 2002, we entered into a limited partnership agreement with LS Gas, LLC and
formed Louisiana Shelf Partners, L.P. of which we were a limited partner with an approximate 25%
interest and LS Gas, LLC was the general partner. As of December 31, 2003, LSP acquired various
geological and geophysical data and interests in oil, gas and mineral leases located in Louisiana.
With the determination of the initial test well as a dry hole, management decided not to pursue
additional exploration in Louisiana and all drilling and acquisition costs were written off during
2003. As discussed earlier, we sold our interest in LSP in 2004 and recorded a loss of $895,000. 57




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 7  Property and Equipment Property and equipment included the following: (Amounts in thousands)
    
    December 31,2004
    
    
    2003Oil and gas properties under the full cost method:Subject to amortization
    
    $
    20,081
    
    
    $
    11,468Not subject to amortization:Acquired in 2004
    
    
    26,749
    
    
    
    Acquired in 2003
    
    
    
    
    
    
    2,612Acquired in 2002
    
    
    
    
    
    
    18,97846,830
    
    
    
    33,058Other oil and gas activities
    
    
    4,875
    
    
    
    Computers, furniture and fixtures
    
    
    635
    
    
    
    10Total property and equipment
    
    
    52,340
    
    
    
    33,068Accumulated depreciation, depletion and amortization
    
    
    (2,112
    )
    
    
    (26,645
    )Net property and equipment
    
    $
    50,228
    
    
    $
    6,423
 The costs not subject to amortization relate to unproved properties which are excluded from
amortized capital costs until it is determined whether or not proved reserves can be assigned to
such properties. Prior to the NSNV Acquisition, our oil and gas properties consisted of oil and gas interests in the
United States Gulf Coast area. We recorded impairment charges of $15 million during 2003 when we
decided not to pursue additional exploration in leases in a contracted area known as Hell Hole
Bayou. We also recorded a $10.1 million impairment on Oklahoma properties as capitalized costs
exceeded the ceiling test limits at December 31, 2003. The ceiling test was based on natural gas
prices of $4.74 per thousand cubic feet (Mcf) for natural gas that included adjustments for basis
differentials and other pricing factors. All U.S. oil and gas properties held at December 31, 2003
were sold as part of the Restructuring. At December 31, 2004, our oil and gas properties consist primarily of producing properties in
Norway and capitalized exploration costs in the North Sea. 58




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 8  Marketable Securities Available-for-sale securities consist of the following at December 31, 2004 and 2003: (Amounts in thousands)
    
    December 31, 2004
    
    
    December 31, 2003Gross
    
    
    
    
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    
    
    
    
    Unrealized
    
    
    FairCost
    
    
    Loss
    
    
    Value
    
    
    Cost
    
    
    Loss
    
    
    ValueCurrent  related party
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,209
    
    
    $
    (489
    )
    
    $
    719Long-term
    
    
    1,848
    
    
    
    (528
    )
    
    
    1,320
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,848
    
    
    $
    (528
    )
    
    $
    1,320
    
    
    $
    1,209
    
    
    $
    (489
    )
    
    $
    719
 Touchstone Securities In connection with the February 2002 acquisition of various working interests, we purchased,
for $2.0 million, a 10% secured convertible promissory note in the principal amount of $2.0 million
and a detached warrant to purchase approximately 1.1 million shares of common stock at an exercise
price of $1.88 from Touchstone Resources, Ltd. (Touchstone), a Canadian Exchange listed company
and the parent company of Touchstone USA, Inc. The secured convertible promissory note, with a
maturity date of August 22, 2004, had an initial conversion price of $1.88. The fair value of the
note receivable was $0.8 million and the fair value of the warrants on the date the note was
issued, valued by using the Black-Scholes Method, was $1.2 million. Consequently, a discount in
the amount of $1.2 million was recorded in connection with this note. In June 2002 we purchased, for the sum of $1.6 million, an additional 10% convertible promissory
note in the principal amount of $1.6 million and a detached warrant to purchase 2 million shares of
common stock at an exercise price of $1.00 until December 28, 2002 from Touchstone. The secured
convertible promissory note, which matured December 28, 2002, had an initial conversion price of
$0.80. The fair values of the note receivable was $1.2 million and the fair value of the warrants
on the date the note was issued, valued by using the Black-Scholes Method, was $0.4 million.
Consequently, a discount in the amount of $0.4 million was recorded in connection with this note.
On March 20, 2003, we renegotiated the $1.6 million promissory note receivable, now due February
28, 2005, from Touchstone. The principal amount of the new note increased to $1.7 million, which
included accrued interest of $0.1 million. The original expiration date to purchase 2.0 million
shares of stock in Touchstone was extended until February 28, 2005. Management evaluated the collectibility of the loans from Touchstone and believed that Touchstone
would not be able to repay the loans. Therefore, we measured and recorded an impairment charge of
$0.6 million in 2002 and $1.8 million in 2003 on the loans and accrued interest. We also
recognized a loss of $1.6 million in regards to the Touchstone warrants. The loans had a
significant discount which reduced their carrying value. In connection with the impairment charge
we stopped amortizing the loan discount and accruing interest as of the fourth quarter of 2002.
Consequently, these loans and warrants had no carrying value at December 31, 2003 based on the fair
market value of the underlying loan collateral. 59




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Endeavour International Corporation
Notes to Consolidated Financial Statements The president of Touchstone USA was the managing member of PHT Gas, LLC, which was the general
partner of PHT Partners, LP as of December 31, 2003. In May 2004, we received 1.2 million common shares of Touchstone Resources USA, Inc. (a public
company trading on the OTC Bulletin Board) (the Touchstone Shares) in exchange for the
convertible promissory notes of Touchstone (the Touchstone Exchange). The net book value of the
convertible promissory notes was zero; as such, we recorded a non-cash gain on the Touchstone
Exchange of approximately $1.8 million, the market value of the Touchstone Shares on the date of
the exchange. The Touchstone Shares reflected in these financial statements are deemed by
management to be available-for-sale and, accordingly are reported at fair value, with unrealized
gains and losses reported in other comprehensive income. Other Securities In January 2003, we received 0.6 million shares of the common stock of BPK as part of the
consideration for the sale of our 99% limited partnership interest in CSR-WAHA Partners, LP to BPK.
As of December 31, 2003, we owned 0.9 million shares of BPK common stock with a fair market value
of $0.2 million. One of our directors was also the president and a director of BPK at December 31,
2003. As of December 31, 2003, we also owned 0.4 million shares of common stock of Trimedia
Entertainment, Inc. with a fair market value of $0.5 million. In February 2004, as part of the Restructuring, all of our shares in BPK and Trimedia
Entertainment, Inc., which were held as of December 31, 2003, were included in the exchange of our
non-core assets in the Restructuring. Note 9  Other Assets Other long-term assets consisted of the following at December 31: (Amounts in thousands)
    
    2004
    
    
    2003Intangible assets  workforce in place
    
    $
    4,800
    
    
    $
    Long-term portion of PGS commitment
    
    
    2,000
    
    
    
    Marketable securities
    
    
    1,320
    
    
    
    Restricted cash
    
    
    2,507
    
    
    
    $
    10,627
    
    
    $
    
 Intangible assets represent the purchase price allocated to the assembled workforce as a result of
the acquisition of NSNV, Inc. For discussion of the PGS commitment, see Note 21. The marketable
securities represent the 1.2 million shares of Touchstone Resources USA, Inc. received in the
Touchstone Exchange (see Note 8). 60




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 10  Income Taxes The loss before income taxes and the components of the income tax expense recognized on the
Consolidated Statement of Income are as follows: (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Loss before income taxes:Domestic
    
    $
    (19,905
    )
    
    $
    (36,829
    )
    
    $
    (4,487
    )Foreign
    
    
    (2,797
    )
    
    
    
    
    
    
    $
    (22,702
    )
    
    $
    (36,829
    )
    
    $
    (4,487
    )Current Taxes:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    Total current taxes
    
    
    
    
    
    
    
    
    
    
    Deferred Taxes:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    670
    
    
    
    
    
    
    
    Total deferred taxes
    
    
    670
    
    
    
    
    
    
    
    Income tax expenses
    
    $
    670
    
    
    $
    
    
    
    $
    
 Deferred income taxes result from the net tax effects of temporary timing differences between the
carrying amounts of assets and liabilities reflected on the financial statements and the amounts
recognized for income tax purposes. The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are as follows at December 31: 61




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts in thousands)
    
    2004
    
    
    2003Deferred tax asset:Allowance for impairment on marketable securities
    
    $
    
    
    
    $
    848Allowance for impairment on oil and gas properties
    
    
    
    
    
    
    4,004Allowance for bad debt
    
    
    
    
    
    
    712Deferred compensation
    
    
    2,069
    
    
    
    86Asset retirement obligation
    
    
    5,294
    
    
    
    Net operating loss and capital loss carryforward
    
    
    14,188
    
    
    
    9,419Uplift carryforward
    
    
    1,057
    
    
    
    Total deferred tax assets
    
    
    22,608
    
    
    
    15,069Less valuation allowance
    
    
    (10,129
    )
    
    
    (14,713
    )Total deferred tax assets after valuation allowance
    
    
    12,479
    
    
    
    356Deferred tax liability:Intangible drilling costs
    
    
    
    
    
    
    (199
    )Installment sale gain
    
    
    
    
    
    
    (157
    )Property, plant and equipment
    
    
    (29,175
    )
    
    
    Sale/leaseback
    
    
    (1,316
    )
    
    
    Total deferred tax liabilities
    
    
    (30,491
    )
    
    
    (356
    )Net deferred tax asset (liability)
    
    $
    (18,012
    )
    
    $
    
 We recognized a deferred tax liability of approximately $3.3 million due to the excess of book over
tax basis of the assets acquired in the NSNV Acquisition. We recognized a deferred tax liability
of approximately $16.6 million due to the excess of book over tax basis of the assets acquired in
the OER Acquisition. At December 31, 2004, we had the following carryforwards available to reduce future income taxes: (Amounts in thousands)Types of Carryforward
    
    Years ofExpiration
    
    
    CarryforwardAmountsNet operating loss  U.S. federal
    
    
    2020 - 2024
    
    
    $
    29,410Net operating loss  Norway
    
    Indefinite
    
    $
    2,544Net operating loss  U.K.
    
    Indefinite
    
    $
    2,848Capital loss  U.S. federal
    
    
    2009
    
    
    $
    2,227Uplift  Norway
    
    Indefinite
    
    $
    1,057
 With the exception of $2.5 million of net operating loss carryforward and $1.1 million of uplift
carryforward attributable to OER, our recently acquired Norwegian subsidiary, the remaining
carryforward amounts shown above have not been recognized for financial statement reporting
purposes to reduce the deferred tax liability as a valuation allowance has been established. For U.S. federal income tax purposes, certain limitations are imposed on an entitys ability to
utilize its NOLs in future periods if a change of control, as defined for federal income tax
purposes, has taken place. 62




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Endeavour International Corporation
Notes to Consolidated Financial Statements In general terms, the limitation on utilization of NOLs and other tax attributes during any one
year is determined by the value of an acquired entity at the date of the change of control
multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an
acquired entitys value has not yet been addressed by the Internal Revenue Service. The Company
has determined that, for federal income tax purposes, a change of control occurred during 2004.
However, we do not believe such limitations will significantly impact our ability to utilize the
NOLS; rather the ability to generate future taxable income will. Recognition of the benefits of the deferred tax assets will require that we generate future taxable
income. There can be no assurance that we will generate any earnings or any specific level of
earning in future years. Therefore, we have established a valuation allowance for deferred tax
assets of approximately $10.1 million and $14.7 million as of December 31, 2004 and 2003,
respectively. The valuation allowance decreased during 2004 due to $5.5 million attributable to
the exchange of non-core assets in the Restructuring, $3.3 million attributable to the deferred tax
liability established in the NSNV acquisition, and increased by $4.2 million for 2004 net operating losses. The following table presents the principal reasons for the difference between our effective tax
rates and the United States federal statutory income tax rate of 35%. (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Federal income tax expense
(benefit) at statutory rate
    
    $
    (7,946
    )
    
    $
    (12,890
    )
    
    $
    (1,570
    )State income tax expense
(benefit) (net of effect of
federal benefit)
    
    
    
    
    
    
    (2,110
    )
    
    
    (110
    )Book deductions not
deductible for income tax
purposes
    
    
    3,849
    
    
    
    1,273
    
    
    
    722Taxation of foreign operations
    
    
    633
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    4,134
    
    
    
    13,727
    
    
    
    958Income Tax Expense (Benefit)
    
    $
    670
    
    
    $
    
    
    
    $
    Effective Income Tax Rate
    
    
    (3
    )%
    
    
    0
    %
    
    
    0
    %
 63




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 11  Accrued Expenses We had the following accrued expenses outstanding: (Amounts in thousands)
    
    December 31,2004
    
    
    2003Accrued liabilities for certain stock-based compensation plans
    
    $
    1,188
    
    
    $
    Accrued capital expenditures and operating expenses
    
    
    1,475
    
    
    
    Accrued compensation
    
    
    1,978
    
    
    
    Accrued interest
    
    
    
    
    
    
    243Preferred dividends
    
    
    329
    
    
    
    1,927Other
    
    
    2,359
    
    
    
    559$
    7,329
    
    
    $
    2,729
 Note 12  Debt and Notes Payable Our debt and notes payable consisted of the following: December 31,(Amounts in thousands)
    
    2004
    
    
    2003Handelsbanken
    
    $
    4,276
    
    
    $
    12% secured convertible promissory notes
    
    
    
    
    
    
    3,650Capitalized leases
    
    
    130
    
    
    
    Less: debt discount
    
    
    
    
    
    
    (407
    )4,406
    
    
    
    3,243Less: current portion of capitalized leases
    
    
    (118
    )
    
    
    Less: current portion of debt
    
    
    (2,138
    )
    
    
    (3,243
    )Long-term debt
    
    $
    2,150
    
    
    $
    
 Handelsbanken With the OER Acquisition, we have an outstanding debt agreement with Handelsbanken. At
December 31, 2004, NOK 26 million (approximately US$4 million) is outstanding, and bears interest
at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%, currently 3.43%. The debt is
repayable in semi-annual installments through January 2006. In addition, Handelsbanken has
provided a guarantee of
NOK 15 million (approximately US$2.5 million) on our behalf to the operator of the Brage and Njord
fields and the Norwegian Ministry of Petroleum and Energy for the abandonment and decommissioning
costs for these fields. The debt agreement contains customary covenants, including but not limited to, limitations on our
Norwegian subsidiarys ability to incur liens, make acquisitions and investments, or sell or
transfer assets. Additionally, our Norwegian subsidiary may not permit its book equity to fall
below 25%. 64




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Endeavour International Corporation
Notes to Consolidated Financial Statements 12% Convertible Promissory Notes  Trident Notes In April 2002, we entered into a loan agreement to borrow $1.5 million from Trident Growth
Fund, L.P. (Trident). The note was a 12% secured convertible promissory note secured by
substantially all of the assets of the Company. The note was to originally mature on October 21,
2003 but was extended as noted below. Trident had the option to convert the principal amount of
the note into our common stock. As additional incentive to make the $1.5 million loan, Trident was
issued a warrant to purchase 0.2 million shares of our common stock expiring on April 30, 2012.
The initial conversion price of the note and warrant was $2.00. However, the conversion price was
reduced to $1.60 as a result of a subsequent private offering and is subject to other adjustments
according to the provisions of the note. We paid loan commitment and origination fees of 1% and
4%, respectively, which were recorded as loan costs of which $45,000 was amortized to interest
expense in 2002. On July 29, 2003, the loan was amended to extend the maturity date to July 31,
2004 and increase the principal amount to $2.1 million. As consideration for Tridents increasing
of the original loan to $2.1 million, we granted Trident a warrant to purchase 0.2 million shares
of the common stock at an exercise price of $1.60 per share. The warrant is exercisable
immediately and expires on July 23, 2008. As described in the loan agreement, we were required to comply with various financial covenants.
Any failure to comply with such covenants may be deemed a default on the loan by Trident. We did
not meet three of the financial loan covenants as of December 31, 2002; however, Trident waived the
specific covenants for six months. In consideration for this waiver, we granted Trident a warrant
to purchase 0.03 million shares of common stock at an exercise price of $1.60 per share. The
warrant is exercisable immediately and expires on April 30, 2012. As of June 30, 2003, we failed to
meet the loan covenants again and Trident waived the covenant until June 30, 2004. As
consideration for Tridents second waiver of the loan covenants and extension of the maturity date
of the original $1.5 million note, on July 29, 2003 we granted Trident a warrant to purchase 0.1
million shares of common stock at an initial exercise price of $1.60 per share. The warrant is
exercisable immediately and expires on April 30, 2012. These warrants were valued at $0.2 million
using the Black-Scholes Method. We have allocated the proceeds from issuance of the convertible Trident promissory note and
warrants based on a fair value basis for each item. Consequently, the convertible Trident
promissory note was recorded with discounts of $0.6 million based on the ascribed value of the
warrants as determined by using the Black-Scholes Method. The note discounts for the warrant were
amortized over the period from the date of issuance to the maturity date of the note. Beneficial
conversion discounts of $1.5 million were recorded since the Trident promissory note was
convertible into common shares of stock at a rate of $1.60 per share while the prevailing common
stock share price was $3.10 and $2.10 on April 5, 2003 and July 29, 2003, respectively, when the
original $1.5 million and additional $0.6 million note was made. These
discounts were being amortized over the term of the loan. As of December 31, 2003 and 2002, we
amortized $1.2 and $0.5 million of the discount. Under the terms of the loan agreement, we were required to register all shares of its common stock
issuable upon conversion of the note or exercise of the warrants by October 2002. We would have
been subject to a monthly penalty of either 25,000 shares of its common stock or $10,000, at the
option of the lender. However, we were granted a waiver until June 30, 2004 regarding the
requirement. 65




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Endeavour International Corporation
Notes to Consolidated Financial Statements In February 2004, $1.5 million of principal was repaid on the note and $0.6 million of
principal was converted into 0.4 million shares of our common stock as part of the Restructuring
and the conversion price of the warrants was increased to $2.00 per share. 12% Convertible Promissory Notes  Marcus Notes During October 2002, we issued two unsecured 12% convertible promissory notes to Michael
Marcus in the amount of $0.8 million and $0.8 million, respectively. Both notes matured on October
15, 2003. The lender had the option to convert the principal amount of the note into our common
stock at a conversion price of $3.25. The lender was issued a warrant to purchase a total of 0.2
million shares of our common stock at an exercise price of $5.00 per share as an additional
incentive to make the loans. The warrant expires on October 15, 2005. In October 2003, the loan
was amended to extend the maturity date to June 30, 2004 and reduce the conversion price from $3.25
to $2.50. As consideration for the lenders extension of the note, we granted the lender a warrant
to purchase 50,000 shares of the common stock at an exercise price of $5.00 per share. The
warrants are exercisable immediately and expire on October 17, 2006. These warrants were valued at
$0.1 million using the Black-Scholes Method. We have allocated the proceeds from issuance of the convertible promissory notes and warrants based
on a fair value basis of each item. Consequently, the convertible promissory notes were recorded
with a discount of $0.3 million and $0.4 million, respectively, based on the ascribed value of the
warrants as determined by using the Black-Scholes Method. The note discount for the warrant was
amortized over the period from the date of issuance to the stated maturity date of the note. An
additional beneficial conversion discount of $0.4 million and $0.4 million was recorded for the
$0.8 million and $0.8 million promissory notes, respectively, since the notes were convertible into
common shares of stock at a rate of $3.25 per share while the prevailing common stock share price
was $4.90 and $5.05, respectively. This discount was also amortized over the term of the loan. As
of December 31, 2003, we have amortized the total discount for these notes. In February 2004 as part of the Restructuring, the notes with outstanding principal of $1.55
million and accrued interest were converted into 1.0 million shares of our common stock and the
conversion price of the warrants was changed to $2.00 per share. The conversion rate was based on
existing contractual terms. Other Debt In February 2003, Knox Miss borrowed $1.2 million from Gibralt US, Inc. and issued a
promissory note bearing interest at 12%. The note was payable the earlier of June 30, 2003 or upon
closing of $2 million
of equity financing by the Company. The lender also received 75 thousand shares of our common
stock for making the loan. The loan was guaranteed by us and FEQ Investments. This note was paid
in July 2003. Throughout 2003, we issued various demand and promissory notes for an aggregate of $0.9 million.
All notes were repaid by December 31, 2003. 66




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Endeavour International Corporation
Notes to Consolidated Financial Statements Debt Maturities At December 31, 2004, our aggregate annual maturities of long-term debt are $2.1 million in
each year 2005 and 2006. Note 13  Limited Partnership Interest Transferred Under Contractual Arrangements/Deferred
Equity Option In August 2003, we entered into a security purchase agreement with RAM Trading, Ltd. (RAM),
whereby RAM purchased 150,000 shares of our common stock and 7 of our 25.25 limited partnership
units in Louisiana Shelf Partners, L.P. The total purchase price was $1.0 million of which $0.3
million was allocated to the sale of the common stock. The remaining $0.7 million of the purchase
price was treated as a deferred equity option. In October 2003, we entered into another security purchase agreement with RAM, whereby RAM
purchased 150,000 shares of our common stock and 10 of our 99 limited partnership units in Knox
Miss Partners, L.P. The total purchase price was $1.2 of which $0.3 million was allocated to the
sale of the common stock. The remaining $0.9 million of the purchase price was treated as a
deferred equity option. The security purchase agreement was amended in December 2003 to increase
the number of shares issuable upon exercise of the option to 835,000. The agreements provided us a call option to purchase the limited partnership interest back from RAM
and RAM a put option to sell the interest back to us. The sale of these interests was not
recognized for accounting purposes, and the carrying value of the limited partnerships was not
affected by the transaction nor was a gain or loss was reported from the sale of the limited
partnership interests. The cost bases of these interests were reclassified to a separate line in
the balance sheet labeled Limited Partnership Interest Transferred Under Contractual Arrangement. We exercised our call option to buy back the limited partnership interest in Louisiana Shelf
Partners, L.P. from RAM in October 2003 and issued 650,000 shares of our common stock in full
payment of the option. The exercise of the call option resulted in an increase in our equity of
$0.7 million and a corresponding decrease in the deferred equity option. We exercised our call option to buy back the limited partnership interest in Knox Miss Partners,
L.P from RAM in February 2004 and issued 835,000 shares of our common stock in full payment of the
option.
The exercise of the call option will result in an increase in our equity of $0.9 million and a
corresponding decrease in the deferred equity option. Note 14  Other Liabilities Other liabilities included the following: 67




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts in thousands)
    
    December 31,2004
    
    
    2003Asset retirement obligations
    
    $
    6,902
    
    
    $
    Long-term commitment to PGS (see Note 21)
    
    
    2,000
    
    
    
    Other
    
    
    77
    
    
    
    $
    8,979
    
    
    $
    
 Our asset retirement obligations relate to obligation of the plugging and abandonment of oil and
gas properties acquired in the OER Acquisition. The asset retirement obligation is recorded at
fair value and accretion expense, recognized over the life of the property, increases the liability
to its expected settlement value. If the fair value of the estimated asset retirement obligation
changes, an adjustment is recorded for both the asset retirement obligation and the asset
retirement cost. The following table provides a rollforward of the asset retirement obligations
for the current year: (Amounts in thousands)Carrying amount of asset retirement obligations as of January 1, 2004
    
    $
    Liabilities incurred
    
    
    6,658Accretion expense
    
    
    57Impact of foreign currency exchange rate changes
    
    
    187Carrying amount of asset retirement obligations as of December 31, 2004
    
    $
    6,902
 Note 15  Private Placement Offerings  Subscription Receivables The Offering In an offering of common stock (the Offering) that closed on February 26, 2004, we issued 25
million shares of common stock at $2.00 per share in a private placement. The estimated net
proceeds of the Offering were $46 million after deduction of offering costs of $3.9 million. In
addition, warrants to purchase 700,000 shares of common stock at $2.00 per share were issued to the
placement agent. A portion of the net proceeds were used in the Restructuring for the purchase of
14.1 million shares of our common stock and 0.1 million shares of our Series B Preferred Stock for
$5.3 million and for repayment
of the principal amount of the Trident note in the amount of $1.5 million. The remainder is to be
used for general corporate purposes, including potential acquisitions. Effective September 17, 2004, we registered for sale approximately 40 million shares of our common
stock, that were previously issued to numerous stockholders in the Offering or were required to be
registered upon registration of the Offering shares. We did not and will not receive any proceeds
from the registration of these shares of our common stock. 68




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Endeavour International Corporation
Notes to Consolidated Financial Statements Subscription Receivables In March 2002 in a private placement offering, we received subscription commitments for
funding an aggregate of $3.6 million to be collected over a period of approximately twelve months.
As of December 31, 2002, we had collected $1.4 million, reduced the receivable by $53,750 for
services provided by two officers through June 30, 2002 and had outstanding subscription
receivables of $2.1 million, of which $0.9 million was due from an entity affiliated with the then
president of the Company. As of December 31, 2003, we had collected the remaining $2.1 million
along with accrued interest. The subscription receivables bore interest at 2.69%. An additional
$0.6 million was subscribed to and paid in May 2002. Concurrently with this offering we issued an
option to an investor as an inducement to accelerate funding its commitment. The option granted
the investor a right to invest an additional $0.6 million in the Company, at the same terms and
conditions as its initial investment within 180 days from the date it funded its original
investment. The investor exercised the option in September 2002. In exchange for the cash proceeds and subscriptions receivable, we issued unsecured convertible
promissory notes which were to mature one year from issuance and bore interest at 8% per annum.
These notes were converted to common stock and shares of Series A preferred stock on May 31, 2002
when our shareholders approved the amendments to our Articles of Incorporation to increase the
authorized shares of our common stock to 150 million, authorize approximately 10 million shares of
undesignated preferred stock, par value $.001 per share, and the Board of Directors authorized the
issuance of shares of Series A preferred stock (the May 2002 Article Amendment). The original
principal amount of the promissory notes converted into a number of Units equal to the original
principal amount of the promissory note divided by the conversion price of $1.00 per Unit. Each
Unit consisted of approximately 1.43 fully-paid shares of common stock and approximately 0.99
fully-paid shares of Series A Preferred Stock. The conversion of the $4.2 million notes resulted
in the issuance of 5.9 million of common shares and 4.1 million of Series A preferred shares. Other On February 4, 2004, we issued a private placement offering of 125,000 shares of our common
stock, $.001 par value per share at $2.00 per share. As discussed in Note 24, in January and February 2005, we issued $81.25 million aggregate principal
amount of convertible senior notes due 2012. 69




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 16  Stockholders Equity The activity in shares of our common and preferred stock during 2004, 2003 and 2002 included
the following: (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Common Stock:Outstanding at the beginning of the year
    
    
    37,145
    
    
    
    32,718
    
    
    
    1,648Issuance of common stock in the Offering
    
    
    25,000
    
    
    
    
    
    
    
    Issuance of common stock in the NSNV Acquisition
    
    
    12,675
    
    
    
    
    
    
    
    Other issuances
    
    
    4,462
    
    
    
    4,427
    
    
    
    10,972Repurchases of common stock
    
    
    (14,098
    )
    
    
    
    
    
    
    Conversion of notes payable
    
    
    1,402
    
    
    
    
    
    
    
    8,996Conversion of preferred stock
    
    
    2,809
    
    
    
    
    
    
    
    Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    11,550Exercise of warrants
    
    
    600
    
    
    
    
    
    
    
    Cancellations
    
    
    
    
    
    
    
    
    
    
    (448
    )Outstanding at the end of the year
    
    
    69,995
    
    
    
    37,145
    
    
    
    32,718Series A Preferred Stock:Outstanding at the beginning of the year
    
    
    4,091
    
    
    
    4,091
    
    
    
    Conversion of notes payable
    
    
    
    
    
    
    
    
    
    
    4,091Transfer of non-core assets
    
    
    (4,091
    )
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    
    
    
    
    4,091
    
    
    
    4,091Series B Preferred Stock:Outstanding at the beginning of the year
    
    
    143
    
    
    
    143
    
    
    
    Conversion of notes payable
    
    
    
    
    
    
    
    
    
    
    143Repurchases of preferred stock
    
    
    (103
    )Transfer of non-core assets
    
    
    (20
    )
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    20
    
    
    
    143
    
    
    
    143Series C Preferred Stock:Outstanding at the beginning of the year
    
    
    478
    
    
    
    
    
    
    
    Issuances of preferred stock
    
    
    
    
    
    
    478
    
    
    
    Conversion to common stock
    
    
    (478
    )
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    
    
    
    
    478
    
    
    
    
 Common Stock The Common Stock is $0.001 par value common stock, 150,000,000 shares authorized. 70




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Endeavour International Corporation
Notes to Consolidated Financial Statements In April and September 2002, we cancelled 448,000 shares of common stock, which were tendered
to the Company for cancellation by former officers of the Company when it was named Expression
Graphics, Inc. In February 2002, as partial consideration for the $10.0 million private placement, we issued
3,285,100 shares of common stock and warrants to purchase 11 million shares of common stock with an
aggregate exercise price of $2.00 valued at $875,200, which were exercised May 31, 2002. We issued
a warrant to purchase 450,000 shares of common stock, at an aggregate exercise price of $1, to a
registered broker dealer as payment of a commission for services rendered in connection with the
$10.0 million private offering. The warrants were converted into 450,000 common shares of stock on
May 31, 2002. We recorded this non-cash item as a loan cost of $45,000 based on the ascribed value
of the warrants, which was charged to interest expense. The above common stock and warrants had an
ascribed value of $.02 per share. From February through August 2002, as consideration for services rendered in connection with the
acquisition of certain oil and gas interests, we issued to an unrelated party a warrant to purchase
300,000 shares of our common stock at an exercise price of $2.25 per share valued at $3,000. This
warrant was exercised in February 2005. As additional consideration we issued a warrant to
purchase 100,000 shares of our common stock at an aggregate exercise price of $1.00 valued at
$10,000. The warrant was automatically deemed exercised upon the May 2002 Article Amendment. The
ascribed value of the warrants, totaling $13,000, increased the cost of the oil and gas interests
purchased and was a non-cash item. In April and May 2002, we issued and sold mandatory convertible promissory notes in the aggregate
principal amount of $3.7 million to three accredited investors pursuant to Rule 506. The maturity
date of the notes was one year from the date of the notes. We expensed a 10% commission with
respect to this offering. Concurrent with the May 2002 Article Amendment, we effected a 1 for 5
reverse stock split of common stock shares and automatically converted the principal amount of
those notes into an aggregate of 2.3 million shares of common stock. Upon the May 2002 Article Amendment, we converted $4.2 million of debt into 5.9 million shares of
common stock and 4.1 million shares of Series A preferred stock. During June and July 2002, we sold 1.9 million shares of common stock in a private placement for
$2.25 per share of which 155,000 shares were issuable as of December 31, 2002. We recorded $0.8
million in offering costs and legal costs related to the private placement. In August 2002, as consideration for services rendered in connection with the acquisition of oil
and gas interests, we issued to an unrelated party a warrant to purchase 100,000 shares of our
common stock at an exercise price of $2.25 per share valued at $140,000. This warrant expires on
August 7, 2005. In September 2002, an investor exercised its option to invest an additional $550,000 in the
Company, at the same terms and conditions as its initial investment. The investor issued us a
subscription note for $550,000 and we in turn issued a note for $550,000. This $550,000 was
immediately converted into a number of units equal to the original principal amount of the
promissory note divided by the conversion price of $1.00 per unit. Each unit consisted of 1.429
shares of common stock and approximately 0.0099 shares of Series B preferred stock. Accordingly,
the $550,000 note was converted into 0.8 million issuable shares of common stock and 5,427 issued
Series A preferred stock. As of December 31, 2003, 71




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Endeavour International Corporation
Notes to Consolidated Financial Statements $175,000 of the subscription receivable remained outstanding. The subscription receivable and
accrued interest were included in the exchange of our non-core assets in the Restructuring. In October 2002, as additional incentive for a lender to loan a total of $1.6 million to the
Company, we issued to the lender a warrant to purchase a total of 232,500 shares of our common
stock at an exercise price of $5.00 per share exercisable at any time through the expiration date
of October 2005. In November 2002, we sold 76,923 shares of common stock in a private placement for $3.25 per share
of which 76,923 shares were issuable as of December 31, 2002. In May 2003, we issued to the former Class B member of BWP and its designee (consisting of
creditors and consultants of BWP) 3.3 million shares of common stock and 1.7 million warrants at an
exercise price of $2.00 per share expiring in three years as consideration for its purchase of the
100% of the Class B Membership in BWP. We entered into two securities purchase agreements with RAM during 2003. In connection with these
agreements we issued 950,000 shares of our common stock to RAM in consideration of proceeds of $1.3
million. In December 2003, RAM entered into an agreement with Lancer Offshore, Inc. and Lancer Partners,
L.P. to purchase 14.1 million shares of common stock and 0.1 million shares of Series B Preferred
Stock (collectively, the Lancer Shares) for $5.3 million. Concurrent with the execution of the
foregoing agreement, the Company entered into an agreement with RAM to purchase the Lancer Shares
for $5.3 million subject to RAM completing the purchase of the Lancer Shares which was finalized
February 2004. In March 2004, as consideration for services rendered in connection with the purchase of the shares
of common stock and Series B Preferred stock from RAM, we issued to an unrelated party 300,000
shares of its common stock. During 2004, we issued 3.1 million shares of common stock as deferred compensation to new
management, directors and employees. Approximately 1.7 million, 0.7 million and 0.7 million shares
vest in 2005, 2006 and 2007, respectively. Series A Preferred Stock The Series A Preferred Stock, $0.001 par value with 9.5 million shares authorized at December
31, 2003, was to pay dividends of 8% of the original issuing price per share per annum, which are
cumulative prior to any dividends on the common stock or any series of stock to be created. All
shares of our Series A Preferred Stock were included in the exchange of non-core assets in the
Restructuring. Series B Preferred Stock In September 2002, the Company authorized and designated 500,000 shares of Preferred Stock, as
Series B Preferred Stock par value $.001 per share. The Series B Preferred Stock is to pay dividends of 8% of the original issuing price per share per
annum, which are cumulative prior to any dividends on the common stock and on parity with the
payment of any 72




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Endeavour International Corporation
Notes to Consolidated Financial Statements dividend or other distribution on the Series A Preferred Stock and any other series of
preferred stock that has similar characteristics. The holders of each share of Series B Preferred
Stock are entitled to be paid out of available funds prior to any distributions to holders of
common stock in the amount of $100.00 per outstanding share plus all accrued dividends. At any time after the earlier of (i) five business days after the date on which the Company sells,
assigns, transfers or refinances certain of its working interests in an exploration project located
in Vermillion, Louisiana, and receives net proceeds equal to at least $10,000,000, or (ii) the
third anniversary of the initial issuance date of the Series B Preferred Stock, the Company may,
upon approval of its Board redeem all or a portion of the outstanding shares of Series B preferred
stock at a cost of the liquidation preference and all accrued and unpaid dividends. In September 2002, we converted $3.9 million in promissory notes for 39,429 shares of our Series B
Preferred Stock. As of December 31, 2003, subscription receivable in the amount of $250,000
remained outstanding, which was included in the exchange of our non-core assets in the
Restructuring. In December 2002, we converted $9.9 million in promissory notes into 98,571 shares of our Series B
Preferred Stock. As part of the Restructuring, the majority of shares of our Series B Preferred Stock were
repurchased or included in the exchange of non-core assets. Series C Convertible Preferred Stock The Series C Preferred Stock, $0.001 par value with 1.5 million shares authorized at December
31, 2003, was to pay dividends of 6% of the original issue price ($10.00) per share per annum,
which are cumulative prior to any dividends on the common stock and on parity with the payment of
any dividend or other distribution on the Series A Preferred Stock, Series B Preferred Stock, and
any other series of preferred stock that has similar characteristics. Since our common stock price exceeded the initial conversion price of the Series C Preferred Stock
there was a beneficial conversion feature recorded as a preferred stock dividend in the amount of
$2.8 million as of December 31, 2003. Between May and July 2003, we sold 477,500 shares of Series C Convertible Preferred Stock in a
private placement for $10.00 per share. We recorded $307,200 in offering costs related to this
offering. In February 2004, our Series C Preferred shareholders converted all of their 477,500
shares of Series C Preferred Stock into 2.8 million shares of our common stock in the
Restructuring. Stock Warrants We have the following outstanding warrants to purchase our common stock at December 31, 2004
and 2003: 73




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Endeavour International Corporation
Notes to Consolidated Financial Statements (Amounts inthousands, exceptper share data)
    
    December 31, 2004
    
    
    December 31, 2003Expiration Date
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price
    
    
    SharesFebruary 2005
    
    $
    2.25
    
    
    
    200
    
    
    $
    2.25
    
    
    
    300August 2005
    
    
    
    
    
    
    
    
    
    $
    2.25
    
    
    
    100October 2005
    
    $
    2.00
    
    
    
    233
    
    
    $
    5.00
    
    
    
    233May 2006
    
    $
    2.00
    
    
    
    1,550
    
    
    $
    2.00
    
    
    
    1,650October 2006
    
    $
    2.00
    
    
    
    50
    
    
    $
    5.00
    
    
    
    50July 2008
    
    
    
    
    
    
    
    
    
    $
    1.60
    
    
    
    150February 2009
    
    $
    2.00
    
    
    
    700
    
    
    
    
    
    
    
    April 2012
    
    $
    2.00
    
    
    
    125
    
    
    $
    1.60
    
    
    
    2752,858
    
    
    
    
    
    
    
    2,758
 All warrants are currently exercisable. During 2004, 282,500 warrants with an exercise price of
$5.00 and 425,000 warrants with an exercise price of $1.60 were repriced to an exercise price of
$2.00. During 2004, 200,000 warrants with an exercise price of $2.25 per share and 400,000
warrants with an exercise price of $2.00 per share were exercised. The weighted average grant-date fair value of warrants granted during 2004 and 2003 was $2.19 and
$0.88, respectively. Stock Options Information relating to stock options outstanding at December 31, 2004 is summarized as
follows: (Amounts inthousands, exceptper share data)
    
    Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageRange of Exercise
    
    Number of Options
    
    
    Remaining
    
    
    Exercise Price Per
    
    
    
    
    
    
    Exercise Price PerPrices
    
    Outstanding
    
    
    Contractual Life
    
    
    Share
    
    
    Number Exercisable
    
    
    Share$2.00
    
    
    1,858
    
    
    4 years
    
    $
    2.00
    
    
    
    
    
    
    
    $2.30
    
    
    500
    
    
    4 years
    
    $
    2.30
    
    
    
    500
    
    
    $
    2.30$3.00 - $3.78
    
    
    520
    
    
    3 years
    
    $
    3.04
    
    
    
    475
    
    
    $
    3.002,878
    
    
    4 years
    
    $
    2.24
    
    
    
    975
    
    
    $
    2.64
 74




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Endeavour International Corporation
Notes to Consolidated Financial Statements Information relating to stock options is summarized as follows: (Amounts inthousands, exceptper share data)
    
    2004
    
    
    2003
    
    
    2002Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise Price per
    
    
    
    
    
    
    Exercise Price per
    
    
    
    
    
    
    Exercise Price perNumber of Shares
    
    
    Share
    
    
    Number of Shares
    
    
    Share
    
    
    Number of Shares
    
    
    ShareBalance outstanding
 beginning of year
    
    
    1,025
    
    
    $
    2.76
    
    
    
    500
    
    
    $
    5.00Granted
    
    
    1,903
    
    
    $
    2.03
    
    
    
    525
    
    
    $
    3.19
    
    
    
    500
    
    
    $
    5.00Expired
    
    
    (50
    )
    
    $
    5.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance outstanding
 end of year
    
    
    2,878
    
    
    $
    2.24
    
    
    
    1,025
    
    
    $
    2.76
    
    
    
    500
    
    
    $
    5.00
 The weighted average grant-date fair value of options granted during 2004, 2003 and 2002 was $1.50,
$0.70 and $2.61, respectively. The 1.9 million options granted during 2004 were granted pursuant to our 2004 Stock Incentive Plan
which has been approved by our shareholders. All other stock options have been granted pursuant to
stock option plans that were not subject to shareholder approval. Note 17  Related Party Transactions In February 2002, we received subscription agreement commitments for promissory notes
aggregating $10 million, which were originally to be funded by August 5, 2003. As incentive to
accelerate the funding of their commitments, we issued options to the lenders. If the lenders
funded their commitments by March 7, 2002, they would have the option to invest an additional $4
million in us within 120 days of the original funding, at the same terms and conditions as the
initial $10 million investment. The fair value of the warrants, as determined by an independent
valuation, amounted to $0.1 million and was expensed in full upon their issuance. In February 2002
the full $10 million was funded to us. In consideration for the funds received, we issued two
promissory notes totaling $9.9 million. Interest accrued at 8% per annum. The fair value of these
two notes was determined by an independent valuation to be $8.8 million and a corresponding
discount of $1.1 million was recorded. The discount has been amortized over the term of the note
using the effective interest rate method. During July and August 2003, FEQ paid $305,000 of its outstanding subscription agreement. As of
December 31, 2003, $175,000 remained outstanding along with accrued interest. The subscription
receivable was included in the exchange of non-core assets in the Restructuring. 75




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Endeavour International Corporation
Notes to Consolidated Financial Statements We also issued the lenders 3.3 million shares of common stock, and warrants to purchase an
aggregate of 11 million shares of our common stock at an aggregate exercise price of $2.00. The
common stock and warrants had an ascribed value of approximately $0.10 per share. We issued
warrants to purchase 0.5 million shares of common stock, at an aggregate exercise price of $1.00,
to a registered broker dealer as payment of a commission for the offering. All warrants issued in
connection with this offering were automatically deemed exercised at May 31, 2002, the date we
obtained all required approvals of its shareholders to amend the our Articles of Incorporation to
increase the authorized shares of our common stock to at least 90 million shares. In December 2002, the lender and its assignees exchanged their entire principal of $9.9 million in
promissory notes into 0.1 million shares of our Series B Preferred Stock. The original principal
amount of the promissory note converted into a number of units (Units) equal to the original
principal amount of the promissory note divided by the conversion price of $100.00 per Unit. Each
Unit consisted of 1 fully-paid share of Series B Preferred Stock. Upon conversion of the note, the
balance of unamortized discounts was recorded as interest expense. The accrued interest we owed on
the note of approximately $693,000 as of December 31, 2002 was assigned by the lender to FEQ
Investments, Inc. In June 2002, the lender exercised its option to invest $4 million in the Company. The investor
funded $2.5 million and assigned the option to invest the remaining $1.5 million to various
investors. As consideration for the full amount of $4 million, we issued a note for $3.9 million
and will issue the lender and its assignees an aggregate 5.7 million shares of common stock. The
common stock and note were valued at $0.5 million and $3.5 million, respectively, as determined by
an independent valuation. The related discount of $0.4 million was being amortized over the term
of the loan. On September 30, 2002, the lender and its assignees exchanged their entire principal
of $3.9 million in promissory notes into 0.04 million shares of our Series B Preferred Stock. The
original principal amount of the promissory notes were converted into a number of units equal to
the original principal amount of the promissory note divided by the conversion price of $100.00 per
Unit. Each Unit consisted of 1 fully-paid share of Series B Preferred Stock. The remaining
subscription receivable amounted to $1.0 million at December 31, 2002. Upon conversion of the
note, the balance of the unamortized discounts was recorded as interest expense. During January and May 2003, we borrowed $0.3 million from SPH Investments, Inc. and issued various
10% demand notes. In January 2003, we borrowed $0.1 million from SPH Investments, Inc. Profit
Sharing Plan and issued a 10% demand note. Each of these notes, plus accrued interest, was repaid
by December 31, 2003. In 2003, the Company relied upon Touchstone USA to provide it with additional reserve assessment
analysis and engineering services in connection with the exploration and development of its
prospects. The president of Touchstone USA was the managing member of PHT Gas, LLC, which was the general
partner of PHT Partners, LP as of December 31, 2003. In 2002, Mr. Harrington, our former President, initially provided services to us without
compensation. In addition, an affiliate of the president provided accounting services to us
without charge. For the three months ended March 31, 2002 the value of these services was de
minimis. We recorded as expense an amount representing the value of these services provided
prospectively. In June 2002, we borrowed funds in the amount of $300,000 from an affiliate of our former
president. The loan was repaid as of December 31, 2002. 76




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Endeavour International Corporation
Notes to Consolidated Financial Statements In August 2002, we purchased 819,000 shares representing approximately 7% of ownership in BPK
Resources, Inc. At the time of this transaction, we and BPK Resources had one common director who
was also president of BPK Resources. As of December 31, 2003, we held 864,500 shares of BPK
Resources common stock. In August and October 2002, we loaned the aggregate of $0.4 million and $0.2 million to BPK
Resources, Inc. and its subsidiary, CSR  Hackberry Partners, L.P., respectively. We received
various demand promissory notes with annual interest rates of 10% and 12%. These note receivables
and accrued interest were included in the exchange of our non-core assets in the Restructuring. During 2002, we loaned a total of $0.5 million to International Travel CDs, Inc. (ILCD) for
which we received various 10% unsecured promissory notes that were due 45 days from the date of
issuance. In October 2002, we entered into an Assignment and Release Agreement with ILCD whereby
we agreed to purchase and assume the assignment of a secured promissory note between ILCD and
Snipes Productions, LLC for full satisfaction of the remaining unpaid balance of the ILCD
promissory notes amounting to $0.1 million. The note receivable and accrued interest were included
in the exchange of our non-core assets in the Restructuring. The Company acquired 20,000 shares of
common stock of ILCD, and in August 2002 the Company also loaned ILCD a total of $475,000. At the
time of both of these transactions, the president of the Company was also the president of ILCD. During 2002, we and our subsidiary Knox-Miss entered into long-term consulting agreements of $6,000
and $3,000 per month, respectively, with ESC Consulting, Inc. At the time the contract was
executed the president of ESC Consulting was also the president of FEQ Investments, Inc. (the
former managing member of PHT Gas, LLC and CSR, LLC). Subsequently, the president of FEQ
Investments resigned and a new president was appointed. During 2002, we paid investment-banking fees of $200,000 and $260,000, respectively, to FEQ
Investments, Inc. and KAB Investments, Inc. (a company under common ownership with FEQ Investments,
Inc.). The investment banking fees related to the acquisition of certain oil and gas properties
and certain convertible debt placements. As of December 31, 2002, $385,000 of these fees was
capitalized as costs related to the acquisition of oil and gas properties. In January 2003, LSP loaned FEQ (the former managing member of PHT Gas, LLC and CSR, LLC)
$1,220,000 and received a 10% promissory note. As of December 31, 2003, principal in the amount of
$5,000 remained outstanding along with in accrued interest. In the fourth quarter of 2003, LSP
loaned an additional $125,000 to FEQ which was outstanding at December 2003. The loans by LSP were
included in our sale of LSP during 2004. During third quarter 2004, we executed a sublease for office space with Reliant Energy Corporate
Services, LLC through March 31, 2008. One of our Co-Chief Executive Officers is a member of Board
of Directors of parent company of Reliant Energy Corporate Services, LLC. See Note 19. In December 2004, we entered into a contract with GX Technology whereby GX Technology would provide
seismic data analysis for approximately $0.3 million. One of our co-Chief Executive Officers is a
member of the Board of Directors of Input/Output Inc., the parent company of GX Technology. At
December 31, 2004, we had not yet paid any funds to GX Technology. 77




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 18  Supplementary Cash Flow Disclosures Cash paid during the period for interest and income taxes was as follows: (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Interest paid
    
    $
    130
    
    
    $
    210
    
    
    $
    132Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    
 Non-Cash Investing and Financing Transactions We recorded a reduction in the amount of its unrealized loss on the investment in marketable
securities of $0.5 million for the year ended December 31, 2003. We recorded an unrealized loss in
the amount of $1.0 million in connection with our investment in marketable securities and warrants
for the year ended December 31, 2002. The Company recorded discounts on the Trident note payable of $0.6 million and $1.5 million due to
the value of attached warrants and the beneficial conversion feature on the promissory note in 2003
and 2002, respectively. In 2002, the Company recorded a discount of $0.8 million and $0.8 million, respectively, on two
notes due to the value of attached warrants and the beneficial conversion feature on the promissory
notes. The Company acquired various oil and gas interests of which the Company owed $52,996 as of December
31, 2003 and $1.1 million as of December 31, 2002. As consideration for 2002 services rendered in connection with the acquisition of oil and gas
interests, we issued warrants. The value of the warrants, which was $140,000, was recorded as
other capitalized costs in the oil and gas interests. In 2002, we converted the $3.9 million and $9.9 million notes payable into shares of our preferred
Series B stock. We recorded $0.4 million, $1.6 million and $0.3 million in dividends in 2004, 2003 and 2002,
respectively. We recorded a dividend in the amount of $2.8 million related to the beneficial conversion feature
included in the Series C preferred stock issued in 2003. We issued common stock and warrants to acquire its interest in BWP in 2003. In 2003, we recorded $0.2 million as the value of the warrants granted to two lenders for the
extension of the maturity dates of the loans from those lenders. 78




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Endeavour International Corporation
Notes to Consolidated Financial Statements In 2004, we issued 12.5 million shares in the NSNV Acquisition with a total purchase price of
approximately $25 million. Therefore, the Merger increased current assets by $1.1 million, oil and
gas properties by $11.4 million, other assets by $8.3 million, current liabilities by $2.5 million,
other liabilities by $3.6 million and equity by $25 million through a noncash transaction that was
not reflected in the statement of cash flows. Noncash investing activities also were incurred with the exchange of certain non-core assets,
including BWP Gas, LLC, for all of the Series A Preferred Stock and 20,213 shares of the Series B
Preferred Stock, and the Touchstone Exchange. Noncash financing activities were also incurred,
including the conversion of all of our Series C Preferred Stock and a portion of our convertible
notes into common stock. Note 19  Leases Operating Leases During third quarter 2004, we executed a sublease for office space with Reliant Energy
Corporate Services, LLC through March 31, 2008. Lease payments are expected to be approximately
$180,000 for each of the years ended December 31, 2005, 2006 and 2007, and $45,000 for the year
ended December 31, 2008. In addition, we have leases for office space and equipment with lease
payments of $428,000, $157,000 and $22,000 for the years ended December 31, 2005, 2006 and 2007,
respectively. Capital Leases We are the lessee of various computer equipment under capital leases expiring in various years
through 2006. The assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. The assets are
depreciated over the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation expense. Minimum future lease payments under capital leases as of December 31, 2004, for each of the next
three years and in the aggregate are: (Amounts in thousands)
    
    Amount2005
    
    $
    1232006
    
    
    162007
    
    
    3Net minimum lease payments
    
    
    142Less: Amount representing interest
    
    
    (12
    )Present value of net minimum lease payment
    
    $
    130
 Interest rates on capitalized leases are approximately 3.5% and are imputed based on the lower of
companys incremental borrowing rate at the inception of each lease or the lessors implicit rate
of return. 79




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 20  Comprehensive Loss Excluding net loss, our source of comprehensive loss is from the net unrealized loss on its
marketable debt securities, which are classified as available-for-sale. The following summarizes
the components of comprehensive loss: (Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Net loss
    
    $
    (23,372
    )
    
    $
    (36,829
    )
    
    $
    (4,487
    )Unrealized loss
    
    
    (528
    )
    
    
    (465
    )
    
    
    (1,000
    )Reclassification adjustment
for loss realized in net
loss above
    
    
    282
    
    
    
    976
    
    
    
    Unrealized gain (loss), net
    
    
    (246
    )
    
    
    511
    
    
    
    (1,000
    )Comprehensive loss
    
    $
    (23,618
    )
    
    $
    (36,318
    )
    
    $
    (5,487
    )
 Note 21  Commitments and Contingencies General The oil and gas industry is subject to regulation by federal, state and local authorities. In
particular, gas and oil production operations and economics are affected by environmental
protection statutes, tax statutes and other laws and regulations relating to the petroleum
industry. We believe we are in compliance with all federal, state and local laws, regulations
applicable to the Company and its properties and operations, the violation of which would have a
material adverse effect on us or our financial condition. PGS Commitment On December 16, 2003, NSNV and PGS entered into an agreement where, in exchange for certain
consideration including, among other things, 18.5% of the outstanding stock of NSNV and a
three-year product and service commitment, PGS agreed to grant NSNV the right to use 79,200 square
kilometers of 3-D seismic and related data in the North Sea region, including the 3D Mega Merge and
North Sea Digital Atlas databases. Under the agreement, NSNV is required to purchase products and
services from PGS or certain of its affiliates that have an aggregate invoice value over three
years of at least $4.5 million for a period of three years commencing on December 16, 2003 as
follows: 80




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Endeavour International Corporation
Notes to Consolidated Financial Statements (amounts in thousands)Through December 15, 2005
    
    $
    2,500December 16, 2005 to December 15, 2006
    
    
    2,000Total PGS commitment
    
    $
    4,500
 During 2004, we signed an agreement with PGS whereby PGS will provide certain information relating
to the Holland MegaSurveyto us for approximately $1.2 million. This agreement will apply towards
our 2004 and 2005 commitments. Legal Proceeding In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf
(collectively Plaintiffs) commenced an action against Endeavour International Corporation
(Endeavour), f/k/a Continental Southern Resources, Inc. (CSOR), as well as BWP Gas, L.L.C. and
HBA Gas, Inc. in state court in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that
in 2003, at a time when CSOR intended to acquire a majority of the membership interests in BWP,
that BWP entered into an agreement to assign to Plaintiffs 2.5 million common shares of Endeavour
stock upon compliance by Plaintiffs with certain contractual obligations including but not limited
to completion and initial commercial production of the Mary #2-34 well, along with the presentation
of a development plan and the commencement of the next exploration or development well in the
Potato Hills Deep Prospect. Plaintiffs allege in their petition that BWP, HBA and Endeavour are
alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver to
Plaintiffs the Endeavour common stock. Plaintiffs seek delivery of the stock as well as a
temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of
Plaintiffs rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all future stock
issuances and transfers of assets not in the ordinary course of business and (iii) prohibiting the
alienation or encumbrance of the Endeavour stock that is allegedly in HBAs possession. On April
6, 2004, the defendants removed the action from the state court to the United States District Court
for the Western District of Oklahoma. On October 21, 2004, the United States District Court
granted a motion to remand to state court filed by the Plaintiffs and remanded the matter to the
District Court of Oklahoma County, Oklahoma. While the outcome can not be predicted at this time,
management believes it has good and valid defenses in this litigation and intends to litigate
vigorously. Note 22  Derivative Financial Instruments In November 2004, we entered into an oil commodity swap covering 600 barrels of oil per day
from December 2004 through December 2006 where we would pay market Brent and receive a fixed price
of $41.90. In December 2004, we settled the swap for a net gain of $1.4 million. Due to the short
nature of this contract, we did not designate this derivative as a cash flow hedge, and therefore
we recorded the full $1.4 million gain in other income in 2004. 81




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Endeavour International Corporation
Notes to Consolidated Financial Statements Note 23  Segment and Geographic Information We have determined we have one reportable operating segment being the acquiring, exploration
and development of natural gas and oil properties. Our operations are conducted in geographic
segments as follows: (Amounts in thousands)
    
    2004
    
    
    2003
    
    
    2002Revenue
    
    
    Long-lived Assets
    
    
    Revenue
    
    
    Long-lived Assets
    
    
    Revenue
    
    
    Long-lived AssetsUnited States
    
    $
    8
    
    
    $
    32,846
    
    
    $
    27
    
    
    $
    7,569
    
    
    $
    16
    
    
    $
    21,639United Kingdom
    
    
    
    
    
    
    8,918

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norway
    
    
    3,655
    
    
    
    39,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Thailand
    
    
    
    
    
    
    3,688
    
    
    
    
    
    
    
    1,693
    
    
    
    
    
    
    
    1,137$
    3,663
    
    
    $
    84,662
    
    
    $
    27
    
    
    $
    9,262
    
    
    $
    16
    
    
    $
    22,776
 Note 24  Subsequent Events Purchase of Minority Interest in OER In January 2005, we purchased the remaining 23.34% minority interest, 1,299,772 shares, in OER
for consideration of NOK 6.98 and 1.68 shares of our common stock per share of OER. The aggregate
consideration paid was approximately US$ 1.4 million in cash and 2,183,617 shares of our common
stock. Convertible Senior Notes In January and February 2005, we issued $81.25 million aggregate principal amount of
convertible senior notes due 2012 in a private placement to qualified institutional buyers,
pursuant to an exemption from the registration requirements of the Securities Act of 1933, as
amended. The notes bear interest at a rate of 6.00% per annum and are convertible into shares of
our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000
principal amount of notes, subject to adjustment, which is equal to an initial conversion price of
approximately $5.02 per share. The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas
properties, working capital and general corporate purposes, which may include future acquisitions
of interests in oil and gas properties. Derivative Instruments In January 2005, we entered into an oil commodity swap where we pay market Brent and receive a
fixed price that ranges from $46.20 per barrel in the initial month to $40.00 per barrel at the end
of the contract. 82




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Endeavour International Corporation
Notes to Consolidated Financial Statements The contract covers 600 barrels per day from February 2005 through December 2006. The
contract requires us to provide $2 million in collateral. Note 25  Quarterly Financial Data Second(Amounts in thousands, except per share data)
    
    First Quarter
    
    
    Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2004Revenues
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    3,655Operating expenses
    
    
    2,723
    
    
    
    3,403
    
    
    
    4,130
    
    
    
    8,899Loss from operations
    
    
    (2,715
    )
    
    
    (3,403
    )
    
    
    (4,130
    )
    
    
    (5,245
    )Net loss to common stockholders
    
    
    (12,924
    )
    
    
    (2,326
    )
    
    
    (4,026
    )
    
    
    (4,520
    )Net loss per common share  basic and diluted
    
    
    (0.26
    )
    
    
    (0.03
    )
    
    
    (0.06
    )
    
    
    (0.06
    )2003Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27Operating expenses
    
    
    1,165
    
    
    
    764
    
    
    
    16,919
    
    
    
    13,101Loss from operations
    
    
    (1,165
    )
    
    
    (764
    )
    
    
    (16,919
    )
    
    
    (13,074
    )Net loss to common stockholders
    
    
    (2,329
    )
    
    
    (4,812
    )
    
    
    (18,416
    )
    
    
    (15,677
    )Net loss per common share  basic and diluted
    
    
    (0.07
    )
    
    
    (0.14
    )
    
    
    (0.51
    )
    
    
    (0.23
    )
 Note 26  Supplemental Oil and Gas Disclosures  Unaudited Capitalized Costs Relating to Oil and Gas Producing Activities(Amounts in thousands)
    
    United Kingdom
    
    
    Norway
    
    
    United States
    
    
    Thailand
    
    
    Other
    
    
    TotalDecember 31, 2004:Proved
    
    $
    
    
    
    $
    20,081
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,081Unproved
    
    
    8,769
    
    
    
    17,523
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    26,749Total capitalized costs
    
    
    8,769
    
    
    
    37,604
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    46,830Accumulated
depreciation,
depletion and
amortization
    
    
    
    
    
    
    (901
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (901
    )Net capitalized costs
    
    $
    8,769
    
    
    $
    36,703
    
    
    $
    
    
    
    $
    
    
    
    $
    457
    
    
    $
    45,929
 83




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Endeavour International Corporation
Notes to Consolidated Financial Statements Capitalized Costs Relating to Oil and Gas Producing Activities(Amounts in thousands)
    
    United Kingdom
    
    
    Norway
    
    
    United States
    
    
    Thailand
    
    
    Other
    
    
    TotalDecember 31, 2003:Proved
    
    $
    
    
    
    $
    
    
    
    $
    11,468
    
    
    $
    
    
    
    $
    
    
    
    $
    11,468Unproved
    
    
    
    
    
    
    
    
    
    
    21,590
    
    
    
    
    
    
    
    
    
    
    
    21,590Total capitalized costs
    
    
    
    
    
    
    
    
    
    
    33,058
    
    
    
    
    
    
    
    
    
    
    
    33,058Accumulated
depreciation,
depletion and
amortization
    
    
    
    
    
    
    
    
    
    
    (26,645
    )
    
    
    
    
    
    
    
    
    
    
    (26,645
    )Net capitalized costs
    
    $
    
    
    
    $
    
    
    
    $
    6,413
    
    
    $
    
    
    
    $
    
    
    
    $
    6,413
 Equity Method Investees for the year ended December 31,: 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,532
    
    
    $
    
    
    
    $
    3,5322003
    
    $
    
    
    
    $
    
    
    
    $
    4,171
    
    
    $
    1,405
    
    
    $
    
    
    
    $
    5,576
 Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development ActivitiesUnited(Amounts in thousands)
    
    Kingdom
    
    
    Norway
    
    
    United States
    
    
    Thailand
    
    
    Other
    
    
    TotalYear Ended December 31, 2004:Acquisition costs:Proved
    
    $
    
    
    
    $
    19,210
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,210Unproved
    
    
    4,534
    
    
    
    14,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,356Exploration costs
    
    
    4,235
    
    
    
    2,700
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    7,392Development costs
    
    
    
    
    
    
    872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872Total costs incurred
    
    $
    8,769
    
    
    $
    37,604
    
    
    $
    
    
    
    $
    
    
    
    $
    457
    
    
    $
    46,830Year Ended December 31, 2003:Acquisition costs:Proved
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Unproved
    
    
    
    
    
    
    
    
    
    
    11,962
    
    
    
    
    
    
    
    
    
    
    
    11,962Exploration costs
    
    
    
    
    
    
    
    
    
    
    2,118
    
    
    
    
    
    
    
    
    
    
    
    2,118Development costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs incurred
    
    $
    
    
    
    $
    
    
    
    $
    14,080
    
    
    $
    
    
    
    $
    
    
    
    $
    14,080
 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(Amounts in thousands)
    
    Kingdom
    
    
    Norway
    
    
    United States
    
    
    Thailand
    
    
    Other
    
    
    TotalYear Ended December 31, 2002:Acquisition costs:Proved
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Unproved
    
    
    
    
    
    
    
    
    
    
    16,129
    
    
    
    
    
    
    
    
    
    
    
    16,129Exploration costs
    
    
    
    
    
    
    
    
    
    
    2,849
    
    
    
    
    
    
    
    
    
    
    
    2,849Development costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs incurred
    
    $
    
    
    
    $
    
    
    
    $
    18,978
    
    
    $
    
    
    
    $
    
    
    
    $
    18,978Equity Method Investees for the year ended December 31,:2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,127
    
    
    $
    
    
    
    $
    2,1272003
    
    $
    
    
    
    $
    
    
    
    $
    8,758
    
    
    $
    643
    
    
    $
    
    
    
    $
    9,4012002
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    762
    
    
    $
    
    
    
    $
    762
 85




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Endeavour International Corporation
Notes to Consolidated Financial Statements Results of Operations for Oil and Gas Producing ActivitiesUnited(Amounts in thousands)
    
    Kingdom
    
    
    Norway
    
    
    United States
    
    
    Thailand
    
    
    Other
    
    
    TotalYear Ended December 31, 2004:Revenues
    
    $
    
    
    
    $
    3,655
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    3,663Production expenses
    
    
    
    
    
    
    2,064
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,065DD&A
    
    
    
    
    
    
    901
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    903Income tax expense
    
    
    
    
    
    
    538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    538Results of activities
    
    $
    
    
    
    $
    152
    
    
    $
    5
    
    
    $
    
    
    
    $
    
    
    
    $
    157Year Ended December 31, 2003:Revenues
    
    $
    
    
    
    $
    
    
    
    $
    27
    
    
    $
    
    
    
    $
    
    
    
    $
    27Production expenses
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6DD&A
    
    
    
    
    
    
    
    
    
    
    1,497
    
    
    
    
    
    
    
    
    
    
    
    1,497Impairment of oil
and gas properties
    
    
    
    
    
    
    
    
    
    
    25,168
    
    
    
    
    
    
    
    
    
    
    
    25,168Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Results of activities
    
    $
    
    
    
    $
    
    
    
    $
    (26,644
    )
    
    $
    
    
    
    $
    
    
    
    $
    (26,644
    )Year Ended December 31, 2002:Revenues
    
    $
    
    
    
    $
    
    
    
    $
    16
    
    
    $
    
    
    
    $
    
    
    
    $
    16Production expenses
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17DD&A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of oil
and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Results of activities
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )Equity Method Investees for the year ended December 31,:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (201
    )
    
    $
    
    
    
    $
    (201
    )2003
    
    $
    
    
    
    $
    
    
    
    $
    (1,123
    )
    
    $
    (85
    )
    
    $
    
    
    
    $
    (1,208
    )2002
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (25
    )
    
    $
    
    
    
    $
    (25
    )
 Oil and Gas Reserves Proved reserves are estimated quantities of oil, gas and natural gas liquids that geological
and engineering data demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved developed reserves are
proved reserves that can reasonably be expected to be recovered through existing wells with
existing equipment and operating methods. The reserve volumes presented are estimates only and
should not be construed as being exact quantities. These reserves may or may not be recovered and
may increase or decrease as a result of our future operations and changes in economic conditions.
Our oil and gas reserves were estimated by independent reserve engineers. 86




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Endeavour International Corporation
Notes to Consolidated Financial Statements Year Ended December 31,2004
    
    
    2003
    
    
    2002United
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    United
    
    
    UnitedStates
    
    
    Norway
    
    
    Thailand
    
    
    Total
    
    
    States
    
    
    StatesProved Oil Reserves (MBbls):Proved reserves, beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of proved reserves, in place
    
    
    
    
    
    
    1,634
    
    
    
    
    
    
    
    1,634
    
    
    
    
    
    
    
    Production
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    Sales of reserves, in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of year
    
    
    
    
    
    
    1,543
    
    
    
    
    
    
    
    1,543
    
    
    
    
    
    
    
    Proved Gas Reserves (MMcf):Proved reserves, beginning of year
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    Purchase of proved reserves, in place
    
    
    
    
    
    
    6,740
    
    
    
    
    
    
    
    6,740
    
    
    
    60
    
    
    
    Production
    
    
    (2
    )
    
    
    (15
    )
    
    
    
    
    
    
    (17
    )
    
    
    (8
    )
    
    
    Sales of reserves, in place
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of year
    
    
    
    
    
    
    6,725
    
    
    
    
    
    
    
    6,725
    
    
    
    52
    
    
    
    Proved Reserves (MBOE):Proved reserves, beginning of year
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    Purchase of proved reserves, in place
    
    
    
    
    
    
    2,757
    
    
    
    
    
    
    
    2,757
    
    
    
    10
    
    
    
    Production
    
    
    (1
    )
    
    
    (93
    )
    
    
    
    
    
    
    (94
    )
    
    
    (1
    )
    
    
    Sales of reserves, in place
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of year
    
    
    
    
    
    
    2,664
    
    
    
    
    
    
    
    2,664
    
    
    
    9
    
    
    
    Equity in proved reserves of equity
method investees:Gas (MMcf)
    
    
    
    
    
    
    
    
    
    
    25,006
    
    
    
    25,006
    
    
    
    
    
    
    
    Natural gas liquids (MBbls)
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75
    
    
    
    
    
    
    
    Proved Reserves (MBOE)
    
    
    
    
    
    
    
    
    
    
    4,243
    
    
    
    4,243
    
    
    
    
    
    
    
    Proved Developed Oil Reserves (MBbls)
    
    
    
    
    
    
    1,094
    
    
    
    
    
    
    
    1,094
    
    
    
    
    
    
    
    Proved Developed Gas Reserves (MMcf)
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    123
    
    
    
    52
    
    
    
    Proved Developed Reserves (MBOE)
    
    
    
    
    
    
    1,115
    
    
    
    
    
    
    
    1,115
    
    
    
    9
    
    
    
    
 87




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Endeavour International Corporation
Notes to Consolidated Financial Statements Our reserves in Norway were acquired in the OER Acquisition and include 622 MBOE at December 31,
2004 held by the minority interest in OER. As discussed in Note 24, we purchased the 23.34%
minority interest in OER in January 2005. Our equity in proved reserves of equity method investees in Thailand includes 243 MBOE at December
31, 2004 held by the minority interest of approximately 5%. There are no proved, developed
reserves associated with our equity method investees in Thailand. Standardized Measure of Discounted Future Net Cash Flows Future cash inflows and future production and development costs are determined by applying
year-end prices and costs to the estimated quantities of oil and gas to be produced. Estimated
future income taxes are computed using current statutory income tax rates for where production
occurs. The resulting future net cash flows are reduced to present value amounts by applying a 10%
annual discount factor. Estimates of future cash inflows are based on prices at year-end. Oil, gas and condensate prices
are escalated only for fixed and determinable amounts under provisions in some contracts.
Estimated future cash inflows are reduced by estimated future development, production, abandonment
and dismantlement costs based on year-end cost levels, assuming continuation of existing economic
conditions, and by estimated future income tax expense. Income tax expense, both U.S. and foreign,
is calculated by applying the existing statutory tax rates, including any known future changes, to
the pretax net cash flows giving effect to any permanent differences and reduced by the applicable
tax basis. The effect of tax credits is considered in determining the income tax expense. The standardized measure of discounted future net cash flows is not intended to present the fair
market value of our oil and gas reserves. An estimate of fair value would also take into account,
among other things, the recovery of reserves in excess of proved reserves, anticipated future
changes in prices and costs, an allowance for return on investment and the risks inherent in
reserve estimates. Under the full cost method of accounting, a noncash charge to earnings related to the carrying
value of the Companys oil and gas properties on a country-by-country basis may be required when
prices are low. Whether we will be required to take such a charge depends on the prices for crude
oil and natural gas at the end of any quarter, as well as the effect of both capital expenditures
and changes to proved reserves during that quarter. Given the volatility of natural gas and oil
prices, it is reasonably possible that our estimate of discounted future net cash flows from proved
oil and gas reserves will change in the near term. If a noncash charge were required, it would
reduce earnings for the period and result in lower DD&A expense in future periods. 88




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Endeavour International Corporation
Notes to Consolidated Financial Statements Standardized Measure of Discounted Future Net Cash Flows(Amounts in thousands)
    
    December 31,2004
    
    
    2003UnitedNorway
    
    
    Thailand
    
    
    Total
    
    
    StatesFuture cash inflows
    
    $
    89,073
    
    
    $
    
    
    
    $
    89,073
    
    
    $
    190Future production costs
    
    
    (42,715
    )
    
    
    
    
    
    
    (42,715
    )
    
    
    (74
    )Future development costs
    
    
    (21,192
    )
    
    
    
    
    
    
    (21,192
    )
    
    
    Future income tax expense
    
    
    (12,086
    )
    
    
    
    
    
    
    (12,086
    )
    
    
    Future net cash flows (undiscounted)
    
    
    13,080
    
    
    
    
    
    
    
    13,080
    
    
    
    116Annual discount of 10% for estimated timing
    
    
    2,815
    
    
    
    
    
    
    
    2,815
    
    
    
    (45
    )Standardized measure of future net cash flows
    
    $
    10,265
    
    
    $
    
    
    
    $
    10,265
    
    
    $
    71Equity Method Investees
    
    $
    
    
    
    $
    15,251
    
    
    $
    15,251
    
    
    $
    
 Principal Sources of Change in the Standardized Measure of Discounted Future Net Cash Flows(Amounts in thousands)
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002Standardized measure, beginning of period
    
    $
    71
    
    
    $
    
    
    
    $
    Net changes in prices and production costs
    
    
    1,581
    
    
    
    
    
    
    
    Future development costs
    
    
    871
    
    
    
    
    
    
    
    Revisions of previous quantity estimates
    
    
    
    
    
    
    
    
    
    
    Extension of reservoir
    
    
    
    
    
    
    
    
    
    
    Sale of reserves in place
    
    
    (71
    )
    
    
    
    
    
    
    Accretion of discount
    
    
    
    
    
    
    
    
    
    
    Changes in income taxes, net
    
    
    1,063
    
    
    
    
    
    
    
    Sale of oil and gas produced, net of production costs
    
    
    (1,591
    )
    
    
    
    
    
    
    Purchased reserves
    
    
    10,498
    
    
    
    71
    
    
    
    Change in estimated future development costs,
production, timing and other
    
    
    (2,157
    )
    
    
    
    
    
    
    Standardized measure, end of period
    
    $
    10,265
    
    
    $
    71
    
    
    $
    Equity Method Investors
    
    $
    15,251
    
    
    $
    
    
    
    $
    
 89




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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure. None. 
 Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our co-executive
officers (Co-CEOs) and our Chief Accounting Officer, we evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2004. Based on that evaluation our Co-CEOs
and our Chief Accounting Officer concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and forms. Managements Assessment on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal
controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable
assurance as to the reliability of our financial reporting and the preparation and presentation of
the consolidated financial statements for external purposes in accordance with accounting
principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not detect or
prevent misstatements. Projections of any evaluation of the effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal controls over financial reporting as of
December 31, 2004. In making this assessment, our management used the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our assessment, our internal controls over financial
reporting were effective as of December 31, 2004 based on the
foregoing criteria. Management included in its assessment of internal
controls over financial reporting all consolidated entities except
those falling under OER oil AS. Endeavour International Corporation
acquired OER oil AS on November 23, 2004. OER oil ASs
internal control over financial reporting related to total assets of
$63.3 million and total revenues of $3.7 million as of and
for the year ended December 31, 2004. As permitted by the SECs published guidance, we excluded these
entities from our assessment as they were acquired late in the year, and it was not possible to
conduct our assessment between the date of acquisition and the end of the year. KPMG LLP, an independent registered public accounting firm, audited managements assessment of the
effectiveness of internal control over financial reporting and issued the report set forth on the
following page. 90




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Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting during the quarterly period
ended December 31, 2004 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. 91




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Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Endeavour International Corporation: We have audited Managements Assessment on
Internal Control Over Financial Reporting, that Endeavour International Corporation maintained
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Endeavour
International Corporations management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Endeavour International Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is fairly stated, in
all material respects, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in
our opinion, Endeavour International Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). 92




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Endeavour International Corporation acquired OER oil AS on November 23,
2004, and management excluded from its assessment of the effectiveness of
Endeavour International Corporations internal control over
financial reporting as of December 31, 2004, OER oil ASs internal control over
financial reporting associated with total assets of $63.3 million and total revenues of $3.7 million
included in the consolidated financial statements of Endeavour International Corporation and
subsidiaries as of and for the year ended December 31, 2004.
Our audit of internal control over financial reporting of Endeavour International Corporation
also excluded an evaluation of the internal control over financial reporting of OER oil AS. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of Endeavour International Corporation and
subsidiaries as of December 31, 2004, and the related consolidated statements of operations,
changes in stockholders equity and cash flows for the year ended December 31, 2004, and our report
dated March 7, 2005 expressed an unqualified opinion on those consolidated financial statements. KPMG LLP Houston, Texas
March 7, 2005 93




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Item 9B. Other Information None. 
 Part III 
 Item 10. Directors and Executive Officers of the Registrant. Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by
reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K
and will provide the information required under Part III, Item 10. 
 Item 11. Executive Compensation Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by
reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K
and will provide the information required under Part III, Item 11. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by
reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K
and will provide the information required under Part III, Item 12. 
 Item 13. Certain Relationships and Related Transactions Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by
reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K
and will provide the information required under Part III, Item 13. 94




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Item 14. Principal Accounting Fees and Services. Our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by
reference into this annual report on Form 10-K pursuant to General Instruction G(3) of Form 10-K
and will provide the information required under Part III, Item 14. 
 Item 15. Exhibits and Financial Statement Schedules (a) (1) and (2) Financial Statements and Financial Statement Schedules
See our consolidated financial statements included in Item 8 above. (a) (3) Exhibits. See Index of Exhibits below which lists the documents filed as exhibits herewith. (b) Exhibits. See Index of Exhibits below which lists the documents filed as exhibits herewith. 95




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. Endeavour International Corporation By:
    
    /s/ William L. Transier
    
    /s/ John N. SeitzWilliam L. Transier
    
    John N. SeitzCo-Chief Executive Officer
    
    Co-Chief Executive Officer
 Date: March 11, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    DateBy:
    
    /s/ William L. Transier
    
    Co-Chief Executive Officer and
    
    March 11, 2005Director (Co-Principal ExecutiveWilliam L. Transier
    
    Officer)By:
    
    /s/ John N. Seitz
    
    Co-Chief Executive Officer and
    
    March 11, 2005Director (Co-PrincipalJohn N. Seitz
    
    Executive Officer)By:
    
    /s/ John B. Connally III
    
    Director
    
    March 11, 2005John B. Connally IIIBy:
    
    /s/ Barry J. Galt
    
    Director
    
    March 11, 2005Barry J. GaltBy:
    
    /s/ Nancy K. Quinn
    
    Director
    
    March 11, 2005Nancy K. QuinnBy:
    
    /s/ Robert L. Thompson
    
    Chief Accounting Officer
    
    March 11, 2005(Principal Financial Officer andRobert L. Thompson
    
    Principal Accounting Officer)
 96




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Index to Exhibits Exhibit
    
    Description2.1
    
    
    Agreement and Plan of Merger by and among Continental Southern Resources,
Inc., CSOR Acquisition Corp. and NSNV, Inc. (Incorporated by reference to
Exhibit 2.1 on Current Report on Form 8-K (Commission File No. 000-33439)
filed February 27, 2004)2.2
    
    
    Plan and Agreement of Merger, dated as of February 27, 2004, between
Continental Southern Resources, Inc. (n/k/a Endeavour International
Corporation) and its wholly-owned subsidiary Endeavour International
Corporation (Incorporated by reference to Exhibit 10.1 on Current Report
on Form 8-K (Commission File No. 000-33439) filed on March 1, 2004)3.1
    
    
    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)3.2
    
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of
our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the
quarter ended June 30, 2004)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
    
    
    Articles of Merger filed February 27, 2004 (Incorporated by reference to
Exhibit 3.4 of our Quarterly Report on Form 10-Q (Commission File No.
001-32212) for the quarter ended June 30, 2004.)3.5
    
    
    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.)4.1
    (a)
    
    Warrants to Purchase Common Stock issued to Gemini Growth Fund, L.P. in
April 2002 (Incorporated by reference to Exhibit 4.6 of our Quarterly
Report on Form 10-QSB (Commission File No. 000-33439) for the Quarter
Ended June 30, 2002.)4.1
    (b)
    
    First Amendment to Warrants to Purchase Common Stock dated July 29, 2003
(warrant # 2002-1) (Incorporated by reference to Exhibit 4.5 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003.)4.1
    (c)
    
    Second Amendment to Warrants to Purchase Common Stock dated February 26,
2004 (warrant # 2002-1) (Incorporated by reference to Exhibit 4.5 of our
Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year
ended December 31, 2003.)4.2
    (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)




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##### Table of Contents



Exhibit
    
    Description4.2
    (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)4.3
    (a)
    
    Warrants to Purchase Common Stock issued to Trident Growth Fund, LP
(warrant # 2003-1) (Incorporated by reference to Exhibit 4.8 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003)4.3
    (b)
    
    First Amendment to Warrants to Purchase Common Stock dated July 29, 2003
(warrant #2003-1) (Incorporated by reference to Exhibit 4.8 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003)4.3
    (c)
    
    Second Amendment to Warrants to Purchase Common Stock dated February 26,
2004 (warrant # 2003-1) (Incorporated by reference to Exhibit 4.8 of our
Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year
ended December 31, 2003)4.4
    
    
    Warrant to Purchase 25,000 Shares of Common Stock issued to Trident Growth
Fund, L.P. (Incorporated by reference to Exhibit 10.11 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the Year Ended
December 31, 2002).* 4.5
    
    
    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 2012.4.6
    
    
    Registration Rights Agreement dated as of January 20, 2005, among
Endeavour International Corporation and J.P. Morgan Securities Inc. and
Sanders Morris Harris Inc., as Placement Agents (Incorporated by reference
to our Exhibit 4.2 to our Current Report on Form 8-K (Commission File No.
001-32212) filed on January 24, 2005.)4.7
    (a)
    
    Debt agreement between OER oil AS and Handelsbanken (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission
File No. 001-32212) filed on November 30, 2004.)4.7
    (b)
    
    Amendment to debt agreement between OER oil AS and Handelsbanken
(Incorporated by reference to Exhibit 10.2 to our Current Report on Form
8-K (Commission File No. 001-32212) filed on November 30, 2004.)10.1
    
    
    Form of Amended and Restated Option to Purchase 100,000 Shares of Common
Stock dated August 8, 2003, between the Company 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 the Company and Joseph M. Fiorvanti (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.)




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##### Table of Contents



Exhibit
    
    Description10.3
    
    
    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
    (a)
    
    Limited Partnership Agreement of PHT Partners, L.P. dated August 14, 2002
(Incorporated by reference to Exhibit 10.13 of our Quarterly Report on
Form 10-QSB (Commission File No. 000-33439) for the Quarter Ended March
31, 2003).10.4
    (b)
    
    Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated
June 23, 2003 (Incorporated by reference to Exhibit 10.10 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003.)10.4
    (c)
    
    Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated
August 27, 2003 (Incorporated by reference to Exhibit 10.10 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003.)10.4
    (d)
    
    Amendment to the Limited Partnership Agreement of PHT Partners, L.P. dated
February 26, 2004 (Incorporated by reference to Exhibit 10.10 of our
Annual Report on Form 10-KSB (Commission File No. 000-33439) for the year
ended December 31, 2003.)10.5
    
    
    Operating Agreement of BWP Gas, LLC dated July 21, 2003 (Incorporated by
reference to Exhibit 10.19 of our Quarterly Report on Form 10-QSB
(Commission File No. 000-33439) for the Quarter Ended June 30, 2003)10.6
    
    
    Exploration Agreement dated May 19, 2003 by and among BWP Gas, LLC, The
GHK Company, LLC and GHK Potato Hills Limited Partnership (Incorporated by
reference to Exhibit 10.20 of our Quarterly Report on Form 10-QSB
(Commission File No. 000-33439) for the Quarter Ended June 30, 2003)10.7
    
    
    Membership Purchase Agreement dated May 27, 2003 by and among BWP Gas,
LLC, HBA Gas, Inc. and the Registrant (Incorporated by reference to
Exhibit 10.21 of our Quarterly Report on Form 10-QSB (Commission File No.
000-33439) for the Quarter Ended June 30, 2003)10.8
    
    
    Form of Common Stock Purchase Warrant dated October 18, 2002 issued to
Michael Marcus and Amendment to Common Stock Purchase Warrant issued to
Michael Marcus. (Incorporated by reference to Exhibit 10.20 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003)10.9
    
    
    Purchase and Sale Agreement by and between Continental Southern Resources,
Inc. and CSOR Preferred Liquidation, LLC, dated February 26, 2004.
(Incorporated by reference to Exhibit 10.21 of our Annual Report on Form
10-KSB (Commission File No. 000-33439) for the year ended December 31,
2003)10.10
    (a)
    
    Stock Acquisition Agreement dated as of December 16, 2003 between
Continental Southern Resources, Inc. and Ram Trading, Ltd. (Incorporated
by reference to Exhibit 99.6 of the Schedule 13D (Commission File No.
005-62401) filed on March 9, 2004 by Ram Trading, Ltd. et al)




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##### Table of Contents



Exhibit
    
    Description10.10
    (b)
    
    Amendment to Stock Acquisition Agreement dated as of December 30, 2003 by
and between Ram Trading, Ltd. and Continental Southern Resources, Inc.
(Incorporated by reference to Exhibit 99.7 of the Schedule 13D (Commission
File No. 005-62401) filed on March 9, 2004 by Ram Trading, Ltd. et al)10.11
    
    
    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 Company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)10.12
    
    
    Form of Securities Purchase Agreement, dated February 4, 2004, by and
between Continental Southern Resources, Inc. and certain purchasers
pursuant to a private placement of 125,000 shares of Companys common
stock. (Incorporated by reference to Exhibit 10.25 of our Annual Report on
Form 10-KSB (Commission File No. 000-33439) for the year ended December
31, 2003)10.13
    
    
    Registration Rights Agreement dated as of February 26, 2004 pursuant to
the private placement of 25,000,000 shares of the Companys common stock.
(Incorporated by reference to Exhibit 10.26 of our Annual Report on Form
10-KSB (Commission File No. 000-33439) for the year ended December 31,
2003)10.14
    
    
    Piggyback Registration Rights Agreement dated as of February 26, 2004
between the Company and certain purchasers. (Incorporated by reference to
Exhibit 99.2 of the Schedule 13D (Commission File No. 005-62401) filed on
March 9, 2004 by Ram Trading, Ltd. et al).10.15
    
    
    Interest Purchase Agreement dated February 26, 2004 by and between
Continental Southern Resources, Inc. and Knox Gas, LLC. (Incorporated by
reference to Exhibit 10.28 of our Annual Report on Form 10-KSB (Commission
File No. 000-33439) for the year ended December 31, 2003)10.16
    
    
    Interest Pledge Agreement, dated February 26, 2004, by and among Knox Gas,
LLC and Continental Southern Resources, Inc. (Incorporated by reference to
Exhibit 10.29 of our Annual Report on Form 10-KSB (Commission File No.
000-33439) for the year ended December 31, 2003)10.17
    
    
    Secured Promissory Note dated February 26, 2004, made by Knox Gas, LLC in
favor of Continental Southern Resources, Inc. (Incorporated by reference
to Exhibit 10.30 of our Annual Report on Form 10-KSB (Commission File No.
000-33439) for the year ended December 31, 2003)10.18
    (a)
    
    Securities Purchase Agreement dated October 28, 2003 by and between
Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding the
purchase and sale of interests in Knox-Miss Partners, LP. (Incorporated by
reference to Exhibit 10.31 of our Annual Report on Form 10-KSB (Commission
File No. 000-33439) for the year ended December 31, 2003)10.18
    (b)
    
    First Amendment to Securities Purchase Agreement dated December 10, 2003
by and between Continental Southern Resources, Inc. and Ram Trading, Ltd.
(Incorporated by reference to Exhibit 10.32 of our Annual Report on Form
10-KSB (Commission File No. 000-33439) for the year ended December 31,
2003)




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##### Table of Contents



Exhibit
    
    Description10.19
    
    
    Securities Purchase Agreement dated August 27, 2003 by and between
Continental Southern Resources, Inc. and Ram Trading, Ltd. regarding the
purchase and sale of interests in Louisiana Shelf-Partners, L.P.
(Incorporated by reference to Exhibit 10.33 of our Annual Report on Form
10-KSB (Commission File No. 000-33439) for the year ended December 31,
2003)10.20
    
    
    Form of Lock Up Agreement executed by each of the current executive
officers of the Company and PGS Exploration (UK) Limited. (Incorporated by
reference to Exhibit 10.34 of our Annual Report on Form 10-KSB (Commission
File No. 000-33439) for the year ended December 31, 2003)10.21
    
    
    Form of Lock-up Agreement executed by certain of the Companys
stockholders. (Incorporated by reference to Exhibit 10.35 of our Annual
Report on Form 10-KSB (Commission File No. 000-33439) for the year ended
December 31, 2003)10.22
    
    
    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)10.23
    
    
    Employment Agreement dated February 26, 2004 by and between Continental
Southern Resources, Inc. and William L. Transier. (Incorporated by
reference to Exhibit 10.37 of our Annual Report on Form 10-KSB (Commission
File No. 000-33439) for the year ended December 31, 2003)10.24
    
    
    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)10.25
    
    
    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)10.26
    (a)
    
    Agreement between PGS Exploration (UK) Limited and NSNV, Inc. as Licensee.
(Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.) (Incorporated by reference to Exhibit 10.1 for
our Quarterly Report on Form 10-Q (Commission File No. 000-33439) for the
quarter ended March 31, 2004.)10.26
    (b)
    
    Appendix No. 1 to License Agreement No. 2004-85 between PGS Exploration
(UK) Ltd. and Endeavour Operating Corporation, dated January 10, 2005
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K (Commission File No. 001-32212) filed on January 11, 2005.)10.27
    
    
    Share Sale and Purchase Agreement between Lundin Petroleum B.V. and
Endeavour Energy Norge AS dated October 12, 2004 (Incorporated by
reference to Exhibit 2.1 to our Current Report on Form 8-K (Commission
File No. 001-32212) filed on October 14, 2004.)10.28
    
    
    Form of Conditional Offer to Buy Shares of Stock to the Minority
Stockholders of OER oil AS (Incorporated by reference to Exhibit 2.1 to
our Current Report on Form 8-K (Commission File No. 001-32212) filed on
November 15, 2004.)




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##### Table of Contents



Exhibit
    
    Description10.29
    
    
    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.)10.30
    
    
    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.)10.31
    
    
    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.)10.32
    
    
    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.)10.33
    
    
    License Agreement No. 2004-85 between PGS Exploration (UK) Ltd. and
Endeavour Operating Corporation, dated December 21, 2004 (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K (Commission
File No. 001-32212) filed on January 11, 2005.)14.1
    
    
    Code of Ethics of Endeavour International Corporation. (Incorporated by
reference to Exhibit 14.1 of our Annual Report on Form 10-KSB (Commission
File No. 000-33439) for the year ended December 31, 2003)*21.1
    
    
    List of Subsidiaries.*23.1
    
    
    Consent of Independent Registered Public Accounting Firm - KPMG LLP.*23.2
    
    
    Consent of Independent Registered Public Accounting Firm - LJ Soldinger
Associates LLP.*23.3
    
    
    Consent of Independent Reserve Engineers - Gaffney, Cline & Associates Ltd.*31.1
    
    
    Certificates of William L. Transier, Co-Chief Executive Officer, pursuant
to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.*31.2
    
    
    Certificate of John N. Seitz, Co-Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities and Exchange Act of 1934, as amended.*31.3
    
    
    Certificate 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, Co-Chief Executive Officer, pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*32.2
    
    
    Certificate of John N. Seitz, Co-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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##### Table of Contents



Exhibit
    
    Description*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.