##### 



United States Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 (Mark
One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2006
 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(Address of principal executive offices)
    
    (Zip code)
 (713) 307-8700
 None
 þ o
  o þ o
 o þ




---



##### 



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
    
    
    22Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4: Controls and Procedures
    
    
    31Part II. Other Information
    
    
    32Item 1: Legal Proceedings
    
    
    32Item 1A: Risk Factors
    
    
    32Item 6: Exhibits
    
    
    36Signatures
    
    
    37




---



##### 



Item 1: Financial Statements
 Endeavour International Corporation
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
  September 30, 2006
    
    December 31, 2005AssetsCurrent Assets:Cash and cash equivalents
    
    $
    32,543
    
    
    $
    76,127Accounts receivable
    
    
    3,804
    
    
    
    4,876Prepaid expenses and other current assets
    
    
    33,396
    
    
    
    8,070Total Current Assets
    
    
    69,743
    
    
    
    89,073Property and Equipment, Net
    
    
    94,706
    
    
    
    59,084Goodwill
    
    
    27,795
    
    
    
    27,795Other Assets
    
    
    17,658
    
    
    
    11,014Total Assets
    
    $
    209,902
    
    
    $
    186,966Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    10,619
    
    
    $
    18,194Accrued expenses and other
    
    
    29,834
    
    
    
    21,240Total Current Liabilities
    
    
    40,453
    
    
    
    39,434Long-Term Debt
    
    
    81,250
    
    
    
    81,250Deferred Taxes
    
    
    22,045
    
    
    
    19,185Other Liabilities
    
    
    7,428
    
    
    
    6,753Total Liabilities
    
    
    151,176
    
    
    
    146,622Commitments and ContingenciesStockholders Equity:Preferred stock (Liquidation preference: $2,576)
    
    
    
    
    
    
    Common stock; shares issued and outstanding 
80,708,015 at 2006 and 75,489,052 shares at 2005
    
    
    81
    
    
    
    75Additional paid-in capital
    
    
    164,851
    
    
    
    155,734Accumulated other comprehensive loss
    
    
    (2,653
    )
    
    
    (4,578
    )Deferred compensation
    
    
    
    
    
    
    (9,437
    )Accumulated deficit
    
    
    (103,553
    )
    
    
    (101,450
    )Total Stockholders Equity
    
    
    58,726
    
    
    
    40,344Total Liabilities and Stockholders Equity
    
    $
    209,902
    
    
    $
    186,966
  1




---



##### 



Endeavour International Corporation
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    6,726
    
    
    $
    10,852
    
    
    $
    22,847
    
    
    $
    27,645Cost of Operations:Operating expenses
    
    
    2,556
    
    
    
    2,569
    
    
    
    7,712
    
    
    
    7,943Depreciation, depletion and amortization
    
    
    3,374
    
    
    
    2,399
    
    
    
    7,901
    
    
    
    6,860Impairment of oil and gas properties
    
    
    
    
    
    
    9,394
    
    
    
    849
    
    
    
    9,394Equity loss from entities with oil and
gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79General and administrative
    
    
    5,447
    
    
    
    5,730
    
    
    
    16,196
    
    
    
    14,255Total Expenses
    
    
    11,377
    
    
    
    20,092
    
    
    
    32,658
    
    
    
    38,531Loss From Operations
    
    
    (4,651
    )
    
    
    (9,240
    )
    
    
    (9,811
    )
    
    
    (10,886
    )Other (Income) Expense:Interest income
    
    
    (435
    )
    
    
    (770
    )
    
    
    (1,604
    )
    
    
    (1,714
    )Interest expense
    
    
    1,041
    
    
    
    1,150
    
    
    
    3,384
    
    
    
    3,115Gain on sale of oil and gas interests
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (14,966
    )Unrealized gain on derivative instruments
    
    
    (20,453
    )
    
    
    
    
    
    
    (17,151
    )
    
    
    Other (income) expense
    
    
    (621
    )
    
    
    (26
    )
    
    
    158
    
    
    
    (687
    )Total Other (Income) Expense
    
    
    (20,468
    )
    
    
    332
    
    
    
    (15,213
    )
    
    
    (14,252
    )Income (Loss) Before Minority Interest
    
    
    15,817
    
    
    
    (9,572
    )
    
    
    5,402
    
    
    
    3,366Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (470
    )Income (Loss) Before Income Taxes
    
    
    15,817
    
    
    
    (9,572
    )
    
    
    5,402
    
    
    
    2,896Income Tax Expense
    
    
    553
    
    
    
    4,850
    
    
    
    7,386
    
    
    
    8,714Net Income (Loss)
    
    
    15,264
    
    
    
    (14,422
    )
    
    
    (1,984
    )
    
    
    (5,818
    )Preferred Stock Dividends
    
    
    (39
    )
    
    
    (39
    )
    
    
    (118
    )
    
    
    (118
    )Net Income (Loss) to Common Stockholders
    
    $
    15,225
    
    
    $
    (14,461
    )
    
    $
    (2,102
    )
    
    $
    (5,936
    )Net Income (Loss) Per Common Share:Basic
    
    $
    0.19
    
    
    $
    (0.19
    )
    
    $
    (0.03
    )
    
    $
    (0.08
    )Diluted
    
    $
    0.17
    
    
    $
    (0.19
    )
    
    $
    (0.03
    )
    
    $
    (0.08
    )Weighted Average Number of Common Shares
Outstanding:Basic
    
    
    80,647
    
    
    
    74,656
    
    
    
    79,722
    
    
    
    74,084Diluted
    
    
    97,033
    
    
    
    74,656
    
    
    
    79,722
    
    
    
    74,084
  2




---



##### 



Endeavour International Corporation
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
  Nine Months EndedSeptember 30,2006
    
    2005Cash Flows from Operating Activities:Net loss
    
    $
    (1,984
    )
    
    $
    (5,818
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation, depletion and amortization
    
    
    7,901
    
    
    
    6,860Impairment of oil and gas properties
    
    
    849
    
    
    
    9,394Deferred tax expense
    
    
    2,016
    
    
    
    3,275Unrealized gain on derivative instruments
    
    
    (17,151
    )
    
    
    Amortization of non-cash compensation
    
    
    9,179
    
    
    
    5,131Fair market value adjustment of stock options
    
    
    
    
    
    
    287Gain on sale of oil and gas interests
    
    
    
    
    
    
    (14,966
    )Other
    
    
    503
    
    
    
    1,011Changes in assets and liabilities:(Increase) decrease in receivables
    
    
    1,075
    
    
    
    (1,678
    )Increase in other current assets
    
    
    (6,269
    )
    
    
    (9,549
    )Increase (decrease) in accounts payable
and accrued expenses
    
    
    (5,516
    )
    
    
    20,031Net Cash Provided by (Used in) Operating Activities
    
    
    (9,397
    )
    
    
    13,978Cash Flows From Investing Activities:Capital expenditures
    
    
    (30,520
    )
    
    
    (22,648
    )Acquisitions, net of cash acquired
    
    
    (11,637
    )
    
    
    (1,437
    )Investment in Limited Partnership
    
    
    
    
    
    
    (156
    )Proceeds from sale of assets
    
    
    
    
    
    
    19,465(Increase) decrease in restricted cash
    
    
    3,650
    
    
    
    (2,298
    )Net Cash Used in Investing Activities
    
    
    (38,507
    )
    
    
    (7,074
    )Cash Flows From Financing Activities:Proceeds from borrowings
    
    
    
    
    
    
    81,250Repayment of borrowings
    
    
    
    
    
    
    (4,006
    )Proceeds from warrant and stock option exercises
    
    
    3,210
    
    
    
    1,518Financing costs paid
    
    
    
    
    
    
    (3,648
    )Other financing
    
    
    
    
    
    
    (95
    )Net Cash Provided by Financing Activities
    
    
    3,210
    
    
    
    75,019Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (44,694
    )
    
    
    81,923Effect of Foreign Currency Changes on Cash
    
    
    1,110
    
    
    
    (1,777
    )Cash and Cash Equivalents, Beginning of Period
    
    
    76,127
    
    
    
    8,975Cash and Cash Equivalents, End of Period
    
    $
    32,543
    
    
    $
    89,121
  3




---



##### 



Endeavour International Corporation
 
 Notes to Condensed Consolidated Financial Statements
  Note 1  Summary of Significant Accounting Policies
 General
   Basis of Presentation and Use of Estimates
   Intangible Assets
  4




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##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Income (Loss) Per Share
  Three Months Ended
    
    Nine Months Ended(Amounts in thousands, except per share data)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net income (loss) to common stockholdersBasic
    
    $
    15,225
    
    
    $
    (14,461
    )
    
    $
    (2,102
    )
    
    $
    (5,936
    )Add Effect of:Convertible debt
    
    
    1,219
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    16,444
    
    
    $
    (14,461
    )
    
    $
    (2,102
    )
    
    $
    (5,936
    )Weighted Average Number of Common Shares
Outstanding:Basic
    
    
    80,647
    
    
    
    74,656
    
    
    
    79,722
    
    
    
    74,084Add Effect of:Warrants
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    Convertible debt
    
    
    16,185
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    97,033
    
    
    
    74,656
    
    
    
    79,722
    
    
    
    74,084
  Other-Than-Temporary Impairments of Debt and Equity Securities
  5




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Adoption of Fair Value Accounting for Share-Based Payments
    New Accounting Developments
   6




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 2  Stock-Based Compensation Arrangements
  Stock Options
  2006Risk free rate
    
    
    4.4
    %Expected years until exercise
    
    
    4Expected stock volatility
    
    
    38
    %Dividend yield
    
    
    
 7




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##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Weighted
    
    WeightedAverage
    
    AverageExercise
    
    Contractual
    
    AggregateNumber
    
    Price per
    
    Life in
    
    Intrinsic(Amounts in thousands, except per share and year data)
    
    of Shares
    
    Share
    
    Years
    
    ValueBalance outstanding  December 31, 2005
    
    
    4,907
    
    
    $
    3.13Granted
    
    
    1,020
    
    
    $
    3.34Exercised
    
    
    (67
    )
    
    $
    2.00Forfeited
    
    
    (140
    )
    
    $
    2.92Expired
    
    
    (297
    )
    
    $
    3.06Balance outstanding  September 30, 2006
    
    
    5,423
    
    
    $
    3.19
    
    
    
    3.1
    
    
    $
    Currently exercisable  September 30, 2006
    
    
    2,406
    
    
    $
    2.74
    
    
    
    2.6
    
    
    $
    
     8




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##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Restricted Stock
   WeightedAverage GrantDate FairNumber of
    
    Value per(Amounts in thousands, except per share data)
    
    Shares
    
    ShareBalance outstanding  December 31, 2005
    
    
    4,412
    
    
    $
    3.99Granted
    
    
    2,383
    
    
    $
    3.34Vested
    
    
    (1,959
    )
    
    $
    3.85Forfeited
    
    
    (365
    )
    
    $
    3.47Balance outstanding  September 30, 2006
    
    
    4,471
    
    
    $
    3.75Total fair value of shares vesting during the period
    
    $
    7,327
 Pro Forma Disclosures
  9




---



##### 



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 30,2005
    
    2005Net loss to common stockholders, as reported
    
    $
    (14,461
    )
    
    $
    (5,936
    )Add:Stock-based compensation expense as reported
    
    
    1,810
    
    
    
    3,565Less:Total stock-based compensation expense
determined under fair-value-based method
for all awards, net of tax
    
    
    (1,382
    )
    
    
    (4,062
    )Pro forma net loss
    
    $
    (14,033
    )
    
    $
    (6,433
    )Loss per share  Basic and Diluted:As Reported
    
    $
    (0.19
    )
    
    $
    (0.08
    )Pro Forma
    
    $
    (0.19
    )
    
    $
    (0.09
    )
  2005Risk free rate
    
    
    3.9
    %Expected years until exercise
    
    
    5.0Expected stock volatility
    
    
    52
    %Dividend yield
    
    
    
 Note 3  Acquisitions and Dispositions
 Purchase of Minority Interest in OER Oil AS
  10




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##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Purchase of Interest in Enoch Field
  Sale of Partnership Interests in Thailand Project
  Subsequent Acquisition
  Note 4  Property and Equipment
  September(Amounts in thousands)
    
    30, 2006
    
    December 31, 2005Oil and gas properties under the full cost method:Subject to amortization
    
    $
    55,889
    
    
    $
    50,424Not subject to amortization:Acquired in 2006
    
    
    38,473
    
    
    
    Acquired in 2005
    
    
    15,785
    
    
    
    15,785Acquired in 2004
    
    
    22,153
    
    
    
    24,339132,300
    
    
    
    90,548Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    1,755
    
    
    
    1,351Total property and equipment
    
    
    138,930
    
    
    
    96,774Accumulated depreciation, depletion and amortization
    
    
    (44,224
    )
    
    
    (37,690
    )Net property and equipment
    
    $
    94,706
    
    
    $
    59,084
 11




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Note 5  Derivative Instruments
    12




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   EstimatedFair ValueAverage
    
    Asset2010 -
    
    (in2007
    
    2008
    
    2009
    
    2011
    
    thousands)Oil:Swap (Barrels)
    
    
    525,156
    
    
    
    533,256
    
    
    
    567,600
    
    
    
    335,100
    
    
    $
    7,156Weighted Average Price ($/Barrel)
    
    $
    71.17
    
    
    $
    70.51
    
    
    $
    69.82
    
    
    $
    68.46Swaption (Barrels)
    
    
    390,432
    
    
    
    247,656
    
    
    
    86,280
    
    
    
    
    
    
    $
    2,500Weighted Average Price ($/Barrel)
    
    $
    65.00
    
    
    $
    65.00
    
    
    $
    65.00
    
    
    
    Swap (Barrels) (2)
    
    
    195,216
    
    
    
    125,628
    
    
    
    43,140
    
    
    
    195,120
    
    
    $
    2,900Weighted Average Price ($/Barrel)
    
    $
    71.58
    
    
    $
    69.56
    
    
    $
    67.54
    
    
    $
    65.30Gas:Swap (Mcf) (1)
    
    
    446,050
    
    
    
    1,005,150
    
    
    
    1,018,850
    
    
    
    825,688
    
    
    $
    6,155Weighted Average Price (£/Mcf)
    
    £
    6.24
    
    
    £
    5.85
    
    
    £
    5.60
    
    
    £
    5.28Swap (Mcf) (1)(2)
    
    
    2,128,868
    
    
    
    1,671,016
    
    
    
    368,164
    
    
    
    3,588
    
    
    $
    6,800Weighted Average Price (£/Mcf)
    
    £
    6.11
    
    
    £
    5.79
    
    
    £
    5.56
    
    
    £
    5.32
 
 (1)
    
    Gas derivative contracts are designated in therms and have been converted to Mcf at
a rate of 10 therm to 1 Mcf. The exchange rate at September 30, 2006 was $1.87 to £1.00.(2)
    
    Under these oil and gas swaps, we paid $5.1 million during the second quarter of
2006 to enter these contracts.  13




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6  Supplemental Cash Flow Information
   Note 7  Comprehensive Income (Loss)
  Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net income (loss)
    
    $
    15,264
    
    
    $
    (14,422
    )
    
    $
    (1,984
    )
    
    $
    (5,818
    )Unrealized gain (loss) on
commodity derivative
instruments, net of tax
    
    
    641
    
    
    
    (2,718
    )
    
    
    (1,167
    )
    
    
    (6,698
    )Unrealized gain (loss) on
marketable securities
    
    
    (609
    )
    
    
    108
    
    
    
    (636
    )
    
    
    (168
    )Reclassification
adjustment for loss
realized in net loss above
    
    
    1,419
    
    
    
    830
    
    
    
    3,728
    
    
    
    1,301Net impact on
comprehensive income
(loss)
    
    
    1,451
    
    
    
    (1,780
    )
    
    
    1,925
    
    
    
    (5,565
    )Comprehensive income (loss)
    
    $
    16,715
    
    
    $
    (16,202
    )
    
    $
    (59
    )
    
    $
    (11,383
    )
 Note 8  Commitments and Contingencies
 General
  14




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Legal Proceeding
  Rig Commitments
    Note 9  Subsequent Events
 Farm-In Agreement with Apache Corporation
  15




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    Employment and Consulting Contracts
   Farm-in Agreement with EOG Resources
  16




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Closing of Acquisition and Financing
   (Amounts in thousands)Sources:Common Stock Offering
    
    $
    82,250Series A Convertible Preferred Stock
    
    
    125,000Senior Bank Facility
    
    
    150,000Second Lien Term Loan
    
    
    75,000Total Sources
    
    
    432,250Uses:Acquisition Price
    
    
    414,000Less: Preliminary Purchase Price Adjustments (1)
    
    
    (40,221
    )Net Acquisition Price
    
    
    373,779Hedging Costs, Fees and Expenses (2)
    
    
    44,000Total Uses
    
    
    417,779Addition to Cash Balance
    
    $
    14,471
 
 (1)
    
    Purchase price adjustments are preliminary and are subject to final determination by
January 31, 2007.(2)
    
    Includes estimated investment banking fees, financing fees, commitment fees
(including fees for debt and equity commitments not ultimately used) and legal, accounting and
other fees and expenses associated with the Acquisition and the related financing. Common Stock
  17




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Convertible Preferred Stock
      18




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     19




---



##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Senior Bank Facility
    
    
    a maximum consolidated debt to EBITDA ratio of 3.0:1;
    
    a minimum current assets to current liabilities ratio of 1.1:1;
    
    a minimum debt coverage ratio of 1.2:1 for the initial tranche and 1.15:1 for the second
tranche;
    
    a minimum field life net present value (NPV) to loans outstanding coverage ratio of
1.4:1 for the period through March 31, 2009 and 1.5:1 thereafter for the initial tranche,
and 1.25:1 for the period through March 31, 2009 and 1.3:1 thereafter for the second
tranche; and
    
    a minimum loan life NPV to loans outstanding coverage ratio of 1.2:1 for the period
through March 31, 2009 and 1.3:1 thereafter for the initial tranche, and 1.15:1 for the
period through March 31, 2009 and 1.2:1 thereafter for the second tranche.
 20




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##### 



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Second Lien Term Loan
  
    
    a maximum consolidated debt to EBITDA ratio of 2.75:1 for 2006 and 2007, decreasing to
1.5:1 by 2011;
    
    a minimum EBITDA to interest expense ratio of 3.0:1;
    
    a minimum PV-10% to consolidated debt ratio of 0.75:1 for 2006 and 1.0:1 thereafter; and
    
    a minimum PV-10% to consolidated secured debt ratio of 1.15:1 for 2006, 1.25:1 for 2007
and 2008 and 1.5:1 thereafter.
  21




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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
  22




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##### 



Endeavour International Corporation
  (Amounts in thousands)Sources:Common Stock Offering
    
    $
    82,250Series A Convertible Preferred Stock
    
    
    125,000Senior Bank Facility
    
    
    150,000Second Lien Term Loan
    
    
    75,000Total Sources
    
    
    432,250Uses:Acquisition Price
    
    
    414,000Less: Preliminary Purchase Price Adjustments (1)
    
    
    (40,221
    )Net Acquisition Price
    
    
    373,779Hedging Costs, Fees and Expenses (2)
    
    
    44,000Total Uses
    
    
    417,779Addition to Cash Balance
    
    $
    14,471
 
 (1)
    
    Purchase price adjustments are preliminary and are subject to final determination by
January 31, 2007.(2)
    
    Includes estimated investment banking fees, financing fees, commitment fees
(including fees for debt and equity commitments not ultimately used) and legal, accounting and
other fees and expenses associated with the Acquisition and the related financing.  Interest
    
    Operator
    
    HydrocarbonAlba
    
    
    2.25
    %
    
    Chevron
    
    OilBittern
    
    
    2.42
    %
    
    Shell
    
    Oil/GasCaledonia
    
    
    2.83
    %
    
    Chevron
    
    OilGoldeneye
    
    
    7.50
    %
    
    Shell
    
    Gas/CondensateIvanhoe, Rob Roy, Hamish
    
    
    23.46
    %
    
    Hess
    
    OilRenee
    
    
    77.50
    %
    
    Endeavour
    
    OilRubie
    
    
    40.78
    %
    
    Endeavour
    
    OilRochelle
    
    
    55.62
    %
    
    Endeavour
    
    Oil (undeveloped)
 23




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##### 



Endeavour International Corporation
 Common Stock
  Convertible Preferred Stock
    Senior Bank Facility
  24




---



##### 



Endeavour International Corporation
   Second Lien Term Loan
   Results of Operations
  25




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##### 



Endeavour International Corporation
 Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Oil and condensate sales (Bbl)
    
    
    116,135
    
    
    
    190,480
    
    
    
    389,018
    
    
    
    529,331Oil and condensate price ($  per Bbl)
    
    $
    69.24
    
    
    $
    60.84
    
    
    $
    66.56
    
    
    $
    53.86Oil and condensate price, including
the impact of hedging activities ($
per Bbl)
    
    $
    55.03
    
    
    $
    55.77
    
    
    $
    55.42
    
    
    $
    51.00Gas sales (Mcf)
    
    
    50,627
    
    
    
    48,929
    
    
    
    142,644
    
    
    
    131,164Gas price ($  per Mcf)
    
    $
    6.67
    
    
    $
    4.68
    
    
    $
    9.04
    
    
    $
    4.95
     26




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##### 



Endeavour International Corporation
 Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Compensation
    
    $
    3,149
    
    
    $
    2,869
    
    
    $
    9,634
    
    
    $
    7,840Consulting, legal and accounting fees
    
    
    1,113
    
    
    
    1,257
    
    
    
    3,042
    
    
    
    3,170Occupancy costs
    
    
    226
    
    
    
    157
    
    
    
    629
    
    
    
    861Other expenses
    
    
    606
    
    
    
    462
    
    
    
    1,634
    
    
    
    1,390Total gross cash G&A expenses
    
    
    5,094
    
    
    
    4,745
    
    
    
    14,939
    
    
    
    13,261Non-cash stock-based compensation
    
    
    3,141
    
    
    
    2,285
    
    
    
    9,179
    
    
    
    6,144Fair market value adjustment of stock
options
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    287Total gross non-cash G&A expenses
    
    
    3,141
    
    
    
    2,963
    
    
    
    9,179
    
    
    
    6,431Gross G&A expenses
    
    
    8,235
    
    
    
    7,708
    
    
    
    24,118
    
    
    
    19,692Less: capitalized G&A expenses
    
    
    (2,788
    )
    
    
    (1,978
    )
    
    
    (7,922
    )
    
    
    (5,437
    )Net G&A expenses
    
    $
    5,447
    
    
    $
    5,730
    
    
    $
    16,196
    
    
    $
    14,255
   Income Taxes
  27




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##### 



Endeavour International Corporation
 Three Months Ended
    
    Nine Months Ended(Amounts in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Norway:Deferred tax expense
    
    $
    467
    
    
    $
    3,627
    
    
    $
    2,016
    
    
    $
    3,275Current tax expense
    
    
    1,094
    
    
    
    1,296
    
    
    
    4,526
    
    
    
    6,681Foreign currency exchange
(gains) losses on deferred tax
liabilities
    
    
    (1,008
    )
    
    
    (73
    )
    
    
    844
    
    
    
    (1,242
    )Total tax expense
    
    $
    553
    
    
    $
    4,850
    
    
    $
    7,386
    
    
    $
    8,714Income (loss) before taxes:Norway
    
    $
    1,703
    
    
    $
    5,447
    
    
    $
    5,388
    
    
    $
    12,735Other
    
    
    14,114
    
    
    
    (15,019
    )
    
    
    14
    
    
    
    (9,839
    )Total income (loss) before taxes
    
    $
    15,817
    
    
    $
    (9,572
    )
    
    $
    5,402
    
    
    $
    2,896
 Liquidity and Capital Resources
      28




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##### 



Endeavour International Corporation
  Drilling Program
    rd
 Rig Commitments
  29




---



##### 



Endeavour International Corporation
     Disclosures About Contractual Obligations and Commercial Commitments
  
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Foreign Exchange Risk
  30




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##### 



Endeavour International Corporation
  Commodity Price Risk
   Interest Rate Risk
   
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   31




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##### 



Endeavour International Corporation
  Changes in Internal Controls over Financial Reporting
  
 Part II. Other Information
 
 Item 1: Legal Proceedings
  
 Item 1A: Risk Factors
  The Series A Convertible Preferred Stock includes a covenant that will limit our ability to issue
common stock in the future.
  32




---



##### 



Endeavour International Corporation
 Our debt level could negatively impact our financial condition, results of operations and
business prospects.
  
    
    making it more difficult for us to satisfy our obligations under our indentures or the
terms of our other debt and increasing the risk that we may default on our debt
obligations;
    
    requiring us to dedicate a substantial portion of our cash flow from operating
activities to required payments on debt, thereby reducing the availability of cash flow for
working capital, capital expenditures and other general business activities;
    
    limiting our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions and other general business activities;
    
    decreasing our ability to withstand a downturn in our business or the economy generally;
and
    
    placing us at a competitive disadvantage against other less leveraged competitors.
   33




---



##### 



Endeavour International Corporation
 Variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.
  Competition for oil and gas properties and prospects is intense and some of our competitors
have larger financial, technical and personnel resources that give them an advantage in evaluating,
obtaining and developing properties and prospects.
  We face risks associated with our acquisition strategy.
  
    
    we will identify suitable acquisition candidates or that we will be able to finance or
consummate the transactions we select;
    
    any acquisitions will be profitable or be successfully integrated into our operations;
    
    we will be able to retain and motivate key personnel of acquired businesses;
    
    any acquisitions and integrations will not divert management resources; or
    
    any acquisitions and integrations will not have an adverse effect on our results of
operations or financial condition.
 34




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##### 



Endeavour International Corporation
 Derivative transactions may limit our potential gains and involve other risks.
  
    
    our production is less than expected;
    
    the counterparties to our contracts fail to perform under the contracts; or
    
    a sudden, unexpected event materially impacts oil or gas prices.
 We are unable to predict the outcome of the pending SEC investigation.
  If we, our existing stockholders or holders of our securities that are convertible into shares
of our common stock sell additional shares of our common stock, the market price of our common
stock could decline.
   35




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##### 



Endeavour International Corporation
   
 Item 6: Exhibits
  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.31.3*
    
    Certification of Robert L. Thompson, Chief Accounting 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 2002.32.3*
    
    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. 36




---



##### 



Endeavour International Corporation
 
 Signatures
  Endeavour International Corporation
 Date: November 7, 2006
    
    /s/ Lance Gilliland
    
    /s/ Robert L. ThompsonLance Gilliland
    
    Robert L. ThompsonExecutive Vice President and
    
    Vice President and ChiefChief Financial Officer
    
    Accounting Officer(Principal Financial Officer)
    
    (Principal AccountingOfficer)
 37




---



##### 



Exhibit Index
 Endeavour International Corporation
  Exhibits
    
    Discription of Exhibit31.1*
    
    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.31.3*
    
    Certification of Robert L. Thompson, Chief Accounting 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 2002.32.3*
    
    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.