##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2007
 or
 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: 1-13463
 Endeavour International Corporation
  Nevada
    
    88-0448389(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 1000 Main Street, Suite 3300, Houston, Texas 77002
 (713) 307-8700
 None
 þ o
  o þ o
 o þ




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##### 



Endeavour International Corporation
 Index
 Part I: Financial InformationItem 1: Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4: Controls and Procedures
    
    
    28Part II. Other InformationItem 1A: Risk Factors
    
    
    29Item 6: Exhibits
    
    
    29Signatures
    
    
    30Employment Offer Letter - J. Michael KirkseyEmployment Offer Letter - John G. WilliamsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350




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##### Table of Contents



Part I: Financial Information
 
 Item 1: Financial Statements
 Endeavour International Corporation
 
 Condensed Consolidated Balance Sheet
   September 30, 2007
    
    December 31, 2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    15,757
    
    
    $
    39,814Restricted cash
    
    
    22,000
    
    
    
    1,867Accounts receivable
    
    
    22,431
    
    
    
    61,104Prepaid expenses and other current assets
    
    
    42,711
    
    
    
    25,783Total Current Assets
    
    
    102,899
    
    
    
    128,568Property and Equipment, Net
    
    
    336,212
    
    
    
    319,315Goodwill
    
    
    291,752
    
    
    
    291,752Other Assets
    
    
    18,150
    
    
    
    34,835Total Assets
    
    $
    749,013
    
    
    $
    774,470Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    22,229
    
    
    $
    36,928Current maturities of debt
    
    
    
    
    
    
    2,410Accrued expenses and other
    
    
    38,428
    
    
    
    41,799Total Current Liabilities
    
    
    60,657
    
    
    
    81,137Long-Term Debt
    
    
    266,250
    
    
    
    303,840Deferred Taxes
    
    
    146,375
    
    
    
    115,155Other Liabilities
    
    
    53,913
    
    
    
    32,510Total Liabilities
    
    
    527,195
    
    
    
    532,642Commitments and ContingenciesSeries C Convertible Preferred Stock
(Liquidation preference: $127,788)
    
    
    124,613
    
    
    
    125,000Stockholders Equity:Series B preferred stock (Liquidation
preference: $2,760)
    
    
    
    
    
    
    Common stock; shares issued and
outstanding  124,124,672 at 2007 and
118,577,369 shares at 2006
    
    
    124
    
    
    
    119Additional paid-in capital
    
    
    238,502
    
    
    
    226,988Accumulated other comprehensive loss
    
    
    (425
    )
    
    
    Accumulated deficit
    
    
    (140,996
    )
    
    
    (110,279
    )Total Stockholders Equity
    
    
    97,205
    
    
    
    116,828Total Liabilities and Stockholders Equity
    
    $
    749,013
    
    
    $
    774,470
 
 1




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##### Table of Contents



Endeavour International Corporation
 
 Condensed Consolidated Statement of Operations
 (Unaudited)
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    $
    47,169
    
    
    $
    6,726
    
    
    $
    121,580
    
    
    $
    22,847Cost of Operations:Operating expenses
    
    
    9,546
    
    
    
    2,556
    
    
    
    29,984
    
    
    
    7,712Depreciation, depletion and amortization
    
    
    21,728
    
    
    
    3,374
    
    
    
    56,189
    
    
    
    7,901Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849General and administrative
    
    
    4,096
    
    
    
    5,447
    
    
    
    14,623
    
    
    
    16,196Total Expenses
    
    
    35,370
    
    
    
    11,377
    
    
    
    100,796
    
    
    
    32,658Income (Loss) From Operations
    
    
    11,799
    
    
    
    (4,651
    )
    
    
    20,784
    
    
    
    (9,811
    )Other Income (Expense):Commodity derivatives:Realized gains
    
    
    341
    
    
    
    
    
    
    
    15,356
    
    
    
    Unrealized gains (losses)
    
    
    (13,032
    )
    
    
    20,453
    
    
    
    (41,340
    )
    
    
    17,151Interest income
    
    
    552
    
    
    
    435
    
    
    
    1,738
    
    
    
    1,604Interest expense
    
    
    (4,676
    )
    
    
    (1,041
    )
    
    
    (13,604
    )
    
    
    (3,384
    )Other
    
    
    (1,430
    )
    
    
    621
    
    
    
    (3,310
    )
    
    
    (158
    )Total Other Income (Expense)
    
    
    (18,245
    )
    
    
    20,468
    
    
    
    (41,160
    )
    
    
    15,213Income (Loss) Before Income Taxes
    
    
    (6,446
    )
    
    
    15,817
    
    
    
    (20,376
    )
    
    
    5,402Income Tax Expense
    
    
    2,395
    
    
    
    553
    
    
    
    1,812
    
    
    
    7,386Net Income (Loss)
    
    
    (8,841
    )
    
    
    15,264
    
    
    
    (22,188
    )
    
    
    (1,984
    )Preferred Stock Dividends
    
    
    2,840
    
    
    
    39
    
    
    
    8,529
    
    
    
    118Net Income (Loss) to Common Stockholders
    
    $
    (11,681
    )
    
    $
    15,225
    
    
    $
    (30,717
    )
    
    $
    (2,102
    )Net Income (Loss) Per Common Share:Basic
    
    $
    (0.09
    )
    
    $
    0.19
    
    
    $
    (0.25
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.09
    )
    
    $
    0.17
    
    
    $
    (0.25
    )
    
    $
    (0.03
    )Weighted Average Number of Common
Shares Outstanding:Basic
    
    
    123,649
    
    
    
    80,647
    
    
    
    121,981
    
    
    
    79,722Diluted
    
    
    123,649
    
    
    
    97,033
    
    
    
    121,981
    
    
    
    79,722
  2




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Cash Flows
 (Unaudited)
  Nine Months Ended September 30,2007
    
    2006Cash Flows from Operating Activities:Net loss
    
    $
    (22,188
    )
    
    $
    (1,984
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation, depletion and amortization
    
    
    56,189
    
    
    
    7,901Impairment of oil and gas properties
    
    
    
    
    
    
    849Deferred tax expense (benefit)
    
    
    (1,414
    )
    
    
    2,016Unrealized (gain) loss on commodity derivatives
    
    
    41,340
    
    
    
    (17,151
    )Amortization of non-cash compensation
    
    
    3,973
    
    
    
    9,179Amortization of loan costs
    
    
    1,275
    
    
    
    402Other
    
    
    187
    
    
    
    101Changes in assets and liabilities:Decrease in receivables
    
    
    38,811
    
    
    
    1,075(Increase) decrease in other current assets
    
    
    1,429
    
    
    
    (6,269
    )Decrease in accounts payable and accrued expenses
    
    
    (24,413
    )
    
    
    (5,516
    )Net Cash Provided by (Used in) Operating Activities
    
    
    95,189
    
    
    
    (9,397
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (63,325
    )
    
    
    (30,520
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (11,637
    )(Increase) decrease in restricted cash
    
    
    (20,133
    )
    
    
    3,650Net Cash Used in Investing Activities
    
    
    (83,458
    )
    
    
    (38,507
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (47,000
    )
    
    
    Borrowings under debt agreements
    
    
    7,000
    
    
    
    Proceeds from warrant and stock option exercises
    
    
    
    
    
    
    3,210Other
    
    
    (157
    )
    
    
    Net Cash Provided by (Used in) Financing Activities
    
    
    (40,157
    )
    
    
    3,210Net Decrease in Cash and Cash Equivalents
    
    
    (28,426
    )
    
    
    (44,694
    )Effect of Foreign Currency Changes on Cash
    
    
    4,369
    
    
    
    1,110Cash and Cash Equivalents, Beginning of Period
    
    
    39,814
    
    
    
    76,127Cash and Cash Equivalents, End of Period
    
    $
    15,757
    
    
    $
    32,543
 
 3




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Endeavour International Corporation
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 Note 1  General
   Basis of Presentation and Use of Estimates
   Loss Per Share
  4




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    Nine Months Ended(Amounts in thousands, except per share data)
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss) to common stockholdersBasic
    
    $
    (11,681
    )
    
    $
    15,225
    
    
    $
    (30,717
    )
    
    $
    (2,102
    )Add Effect of:Convertible debt
    
    
    
    
    
    
    1,219
    
    
    
    
    
    
    
    Diluted
    
    $
    (11,681
    )
    
    $
    16,444
    
    
    $
    (30,717
    )
    
    $
    (2,102
    )Weighted Average Number of Common Shares
Outstanding:Basic
    
    
    123,649
    
    
    
    80,647
    
    
    
    121,981
    
    
    
    79,722Add Effect of:Warrants
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    16,185
    
    
    
    
    
    
    
    Diluted
    
    
    123,649
    
    
    
    97,033
    
    
    
    121,981
    
    
    
    79,722
  New Accounting Developments
  Note 2  Stock-Based Compensation Arrangements
  5




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Stock Options
   Nine Months Ended September 30,2007
    
    2006Risk-free rate
    
    
    4.7
    %
    
    
    4.4
    %Expected years until exercise
    
    
    4
    
    
    
    4Expected stock volatility
    
    
    43
    %
    
    
    38
    %Dividend yield
    
    
    
    
    
    
    
 6




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  WeightedNumber of
    
    Average
    
    WeightedShares
    
    Exercise
    
    Average
    
    AggregateUnderlying
    
    Price per
    
    Contractual
    
    Intrinsic(Amounts in thousands, except per share data)
    
    Options
    
    Share
    
    Life in Years
    
    ValueBalance outstanding  January 1, 2007
    
    
    5,404
    
    
    $
    3.19Granted
    
    
    545
    
    
    $
    2.02Forfeited
    
    
    (417
    )
    
    $
    4.53Expired
    
    
    (159
    )
    
    $
    4.79Balance outstanding  September 30, 2007
    
    
    5,373
    
    
    $
    2.92
    
    
    
    2.3
    
    
    
    Currently exercisable  September 30, 2007
    
    
    3,431
    
    
    $
    2.74
    
    
    
    1.6
    
    
    
    
  Restricted Stock
   WeightedAverage GrantDate FairNumber of
    
    Value per(Amounts in thousands, except per share data)
    
    Shares
    
    ShareBalance outstanding  January 1, 2007
    
    
    4,414
    
    
    $
    3.76Granted
    
    
    2,145
    
    
    $
    1.86Vested
    
    
    (1,747
    )
    
    $
    3.46Forfeited
    
    
    (580
    )
    
    $
    3.93Balance outstanding  September 30, 2007
    
    
    4,232
    
    
    $
    2.90Total grant date fair value of shares
vesting during the period
    
    $
    5,357
 7




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 3  Acquisitions and Dispositions
 Acquisition of Talisman Expro Limited
   (Amounts in thousands)Purchase price
    
    $
    359,594Legal, accounting and other direct expenses
    
    
    6,051Total purchase price
    
    $
    365,645Allocation of purchase price:Current assets
    
    $
    26,086Property and equipment
    
    
    209,534Goodwill
    
    
    263,957Current liabilities
    
    
    (23,940
    )Deferred tax liability
    
    
    (85,103
    )Other long-term liabilities
    
    
    (24,889
    )$
    365,645
   8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three
    
    NineMonths
    
    Months(Amounts in thousands, except per share data)

    Ended
    
    EndedSeptember 30, 2006Revenues
    
    $
    44,705
    
    
    $
    162,137Net loss to common stockholders
    
    
    (15,291
    )
    
    
    (19,961
    )Net loss per share  basic and diluted
    
    
    (0.11
    )
    
    
    (0.17
    )
 Note 4  Debt Obligations
  September 30,
    
    December 31,(Amounts in thousands)
    
    2007
    
    2006Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011
    
    
    110,000
    
    
    
    150,000Second lien term loan, variable rate, due 2011
    
    
    75,000
    
    
    
    75,000266,250
    
    
    
    306,250Less: current maturities
    
    
    
    
    
    
    (2,410
    )Long-term debt
    
    $
    266,250
    
    
    $
    303,840Standby letters of credit outstanding for
abandonment liabilities
    
    $
    42,001
    
    
    $
    40,376
 Additional information concerning variable interest rates paid
  (Amounts in thousands, except per share data)
    
    Interest Rates PaidSenior bank facility
    
    
    6.62% -   6.66%Second lien term loan
    
    
    12.36% - 12.37%
   9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 5  Property and Equipment
  September 30,
    
    December 31,(Amounts in thousands)
    
    2007
    
    2006Oil and gas properties under the full cost method:Subject to amortization
    
    $
    226,087
    
    
    $
    219,114Not subject to amortization:Acquired in 2007
    
    
    49,535
    
    
    
    Acquired in 2006
    
    
    104,605
    
    
    
    117,281Acquired in 2005
    
    
    15,108
    
    
    
    15,108Acquired in 2004
    
    
    14,488
    
    
    
    16,797409,823
    
    
    
    368,300Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    2,331
    
    
    
    1,940Total property and equipment
    
    
    417,029
    
    
    
    375,115Accumulated depreciation, depletion and amortization
    
    
    (80,817
    )
    
    
    (55,800
    )Net property and equipment
    
    $
    336,212
    
    
    $
    319,315
  10




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6  Derivative Instruments
 Commodity derivatives
  
    
    reduce our exposure to declines in the market prices of crude oil and natural gas that
we produce and sell;
    
    reduce our exposure to increases in interest rates; and
    
    manage cash flows in support of our annual capital expenditure budget.
   September 30,

    December 31,(Amounts in thousands)
    
    2007

    2006Prepaid expenses and other current assets
    
    $
    9,559
    

$
18,395Other assets  long-term
    
    
    8,728
    


23,861Accrued expenses and other
    
    
    (8,142
    )


Other liabilities  long-term
    
    
    (9,223
    )


$
    922
    

$
42,256
  11




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Remainder
    
    
    
    
    
    
    
    
    
    
    
    
    
    Estimated Fair Valueof
    
    
    
    
    
    
    
    
    
    Average
    
    Asset (Liability)2007
    
    2008
    
    2009
    
    2010 - 2011
    
    (in thousands)Oil(1):Fixed Price Swap
(Mbbl)
    
    
    278
    
    
    
    907
    
    
    
    697
    
    
    
    530
    
    
    $
    (16,824
    )Weighted Average
Price ($/Barrel)
    
    $
    69.07
    
    
    $
    68.87
    
    
    $
    69.08
    
    
    $
    67.20Gas(2):Fixed Price Swap
(MMcf)
    
    
    644
    
    
    
    2,676
    
    
    
    1,387
    
    
    
    829
    
    
    $
    18,282Weighted Average
Price (£/Mcf)
    
    £
    6.53
    
    
    £
    5.81
    
    
    £
    5.58
    
    
    £
    5.24Costless Collar
(MMcf)
    
    
    702
    
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    $
    (536
    )Weighted Average
Ceiling Price
(£/Mcf)
    
    £
    4.26
    
    
    £
    4.53
    
    
    
    
    
    
    
    Weighted Average
Floor Price
(£/Mcf)
    
    £
    3.72
    
    
    £
    3.53
    
    
    
    
    
    
    
    
 
 (1)
    
    Oil derivatives are in reference to Platts Dated Brent prices.(2)
    
    Gas derivatives are designated in therms and have been converted to Mcf at a rate
of 10 therms to 1 Mcf and are in reference to the Heren National Balance Point prices. The
exchange rate at September 30, 2007 was $2.04 to £1.00.   12




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Embedded derivatives
  Note 7  Asset Retirement Obligations
  Nine
Months Ended September 30,(Amounts in thousands)
    
    2007
    
    2006Carrying amount of asset retirement obligations
as of beginning of period
    
    $
    32,503
    
    
    $
    6,740Increase due to revised estimates of asset
retirement obligations
    
    
    7,044
    
    
    
    Accretion expense
    
    
    2,299
    
    
    
    438Impact of foreign currency exchange rate changes
    
    
    2,107
    
    
    
    238Carrying amount of asset retirement obligations
as of end of year
    
    $
    43,953
    
    
    $
    7,416
 Note 8  Supplemental Cash Flow Information
  (Amounts in thousands)
    
    Nine Months Ended September 30,2007
    
    2006Interest paid
    
    $
    17,923
    
    
    $
    4,875Income taxes paid
    
    $
    4,487
    
    
    $
    5,035
 13




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 9  Comprehensive Loss
  Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss)
    
    $
    (8,841
    )
    
    $
    15,264
    
    
    $
    (22,188
    )
    
    $
    (1,984
    )Unrealized gain (loss) on commodity
derivative instruments, net of tax
    
    
    
    
    
    
    641
    
    
    
    
    
    
    
    (1,167
    )Unrealized loss on interest rate swap
derivative instrument, net of tax
    
    
    (572
    )
    
    
    
    
    
    
    (362
    )
    
    
    Unrealized (loss) on marketable securities
    
    
    (2
    )
    
    
    (609
    )
    
    
    (66
    )
    
    
    (636
    )Reclassification adjustment for income
(loss) realized in net loss above
    
    
    29
    
    
    
    1,419
    
    
    
    3
    
    
    
    3,728Net impact on comprehensive income (loss)
    
    
    (545
    )
    
    
    1,451
    
    
    
    (425
    )
    
    
    1,925Comprehensive income (loss)
    
    $
    (9,386
    )
    
    $
    16,715
    
    
    $
    (22,613
    )
    
    $
    (59
    )
 Note 10  Commitments and Contingencies
 Rig Commitments
   14




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Contingencies
  15




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##### Table of Contents



Endeavour International Corporation
 Cautionary Statement for Forward-Looking Statements
  
 Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  16




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##### Table of Contents



Endeavour International Corporation
   The Acquisition
  
    
    37.8 million shares of common stock in the fourth quarter of 2006 for $89 million in
gross proceeds;
    
    125,000 shares of Series C Convertible Preferred Stock for $125 million in gross
proceeds;
 17




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##### Table of Contents



Endeavour International Corporation
 
    
    $150 million in a borrowing base debt facility, before financing costs paid of $3.2
million; and
    
    $75 million in a second lien term loan, before financing costs paid of $2.6 million.
 Results of Operations
   18




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##### Table of Contents



Endeavour International Corporation
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Production:Oil and condensate sales (Mbbl):United Kingdom
    
    
    361
    
    
    
    
    
    
    
    982
    
    
    
    Norway
    
    
    136
    
    
    
    116
    
    
    
    391
    
    
    
    389Total
    
    
    497
    
    
    
    116
    
    
    
    1,373
    
    
    
    389Gas sales (MMcf):United Kingdom
    
    
    2,306
    
    
    
    
    
    
    
    6,657
    
    
    
    Norway
    
    
    72
    
    
    
    50
    
    
    
    181
    
    
    
    143Total
    
    
    2,378
    
    
    
    50
    
    
    
    6,838
    
    
    
    143Total sales (MBOE):United Kingdom
    
    
    745
    
    
    
    
    
    
    
    2,092
    
    
    
    Norway
    
    
    148
    
    
    
    124
    
    
    
    421
    
    
    
    413Total
    
    
    893
    
    
    
    124
    
    
    
    2,513
    
    
    
    413BOE per day
    
    
    9,713
    
    
    
    1,353
    
    
    
    9,205
    
    
    
    1,512Realized Prices:Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    70.17
    
    
    $
    69.24
    
    
    $
    62.55
    
    
    $
    66.56Effect of commodity derivatives
    
    $
    (3.24
    )
    
    $
    (14.21
    )
    
    $
    1.18
    
    
    $
    (11.14
    )Realized prices including
commodity derivatives
    
    $
    66.93
    
    
    $
    55.03
    
    
    $
    63.73
    
    
    $
    55.42Gas price ($  per Mcf):Before commodity derivatives
    
    $
    5.16
    
    
    $
    6.67
    
    
    $
    5.22
    
    
    $
    9.04Effect of commodity derivatives
    
    $
    .82
    
    
    $
    
    
    
    $
    2.01
    
    
    $
    Realized prices including
commodity derivatives
    
    $
    5.98
    
    
    $
    6.67
    
    
    $
    7.23
    
    
    $
    9.04Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    52.79
    
    
    $
    67.27
    
    
    $
    48.38
    
    
    $
    65.85Effect of commodity derivatives
    
    $
    .38
    
    
    $
    (13.25
    )
    
    $
    6.11
    
    
    $
    (10.50
    )Realized prices including
commodity derivatives
    
    $
    53.17
    
    
    $
    54.02
    
    
    $
    54.49
    
    
    $
    55.35
  19




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##### Table of Contents



Endeavour International Corporation
   Expenses
    20




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##### Table of Contents



Endeavour International Corporation
 Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Compensation
    
    $
    3,333
    
    
    $
    3,149
    
    
    $
    11,272
    
    
    $
    9,634Consulting, legal and accounting fees
    
    
    1,305
    
    
    
    1,113
    
    
    
    4,435
    
    
    
    3,042Occupancy costs
    
    
    280
    
    
    
    226
    
    
    
    1,005
    
    
    
    629Other expenses
    
    
    179
    
    
    
    606
    
    
    
    426
    
    
    
    1,634Total gross cash G&A expenses
    
    
    5,097
    
    
    
    5,094
    
    
    
    17,138
    
    
    
    14,939Non-cash stock-based compensation
    
    
    1,245
    
    
    
    3,141
    
    
    
    3,973
    
    
    
    9,179Gross G&A expenses
    
    
    6,342
    
    
    
    8,235
    
    
    
    21,111
    
    
    
    24,118Less: capitalized G&A expenses
    
    
    (2,246
    )
    
    
    (2,788
    )
    
    
    (6,488
    )
    
    
    (7,922
    )Net G&A expenses
    
    $
    4,096
    
    
    $
    5,447
    
    
    $
    14,623
    
    
    $
    16,196
  Income Taxes
  The(Amounts in thousands)
    
    UK
    
    Norway
    
    Netherlands
    
    U.S.
    
    TotalNine Months Ended September 30, 2007Net income (loss) before taxes
    
    $
    (27,482
    )
    
    $
    5,714
    
    
    $
    6,450
    
    
    $
    (5,058
    )
    
    $
    (20,376
    )Current tax expense (benefit)
    
    
    2,856
    
    
    
    (34
    )
    
    
    407
    
    
    
    (3
    )
    
    
    3,226Deferred tax expense (benefit)
    
    
    (15,062
    )
    
    
    5,082
    
    
    
    646
    
    
    
    
    
    
    
    (9,334
    )Foreign currency losses on
deferred tax liabilities
    
    
    3,871
    
    
    
    4,049
    
    
    
    
    
    
    
    
    
    
    
    7,920Total tax expense (benefit)
    
    
    (8,335
    )
    
    
    9,097
    
    
    
    1,053
    
    
    
    (3
    )
    
    
    1,812Net income (loss) after taxes
    
    $
    (19,147
    )
    
    $
    (3,383
    )
    
    $
    5,397
    
    
    $
    (5,055
    )
    
    $
    (22,188
    )Nine Months Ended September 30, 2006Net income (loss) before taxes
    
    $
    (3,685
    )
    
    $
    5,388
    
    
    $
    (62
    )
    
    $
    3,761
    
    
    $
    5,402Current tax expense
    
    
    
    
    
    
    4,527
    
    
    
    
    
    
    
    
    
    
    
    4,527Deferred tax expense
    
    
    
    
    
    
    2,016
    
    
    
    
    
    
    
    
    
    
    
    2,016Foreign currency losses on
deferred tax liabilities
    
    
    
    
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    843Total tax expense
    
    
    
    
    
    
    7,386
    
    
    
    
    
    
    
    
    
    
    
    7,386Net income (loss) after taxes
    
    $
    (3,685
    )
    
    $
    (1,998
    )
    
    $
    (62
    )
    
    $
    3,761
    
    
    $
    (1,984
    )
  21




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##### Table of Contents



Endeavour International Corporation
    Reconciliation of Non-GAAP Measures
  22




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##### Table of Contents



Endeavour International Corporation
 (in thousands, except per share)
    
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss) to common
shareholders, as reported
    
    $
    (11,681
    )
    
    $
    15,225
    
    
    $
    (30,717
    )
    
    $
    (2,102
    )Unrealized (gains) losses on
derivatives (net of 50% tax)
    
    
    6,516
    
    
    
    (10,227
    )
    
    
    20,670
    
    
    
    (8,575
    )Currency impact of deferred taxes
    
    
    3,457
    
    
    
    (1,008
    )
    
    
    7,920
    
    
    
    843Currency impact on other items
    
    
    1,300
    
    
    
    (616
    )
    
    
    2,773
    
    
    
    (299
    )Tax impact of currency impact on
other items
    
    
    (243
    )
    
    
    (1
    )
    
    
    (3,386
    )
    
    
    (18
    )Net income (loss) as adjusted
    
    
    (651
    )
    
    
    3,373
    
    
    
    (2,740
    )
    
    
    (10,151
    )Net interest expense
    
    
    4,124
    
    
    
    606
    
    
    
    11,867
    
    
    
    1,780Depreciation, depletion and amortization
    
    
    21,728
    
    
    
    3,374
    
    
    
    56,189
    
    
    
    7,901Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849Income tax expense, adjusted for tax
impact above
    
    
    5,696
    
    
    
    (8,664
    )
    
    
    17,949
    
    
    
    (2,015
    )Preferred stock dividends
    
    
    2,840
    
    
    
    39
    
    
    
    8,529
    
    
    
    118Other (income) expense
    
    
    131
    
    
    
    (7
    )
    
    
    537
    
    
    
    458EBITDA
    
    $
    33,868
    
    
    $
    (1,279
    )
    
    $
    92,331
    
    
    $
    (1,060
    )Weighted average number of common
shares outstanding  basic
    
    
    123,649
    
    
    
    80,647
    
    
    
    121,981
    
    
    
    79,722Earnings per share, as adjusted
    
    $
    (0.00
    )
    
    $
    0.04
    
    
    $
    (0.02
    )
    
    $
    (0.13
    )Net income (loss)
    
    $
    (8,841
    )
    
    $
    15,264
    
    
    $
    (22,188
    )
    
    $
    (1,984
    )Depreciation, depletion and amortization
    
    
    21,728
    
    
    
    3,374
    
    
    
    56,189
    
    
    
    7,901Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849Deferred tax expense (benefit)
    
    
    (474
    )
    
    
    467
    
    
    
    (1,414
    )
    
    
    2,016Unrealized (gain) loss on commodity
derivatives
    
    
    13,032
    
    
    
    (20,453
    )
    
    
    41,340
    
    
    
    (17,151
    )Amortization of non-cash compensation
    
    
    1,238
    
    
    
    3,141
    
    
    
    3,973
    
    
    
    9,179Amortization of loan costs
    
    
    435
    
    
    
    134
    
    
    
    1,275
    
    
    
    402Other
    
    
    94
    
    
    
    93
    
    
    
    187
    
    
    
    101Discretionary cash flow
    
    $
    27,212
    
    
    $
    2,020
    
    
    $
    79,362
    
    
    $
    1,313
 Liquidity and Capital Resources
  23




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##### Table of Contents



Endeavour International Corporation
 (Amounts in thousands)
    
    Nine Months Ended September 30,2007
    
    2006Net cash provided by (used in) Operating Activities
    
    $
    95,189
    
    
    $
    (9,397
    )Net cash used in Investing Activities
    
    $
    (83,458
    )
    
    $
    (38,507
    )Net cash provided by (used in) Financing Activities
    
    $
    (40,157
    )
    
    $
    3,210
      24




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##### Table of Contents



Endeavour International Corporation
 2007 Outlook
    Drilling Program
  25




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##### Table of Contents



Endeavour International Corporation
  
    
    completion of the development project at the Enoch field where initial production began
at the end of May;
    
    appraisal drilling at last years Columbus discovery (25% working interest);
    
    exploration drilling at the Acer prospect (5% working interest);
    
    exploration drilling at the Balgownie prospect (45% working interest);
    
    exploration drilling at the Emu prospect (well operator with a 25% working interest);
    
    ongoing work on the gas blowdown project at the Njord field to increase gas production
and the life of the field (2.5% working interest); and
    
    exploration drilling on the NW Flank prospect (2.5% working interest).
   
    
    continued work on the appraisal well at the Columbus discovery;
    
    exploration and development drilling in the NW Flank area adjacent to the Njord field ;
    
    completion of the gas blowdown project at the Njord field; and
    
    development drilling at the Brage field (4.4% working interest)
      26




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##### Table of Contents



Endeavour International Corporation
  Rig Commitments
    Disclosures About Contractual Obligations and Commercial Commitments
  
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Foreign Exchange Risk
  27




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##### Table of Contents



Endeavour International Corporation
 Commodity Price Risk
  Interest Rate Risk
   
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  28




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##### Table of Contents



Endeavour International Corporation
 
 Part II. Other Information
 
 Item 1A: Risk Factors
 Risk Factors
 
 Item 6: Exhibits
   3.1(a)
    
    Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of
our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June
30, 2004.)3.1(b)
    
    Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our
Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13, 2006.)3.2
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report
on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006.)10.1 *
    
    Employment Offer Letter to J. Michael Kirksey, Executive Vice President and Chief
Financial Officer, dated September 25, 2007.10.2 *
    
    Employment Offer Letter to John G. Williams, Executive Vice President, Exploration, dated September 25, 2007.31.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of J. Michael Kirksey Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 29




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##### Table of Contents



Endeavour International Corporation
 
 Signatures
  Endeavour International Corporation
 Date: November 7, 2007
    
    /s/ J. Michael Kirksey
    
    /s/ Robert L. ThompsonJ. Michael Kirksey
    
    Robert L. ThompsonExecutive Vice President and
    
    Senior Vice President andChief Financial Officer
    
    Chief Accounting Officer(Principal Financial Officer)
    
    (Principal Accounting Officer)
 30




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##### Table of Contents



3.1(a)
    
    Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of
our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June 30, 2004.)3.1(b)
    
    Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our
Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13, 2006.)3.2
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report
on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006.)10.1 *
    
    Employment Offer Letter to J. Michael Kirksey, Executive Vice President and Chief
Financial Officer, dated September 25, 2007.10.2 *
    
    Employment Offer Letter to John G. Williams, Executive Vice President, Exploration, dated September 25, 2007.31.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of J. Michael Kirksey Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002