##### 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 March 31, 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 
or organization)
    
    (I.R.S. Employer Identification No.)
 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:Item 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
    
    
    14Item 4: Controls and Procedures
    
    
    20Part II. Other InformationItem 1A: Risk Factors
    
    
    21Item 6: Exhibits
    
    
    21Signatures
    
    
    22Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350




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##### Table of Contents



Item 1: Financial Statements
 
 Endeavour International Corporation
Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    23,157
    
    
    $
    39,814Restricted cash
    
    
    21,963
    
    
    
    1,867Accounts receivable
    
    
    35,583
    
    
    
    61,104Prepaid expenses and other current assets
    
    
    18,450
    
    
    
    25,783Total Current Assets
    
    
    99,153
    
    
    
    128,568Property and Equipment, Net
    
    
    314,460
    
    
    
    319,315Goodwill
    
    
    291,752
    
    
    
    291,752Other Assets
    
    
    25,341
    
    
    
    34,835Total Assets
    
    $
    730,706
    
    
    $
    774,470Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    30,779
    
    
    $
    36,928Current maturities of debt
    
    
    
    
    
    
    2,410Accrued expenses and other
    
    
    34,222
    
    
    
    41,799Total Current Liabilities
    
    
    65,001
    
    
    
    81,137Long-Term Debt
    
    
    276,250
    
    
    
    303,840Deferred Taxes
    
    
    115,389
    
    
    
    115,155Other Liabilities
    
    
    35,093
    
    
    
    32,510Total Liabilities
    
    
    491,733
    
    
    
    532,642Commitments and ContingenciesSeries C Convertible Preferred Stock
(Liquidation preference: $127,788)
    
    
    124,585
    
    
    
    125,000Stockholders Equity:Series B Preferred stock (Liquidation
preference: $2,655)
    
    
    
    
    
    
    Common stock; shares issued and
outstanding  120,708,683 at 2007 and
118,577,369 shares at 2006
    
    
    121
    
    
    
    119Additional paid-in capital
    
    
    230,739
    
    
    
    226,988Accumulated other comprehensive loss
    
    
    (206
    )
    
    
    Accumulated deficit
    
    
    (116,266
    )
    
    
    (110,279
    )Total Stockholders Equity
    
    
    114,388
    
    
    
    116,828Total Liabilities and Stockholders Equity
    
    $
    730,706
    
    
    $
    774,470
  1




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Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Revenues
    
    $
    42,790
    
    
    $
    8,476Cost of Operations:Operating expenses
    
    
    10,711
    
    
    
    2,145Depreciation, depletion and amortization
    
    
    19,213
    
    
    
    2,296Impairment of oil and gas properties
    
    
    
    
    
    
    849General and administrative
    
    
    5,367
    
    
    
    5,451Total Expenses
    
    
    35,291
    
    
    
    10,741Income (Loss) From Operations
    
    
    7,499
    
    
    
    (2,265
    )Other Income (Expense):Commodity derivatives:Realized gains
    
    
    11,072
    
    
    
    Unrealized losses
    
    
    (15,696
    )
    
    
    Interest income
    
    
    604
    
    
    
    621Interest expense
    
    
    (4,773
    )
    
    
    (1,163
    )Other
    
    
    (559
    )
    
    
    (249
    )Total Other Expense
    
    
    (9,352
    )
    
    
    (791
    )Loss Before Income Taxes
    
    
    (1,853
    )
    
    
    (3,056
    )Income Tax Expense
    
    
    1,290
    
    
    
    3,843Net Loss
    
    
    (3,143
    )
    
    
    (6,899
    )Preferred Stock Dividends
    
    
    2,844
    
    
    
    39Net Loss to Common Stockholders
    
    $
    (5,987
    )
    
    $
    (6,938
    )Basic and Diluted Loss per Common Share
    
    $
    (0.05
    )
    
    $
    (0.09
    )Weighted Average Number of Common Shares
Outstanding  Basic and Diluted
    
    
    120,304
    
    
    
    78,334
  2




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Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash Flows from Operating Activities:Net loss
    
    $
    (3,143
    )
    
    $
    (6,899
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    19,213
    
    
    
    2,296Impairment of oil and gas properties
    
    
    
    
    
    
    849Deferred tax expense
    
    
    261
    
    
    
    3,031Unrealized loss on commodity derivatives
    
    
    15,696
    
    
    
    Amortization of non-cash compensation
    
    
    1,884
    
    
    
    2,832Other
    
    
    442
    
    
    
    172Changes in assets and liabilities:Decrease in receivables
    
    
    25,427
    
    
    
    263Increase (decrease) in other current assets
    
    
    2,829
    
    
    
    (909
    )Decrease in accounts payable and accrued expenses
    
    
    (16,298
    )
    
    
    (15,058
    )Net Cash Provided by (Used in) Operating Activities
    
    
    46,311
    
    
    
    (13,423
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (13,480
    )
    
    
    (10,299
    )(Increase) decrease in restricted cash
    
    
    (20,096
    )
    
    
    2,873Net Cash Used in Investing Activities
    
    
    (33,576
    )
    
    
    (7,426
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (30,000
    )
    
    
    Other financing
    
    
    (110
    )
    
    
    Net Cash
Used in Financing Activities
    
    
    (30,110
    )
    
    
    Net Decrease in Cash and Cash Equivalents
    
    
    (17,375
    )
    
    
    (20,849
    )Effect of Foreign Currency Changes on Cash
    
    
    718
    
    
    
    1,079Cash and Cash Equivalents, Beginning of Period
    
    
    39,814
    
    
    
    76,127Cash and Cash Equivalents, End of Period
    
    $
    23,157
    
    
    $
    56,357
  3




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 1  Summary of Significant Accounting Policies
 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)
   (Amounts in thousands)
    
    March 31,2007
    
    2006Options and stock-based compensation
    
    
    139
    
    
    
    1,131Warrants
    
    
    60
    
    
    
    862Convertible debt
    
    
    16,185
    
    
    
    16,185Convertible preferred stock
    
    
    50,000
    
    
    
    Common shares potentially issuable
    
    
    66,384
    
    
    
    18,178
 New Accounting Developments
  Note 2  Stock-Based Compensation Arrangements
  5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Stock Options
   2007
    
    2006Risk free rate
    
    
    4.7
    %
    
    
    4.3
    %Expected years until exercise
    
    
    4
    
    
    
    4Expected stock volatility
    
    
    43
    %
    
    
    38
    %Dividend yield
    
    
    
    
    
    
    
  Number of
    
    Weighted Average
    
    Weighted AverageShares Underlying
    
    Exercise Price per
    
    Contractual Life in
    
    Aggregate Intrinsic(Amounts in thousands, except per share data)
    
    Options
    
    Share
    
    Years
    
    ValueBalance outstanding  January 1, 2007
    
    
    5,404
    
    
    $
    3.19Granted
    
    
    25
    
    
    $
    2.20Forfeited
    
    
    (38
    )
    
    $
    4.00Balance outstanding  March 31, 2007
    
    
    5,391
    
    
    $
    3.18
    
    
    
    
    
    
    $
    37Currently exercisable  March 31, 2007
    
    
    3,466
    
    
    $
    2.79
    
    
    
    
    
    
    $
    37
  6




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Restricted Stock
   Weighted AverageNumber of
    
    Grant Date Fair(Amounts in thousands, except per share data)
    
    Shares
    
    Value per ShareBalance outstanding  December 31, 2006
    
    
    4,414
    
    
    $
    3.76Granted
    
    
    1,430
    
    
    $
    2.24Vested
    
    
    (1,513
    )
    
    $
    3.68Forfeited
    
    
    (48
    )
    
    $
    3.85Balance outstanding  March 31, 2007
    
    
    4,282
    
    
    $
    3.28Total fair value of shares vesting during the period
    
    $
    5,258
 Note 3  Acquisitions and Dispositions
 Acquisition of Talisman Expro Limited
  7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  (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
   Pro FormaThree Months Ended(Amounts in thousands, except per share data)
    
    March 31, 2006Revenues
    
    $
    56,722Net income to common stockholders
    
    
    5,705Net income per share  basic and diluted
    
    
    0.05
 8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 4  Debt Obligations
  March 31,
    
    
    December 31,(Amounts in thousands)
    
    2007
    
    
    2006Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011
    
    
    120,000
    
    
    
    150,000Second lien term loan, variable rate, due 2011
    
    
    75,000
    
    
    
    75,000276,250
    
    
    
    306,250Less: current maturities
    
    
    
    
    
    
    (2,410
    )Long-term debt
    
    $
    276,250
    
    
    $
    303,840Standby letters of credit outstanding for
abandonment liabilities
    
    $
    40,582
    
    
    $
    40,376
 Additional information concerning variable interest rates paid
  Range ofInterest Rates(Amounts in thousands, except per share data)
    
    PaidSenior bank facility
    
    6.62% to 6.66%Second lien term loan
    
    12.36% to 12.37%
   9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 5  Property and Equipment
  March 31,
    
    
    December 31,(Amounts in thousands)
    
    2007
    
    
    2006Oil and gas properties under the full cost method:Subject to amortization
    
    $
    227,544
    
    
    $
    219,114Not subject to amortization:Acquired in 2007
    
    
    8,492
    
    
    
    Acquired in 2006
    
    
    115,786
    
    
    
    117,281Acquired in 2005
    
    
    15,108
    
    
    
    15,108Acquired in 2004
    
    
    14,602
    
    
    
    16,797381,532
    
    
    
    368,300Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    2,189
    
    
    
    1,940Total property and equipment
    
    
    388,596
    
    
    
    375,115Accumulated depreciation, depletion and amortization
    
    
    (74,136
    )
    
    
    (55,800
    )Net property and equipment
    
    $
    314,460
    
    
    $
    319,315
  Note 6  Derivative Instruments
   10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Remainder
    
    
    
    
    
    
    
    
    
    
    
    
    
    Estimated Fairof
    
    
    
    
    
    
    
    
    
    Average
    
    Value Asset2007
    
    2008
    
    2009
    

2010
 2011
    
    (in thousands)Oil:Fixed Price Swap
(Mbbl)  Platts
Dated Brent
    
    
    833
    
    
    
    907
    
    
    
    697
    
    
    
    530
    
    
    $
    2,235Weighted Average
Price ($/Barrel)
    
    $
    69.07
    
    
    $
    68.87
    
    
    $
    69.08
    
    
    $
    67.30Gas:Fixed Price Swap
(MMcf)  Heren
National
Balancing Point
(1)
    
    
    1,931
    
    
    
    2,676
    
    
    
    1,387
    
    
    
    829
    
    
    $
    24,324Weighted
Average Price
(£/Mcf)
    
    £
    5.35
    
    
    £
    5.81
    
    
    £
    5.59
    
    
    £
    5.28
 
 (1)
    
    Gas derivative contracts are designated in therms and have been converted to Mcf at
a rate of 10 therm to 1 Mcf. The exchange rate at March 31, 2007 was $1.97 to £1.00.  11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 7  Supplemental Cash Flow Information
  (Amounts in thousands)
    
    Quarter Ended March 31,2007
    
    2006Interest paid
    
    $
    6,808
    
    
    $
    2,438Income taxes paid
    
    $
    2,050
    
    
    $
    
 Note 8  Comprehensive Loss
  12




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (Amounts in thousands)
    
    Quarter Ended March 31,2007
    
    2006Net loss
    
    $
    (3,143
    )
    
    $
    (6,899
    )Unrealized loss on commodity derivative
instruments, net of tax of none and $0.6
million, respectively
    
    
    
    
    
    
    (933
    )Unrealized loss on interest rate swap
derivative instrument, net of tax of none and
none million, respectively
    
    
    (170
    )
    
    
    Unrealized gain (loss) on marketable securities
    
    
    (36
    )
    
    
    360Reclassification adjustment for loss realized
in net loss above
    
    
    
    
    
    
    950Net impact on comprehensive loss
    
    
    (206
    )
    
    
    377Comprehensive loss
    
    $
    (3,349
    )
    
    $
    (6,522
    )
 Note 9  Commitments and Contingencies
 Rig Commitments
   13




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Endeavour International Corporation
 Cautionary Statement for Forward-Looking Statements
  
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  General
  The Acquisition
  14




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Endeavour International Corporation
 
    
    37.8 million shares of common stock in the fourth quarter of 2006 for $89 million in
gross proceeds;
    
    125,000 shares of Series C Convertible Preferred Stock for $125 million in gross
proceeds;
    
    $150 million in a borrowing base debt facility, before financing costs paid of $3.2
million; and
    
    $75 million in a second lien term loan, before financing costs paid of $2.6 million.
 Results of Operations
   15




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Endeavour International Corporation
 Quarter ended March 31,2007
    
    2006Production:Oil and condensate sales (Mbbl):United Kingdom
    
    
    397
    
    
    
    Norway
    
    
    131
    
    
    
    144Total
    
    
    528
    
    
    
    144Gas sales (MMcf):United Kingdom
    
    
    2,259
    
    
    
    Norway
    
    
    54
    
    
    
    54Total
    
    
    2,313
    
    
    
    54Total sales (MBOE):United Kingdom
    
    
    773
    
    
    
    Norway
    
    
    140
    
    
    
    153Total
    
    
    913
    
    
    
    153Realized Prices:Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    53.54
    
    
    $
    61.93Effect of commodity derivatives
    
    $
    5.96
    
    
    $
    (7.67
    )Realized prices including commodity derivatives
    
    $
    59.50
    
    
    $
    54.26Gas price ($  per Mcf):Before commodity derivatives
    
    $
    6.28
    
    
    $
    12.14Effect of commodity derivatives
    
    $
    3.43
    
    
    $
    Realized prices including commodity derivatives
    
    $
    9.71
    
    
    $
    12.14Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    46.85
    
    
    $
    62.58Effect of commodity derivatives
    
    $
    12.12
    
    
    $
    (6.86
    )Realized prices including commodity derivatives
    
    $
    58.97
    
    
    $
    55.72
   16




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Endeavour International Corporation
   (Amounts in thousands)
    
    Three Months Ended March 31,2007
    
    2006Compensation
    
    $
    4,188
    
    
    $
    3,209Consulting, legal and accounting fees
    
    
    1,400
    
    
    
    1,111Occupancy costs
    
    
    281
    
    
    
    223Other expenses
    
    
    (132
    )
    
    
    609Total gross cash G&A expenses
    
    
    5,737
    
    
    
    5,152Non-cash stock-based compensation
    
    
    1,877
    
    
    
    3,051Gross G&A expenses
    
    
    7,614
    
    
    
    8,203Less: capitalized G&A expenses
    
    
    (2,247
    )
    
    
    (2,752
    )Net G&A expenses
    
    $
    5,367
    
    
    $
    5,451
  Income Taxes
   17




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Endeavour International Corporation
   Liquidity and Capital Resources
     18




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Endeavour International Corporation
 Drilling Program
       Rig Commitments
  19




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Endeavour International Corporation
  Disclosures About Contractual Obligations and Commercial Commitments
  
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls over Financial Reporting
  20




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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.)31.1*
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 21




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Endeavour International Corporation
 
 Signatures
  Endeavour International Corporation
 Date: May 9, 2007
    
    /s/ Lance Gilliland
    
    /s/ Robert L. ThompsonLance Gilliland
    
    Robert L. ThompsonExecutive Vice President
    
    Vice President and Chiefand Chief Financial Officer
    
    Accounting Officer(Principal Financial Officer)
    
    (Principal Accounting Officer)
 22




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Exhibit Index
 Exhibits
    
    Description of Exhibits3.1(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.)31.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.