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United States
Securities and Exchange Commission Washington, D.C. 20549
 Form 10-Q (Mark One)x
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Quarterly Period Ended March 31, 2005oro
    
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934For 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
(Address of principal executive offices) (Zip code) (713) 307-8700
(Registrants telephone number, including area code) None
(Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). o Yes þ No As of May 6, 2004, 74,078,688 shares of the registrants common stock were outstanding.




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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
    
    
    13Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4: Controls and Procedures
    
    
    16Part II. Other InformationItem 1: Legal Proceedings
    
    
    17Item 6: Exhibits
    
    
    17Signatures
    
    
    18Certification of Co-CEO pursuant to Rule 13a-14a/15d-14aCertification of Co-CEO pursuant to Rule 13a-14a/15d-14aCertification of CAO pursuant to Rule 13a-14a/15d-14aCertification of Co-CEO pursuant to Section 906Certification of Co-CEO pursuant to Section 906Certification of CAO pursuant to Section 906




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Item 1: Financial Statements Endeavour International Corporation
Condensed Consolidated Balance Sheets   March 31, 2005
    
    
    December 31, 2004AssetsCurrent Assets:Cash and cash equivalents
    
    $
    81,012
    
    
    $
    8,975Accounts receivable
    
    
    2,968
    
    
    
    4,286Prepaid expenses and other current assets
    
    
    5,375
    
    
    
    3,814Total Current Assets
    
    
    89,355
    
    
    
    17,075Equity Interests in Entities with Oil and Gas Properties
    
    
    3,839
    
    
    
    3,688Property and Equipment, Net
    
    
    50,172
    
    
    
    50,228Goodwill
    
    
    27,811
    
    
    
    20,119Other Assets
    
    
    16,119
    
    
    
    10,627Total Assets
    
    $
    187,296
    
    
    $
    101,737Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    3,294
    
    
    $
    2,909Accrued expenses
    
    
    4,827
    
    
    
    7,106Current portion of long-term debt
    
    
    4,094
    
    
    
    2,138Other
    
    
    4,918
    
    
    
    223Total Current Liabilities
    
    
    17,133
    
    
    
    12,376Long-Term Debt
    
    
    81,250
    
    
    
    2,150Deferred Taxes
    
    
    14,338
    
    
    
    18,012Other Liabilities
    
    
    10,705
    
    
    
    8,979Total Liabilities
    
    
    123,426
    
    
    
    41,517Minority Interest
    
    
    138
    
    
    
    3,248Commitments and ContingenciesStockholders Equity:Preferred stock (Liquidation preference: $2,300)
    
    
    
    
    
    
    Common stock; shares issued and outstanding 
74,040,161 at 2005 and 69,995,165 shares at 2004
    
    
    74
    
    
    
    70Additional paid-in capital
    
    
    150,369
    
    
    
    133,919Accumulated other comprehensive loss
    
    
    (3,460
    )
    
    
    (528
    )Deferred compensation
    
    
    (10,639
    )
    
    
    (6,570
    )Accumulated deficit
    
    
    (72,612
    )
    
    
    (69,919
    )Total Stockholders Equity
    
    
    63,732
    
    
    
    56,972Total Liabilities and Stockholders Equity
    
    $
    187,296
    
    
    $
    101,737
 See accompanying notes to consolidated financial statements. 1




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Endeavour International Corporation
Condensed Consolidated Statement of Operations
(Unaudited)  Three Months Ended March 31,2005
    
    
    2004Revenues
    
    $
    7,703
    
    
    $
    8Cost of Operations:Operating expenses
    
    
    2,416
    
    
    
    1Depreciation, depletion and amortization
    
    
    2,218
    
    
    
    132Equity loss from entities with oil and gas properties
    
    
    79
    
    
    
    57General and administrative
    
    
    4,152
    
    
    
    2,533Total Expenses
    
    
    8,865
    
    
    
    2,723Loss From Operations
    
    
    (1,162
    )
    
    
    (2,715
    )Other (Income) Expense:Consideration given in excess of fair value of
identifiable assets acquired
    
    
    
    
    
    
    10,779Interest income
    
    
    (318
    )
    
    
    (83
    )Interest expense
    
    
    783
    
    
    
    253Gain on sale of oil and gas interest  related party
    
    
    
    
    
    
    (1,250
    )Other (income) expense
    
    
    (422
    )
    
    
    207Total Other Expense
    
    
    43
    
    
    
    9,906Loss Before Minority Interest
    
    
    (1,205
    )
    
    
    (12,621
    )Minority Interest
    
    
    (470
    )
    
    
    4Loss Before Income Taxes
    
    
    (1,675
    )
    
    
    (12,617
    )Income Tax Expense
    
    
    978
    
    
    
    Net Loss
    
    
    (2,653
    )
    
    
    (12,617
    )Preferred Stock Dividends
    
    
    39
    
    
    
    307Net Loss to Common Stockholders
    
    $
    (2,692
    )
    
    $
    (12,924
    )Net Loss Per Common Share  Basic and Diluted
    
    $
    (0.04
    )
    
    $
    (0.26
    )Weighted Average Number of Common Shares Outstanding  Basic
and Diluted
    
    
    73,402
    
    
    
    49,076
 See accompanying notes to consolidated financial statements. 2




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Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)  Three Months Ended March 31,2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (2,653
    )
    
    $
    (12,617
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    2,218
    
    
    
    132Consideration given in excess of fair value of
identifiable assets acquired
    
    
    
    
    
    
    10,779Deferred tax benefit
    
    
    (360
    )
    
    
    Amortization of non-cash compensation
    
    
    1,964
    
    
    
    1,082Fair market value adjustment of stock options
    
    
    (489
    )
    
    
    1,106Gain on sale of assets
    
    
    
    
    
    
    (1,250
    )Other
    
    
    798
    
    
    
    514Changes in assets and liabilities:(Increase) Decrease in receivables
    
    
    1,268
    
    
    
    (234
    )Increase in other current assets
    
    
    (930
    )
    
    
    (223
    )Increase in accounts payable and accrued expenses
    
    
    1,655
    
    
    
    124Net Cash Provided by (Used in) Operating Activities
    
    
    3,471
    
    
    
    (587
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (4,656
    )
    
    
    (1,129
    )Acquisitions, net of cash acquired
    
    
    (1,437
    )
    
    
    (66
    )Investment in Limited Partnership
    
    
    (223
    )
    
    
    (41
    )Proceeds from sale of oil and gas interests
    
    
    
    
    
    
    490Increase in restricted cash
    
    
    (2,011
    )
    
    
    Net Cash Used in Investing Activities
    
    
    (8,327
    )
    
    
    (746
    )Cash Flows From Financing Activities:Proceeds from borrowings
    
    
    81,250
    
    
    
    Repayment of borrowings
    
    
    
    
    
    
    (1,751
    )Purchase and retirement of common and preferred stock
    
    
    
    
    
    
    (5,031
    )Proceeds from warrant and stock option exercises
    
    
    461
    
    
    
    Financing costs paid
    
    
    (3,608
    )
    
    
    Proceeds from common and preferred stock issued and issuable
    
    
    
    
    
    
    46,399Other financing
    
    
    (24
    )
    
    
    Net Cash Provided by Financing Activities
    
    
    78,079
    
    
    
    39,617Net Increase in Cash and Cash Equivalents
    
    
    73,223
    
    
    
    38,284Effect of Foreign Currency Changes on Cash
    
    
    (1,186
    )
    
    
    Cash and Cash Equivalents, Beginning of Period
    
    
    8,975
    
    
    
    57Cash and Cash Equivalents, End of Period
    
    $
    81,012
    
    
    $
    38,341
 See accompanying notes to consolidated financial statements. 3




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) Note 1  Summary of Significant Accounting Policies General Endeavour International Corporation is an international oil and gas exploration and production
company primarily focused on the acquisition, exploration and development of energy reserves in the
North Sea. As used in these Notes to Consolidated Financial Statements, the terms the Company,
Endeavour, we, us, our and similar terms refer to Endeavour International Corporation and,
unless the context indicates otherwise, its consolidated subsidiaries. The accompanying
consolidated financial statements of Endeavour should be read in conjunction with the consolidated
financial statements and notes included in our Annual Report on Form 10K for the year ended
December 31, 2004. Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC), and, accordingly, certain
information normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States has been condensed or omitted. The financial statements herein reflect all normal recurring adjustments that, in the opinion of
management, are necessary for a fair presentation. Certain amounts for prior periods have been
reclassified to conform to the current presentation. In preparing financial statements, management
makes informed judgments and estimates that affect the reported amounts of assets and liabilities
as of the date of the financial statements and affect the reported amounts of revenues and expenses
during the reporting period. Changes in facts and circumstances may result in revised estimates
and actual results may differ from these estimates. Loss Per Share Basic loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted
loss per share includes the effect of our outstanding stock options, warrants and shares issuable
pursuant to convertible debt under the treasury stock method, if including such instruments is
dilutive. For each of the periods presented, shares associated with stock options, warrants and
convertible debt are not included because their inclusion would be antidilutive (i.e., reduce the
net loss per share). The common shares potentially issuable arising from these instruments, which were outstanding
during the periods presented in the financial statements, consisted of: 4




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) (Amounts in thousands)
    March 31,2005
    
    
    2004Options
    
    
    1,026
    
    
    
    1,103Warrants
    
    
    1,286
    
    
    
    1,370Convertible Debt
    
    
    16,185
    
    
    
    Common shares potentially issuable
    
    
    18,497
    
    
    
    2,473
 Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued a revised Statement of
Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment(SFAS 123R), which
replaces SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in the financial
statements based on their fair values. The pro forma disclosures previously permitted under SFAS
123 will no longer be an alternative to financial statement recognition. In April 2005, the SEC
delayed the effective date of SFAS 123R to fiscal years beginning after June 15, 2005. As a result
SFAS 123R will be effective for the Company beginning in the first quarter of 2006. The guidance
also provides for classifying awards as either liabilities or equity, which impacts when and if the
awards must be remeasured to fair value subsequent to the grant date. We plan to adopt SFAS 123R
on January 1, 2006. At the time of adoption, companies can select from various transition methods, two of which would
allow for restatement of certain prior periods. Management anticipates selecting the transition
method in which prior period financial statements would not be restated. The adoption of SFAS No.
123R is not expected to have a significant effect on our financial condition and will not affect
our consolidated cash flows. The future impact on our consolidated results of operations of the
adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated
as liabilities and are currently accounted for using the variable method of accounting. However,
had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share above. Note 2  Stock-Based Compensation Arrangements We account for stockbased compensation plans for employees and directors using the intrinsic
value method. Under this method, we record no compensation expense for stock options granted when
the exercise price of options granted is equal to or greater than the fair market value of our
common stock on the date of grant. We apply the fair value method in accounting for stock-based
grants to non-employees using the Black-Scholes Method. 5




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) During 2003, we granted 700,000 options to then-current directors. While all the options granted
had an exercise price higher than the market value of the stock on the date of grant, a subsequent
modification of these options has triggered variable accounting. We are required to record
compensation expense if the modified option price is lower than the market price of the stock at
the end of a reporting period until the options expire or are exercised. For the three months
ended March 31, 2005 and 2004, we recorded non-cash general and administrative expenses of $(0.5)
million and $1.1 million, respectively, related to these options. Had compensation expense for the three months ended March 31, 2005 and 2004 been determined under
fair value provisions, our net loss and net loss per share would have been the following: (Amounts in thousands, except per share data)
    Three Months Ended March 31,2005
    
    
    2004Net loss to common stockholders, as reported
    
    $
    (2,692
    )
    
    $
    (12,924
    )Add:Stock-based compensation expense as reported
    
    
    596
    
    
    
    1,897Less:Total stock-based compensation expense
determined under fair-value-based method
for all awards, net of tax
    
    
    (1,341
    )
    
    
    (2,632
    )Pro forma net loss
    
    $
    (3,437
    )
    
    $
    (13,659
    )Loss per share:Basic  as reported
    
    $
    (0.04
    )
    
    $
    (0.26
    )Basic  pro forma
    
    $
    (0.05
    )
    
    $
    (0.28
    )
 These pro forma amounts may not be representative of future disclosures since the estimated fair
value of stock options is amortized to expense over the vesting period and additional options may
be issued in future years. The estimated fair value of each option granted was calculated using
the Black-Scholes Method. The following summarizes the weighted average of the assumptions used in
the method. 2005
    
    
    2004Risk free rate
    
    
    3.9
    %
    
    
    4.0
    %Expected years until exercise
    
    
    5.0
    
    
    
    7.0Expected stock volatility
    
    
    48
    %
    
    
    33
    %Dividend yield
    
    
    
    
    
    
    
 6




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) Note 3  Acquisitions and Dispositions Acquisition of OER Oil AS In November 2004, we purchased a 76.66% majority interest in OER Oil AS (OER), a privately
held Norwegian exploration and production company based in Oslo, Norway (the OER Acquisition).
The purchase price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately
$27.6 million, plus $0.8 million in professional expenses for legal and accounting services. Purchase of Minority Interest in OER In January 2005, we purchased the remaining 23.34% minority interest, representing 1,299,772
shares, in OER for consideration of NOK 6.98 per share and 1.68 shares of our common stock per
share of OER. The aggregate consideration paid of $10.7 million was approximately $1.4 million in
cash and 2,183,617 shares of our common stock. As a result of this purchase, goodwill increased by
$7.7 million. Acquisition of NSNV, Inc. On February 26, 2004, we acquired NSNV, Inc. (NSNV), through a merger with a newly created
subsidiary of the Company, resulting in NSNV becoming a wholly-owned subsidiary of the Company (the
NSNV Acquisition). NSNV was a private company owned by William L. Transier, John N. Seitz and
PGS Exploration (UK) Limited (PGS), a United Kingdom corporation that is a provider of
geophysical services. The former shareholders of NSNV received an aggregate of 12.5 million of our
common shares in the merger, representing approximately 18.9% of our outstanding common stock
immediately after the closing of the merger. The NSNV Acquisition was accounted for as a purchase of assets and not a business combination.
Therefore, the consideration given was allocated to the fair value of the identifiable assets and
liabilities acquired with the excess, approximately $10.8 million, expensed. The Restructuring Simultaneous with the consummation of the NSNV Acquisition and a private placement of our
common stock for aggregate gross proceeds of $50 million, we restructured various financial and
stockholder related items (the Restructuring). With the Restructuring we sold all of our United
States oil and gas assets, eliminated outstanding convertible notes and eliminated all of the
Series A and C preferred stock as well as nearly all of the Series B Preferred Stock. 7




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) Sale of Knox Miss. Partners, L.P. During the first quarter of 2004, we sold all of our limited partnership units in Knox Miss.
Partners, L.P (Knox Miss) for $5.0 million and received $500,000 in cash and a $4.5 million
short-term note that was secured by a pledge of the limited partnership interest. The short-term
note was paid in full during 2004. We recorded a gain on the sale of Knox Miss of $1.2 million
during the first quarter of 2004. Note 4  Convertible Senior Notes During the first quarter of 2005, we issued $81.25 million aggregate principal amount of
convertible senior notes due 2012 in a private placement to qualified institutional buyers,
pursuant to an exemption from the registration requirements of the Securities Act of 1933, as
amended. The notes bear interest at a rate of 6.00% per annum, payable in January and July. The
notes are convertible into shares of our common stock at an initial conversion rate of 199.2032
shares of common stock per $1,000 principal amount of notes, subject to adjustment, which
represents an initial conversion price of approximately $5.02 per share. In connection with the
issuance of these notes, we paid $3.6 million in financing and other costs. Note 5  Property and Equipment Property and equipment included the following: (Amounts in thousands)
    
    March 31,2005
    
    
    December 31,2004Oil and gas properties under the full cost method:Subject to amortization
    
    $
    19,498
    
    
    $
    20,081Not subject to amortization:Acquired in 2005
    
    
    2,489
    
    
    
    Acquired in 2004
    
    
    26,749
    
    
    
    26,74948,736
    
    
    
    46,830Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    757
    
    
    
    635Total property and equipment
    
    
    54,368
    
    
    
    52,340Accumulated depreciation, depletion and amortization
    
    
    (4,196
    )
    
    
    (2,112
    )Net property and equipment
    
    $
    50,172
    
    
    $
    50,228
 8




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) The costs not subject to amortization relate to unproved properties which are excluded from
amortized capital costs until it is determined whether or not proved reserves can be assigned to
such properties. We capitalized $1.6 million and $0.5 million in certain employee costs directly
related to exploration activities for the quarter ended March 31, 2005 and 2004, respectively. Note 6  Derivative Instruments In January 2005, we entered into an oil commodity swap where we pay market IPE Brent and
receive a fixed price that ranges from $46.20 per barrel in the initial month to $40.00 per barrel
at the end of the contract. The contract covers 600 barrels per day from February 2005 through
December 2006. The contract requires us to provide $2 million in collateral. During the first
quarter of 2005, we realized $0.1 million as a reduction to revenue related to settlements for this
contract and another $0.1 million as an increase to other expenses related to hedge
ineffectiveness. We did not exclude any component of the hedging instruments gain or loss when
assessing effectiveness. At March 31, 2005, the net deferred loss recognized in accumulated other comprehensive income was
$2.9 million, net of tax. We anticipate a loss of $1.7 million, net of tax, will be transferred
out of accumulated other comprehensive income and recognized within earnings over the next 12
months. We discontinue hedge accounting prospectively when (1) we determine that the derivative is no
longer effective in offsetting changes in the fair value or cash flows of a hedged item (including
hedged items such as firm commitments or forecasted transactions); (2) the derivative expires; (3)
it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment
no longer meets the definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate. Note 7  Supplemental Cash Flow Information As described above, in the first quarter of 2005, we purchased the minority interest in OER
for a combination of cash and common stock. During the first quarter of 2004, we had noncash
investing activities with the acquisition of NSNV for 12.5 million shares of our common stock with
a total purchase price of approximately $25 million. Therefore, the NSNV Acquisition increased
current assets by $1 million, oil and gas property by $11.4 million, other assets by $8.3 million,
current liabilities by $2.5 million other liabilities by $3.5 million and equity by $25 million
through a noncash transaction that was not reflected in the statement of cash flows. However,
$65,811 of acquisition costs reflected in investing activities in the statement of cash flows
represents the cash expenses paid in connection with the NSNV Acquisition, less the cash of NSNV on
the date the NSNV Acquisition was consummated. Noncash investing activities and financing
activities were also incurred with the transactions involved in the Restructuring. 9




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) In the first quarter of 2004, we exercised a call option and issued 835,000 shares of our common
stock to RAM Trading Ltd. in full payment of the option. Note 8  Comprehensive Loss Excluding net loss, our source of comprehensive loss is from the net unrealized loss on
commodity derivative instruments and marketable debt securities, which are classified as
available-for-sale. The following summarizes the components of comprehensive loss: (Amounts in thousands)
    Quarter Ended March 31,2005
    
    
    2004Net loss
    
    $
    (2,653
    )
    
    $
    (12,617
    )Unrealized loss on commodity derivative
instruments, net of tax of $1.2 million
    
    
    (2,944
    )Unrealized loss on marketable debt securities
    
    
    (12
    )
    
    
    (282
    )Reclassification adjustment for loss
realized in net loss above
    
    
    
    
    
    
    489Net impact on comprehensive loss
    
    
    (2,956
    )
    
    
    207Comprehensive loss
    
    $
    (5,609
    )
    
    $
    (12,410
    )
 Note 9  Commitments and Contingencies General The oil and gas industry is subject to regulation by federal, state and local authorities. In
particular, gas and oil production operations and economics are affected by environmental
protection statutes, tax statutes and other laws and regulations relating to the petroleum
industry. We believe we are in compliance with all federal, state and local laws, regulations
applicable to the Company and its properties and operations, the violation of which would have a
material adverse effect on us or our financial condition. PGS Commitment We have a three-year product and service commitment to PGS in return for the right to use
79,200 square kilometers of 3-D seismic and related data in the North Sea region, including the 3D
Mega Merge and North Sea Digital Atlas databases. Under the agreement, we are required to 10




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) purchase products and services from PGS, or affiliates, that have an aggregate invoice value over
three years of at least $4.5 million for a period of three years ending on December 15, 2006 as
follows: (amounts in thousands)Through December 15, 2005
    
    $
    2,500December 16, 2005 to December 15, 2006
    
    
    2,000Total PGS commitment
    
    $
    4,500
 During 2004, we signed an agreement with PGS whereby PGS will provide certain information relating
to the Holland MegaSurveyto us for approximately $1.2 million. This agreement will apply towards
our 2005 commitments. Legal Proceeding In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf
(collectively Plaintiffs) commenced an action against Endeavour International Corporation
(Endeavour), f/k/a Continental Southern Resources, Inc. (CSOR), as well as BWP Gas, L.L.C.
(BWP) and HBA Gas, Inc. (HBA) in state court in Oklahoma City, Oklahoma. In the petition,
Plaintiffs allege that in 2003, at a time when CSOR intended to acquire a majority of the
membership interests in BWP, that BWP entered into an agreement to assign to Plaintiffs 2.5 million
common shares of Endeavour stock upon compliance by Plaintiffs with certain contractual obligations
including but not limited to completion and initial commercial production of the Mary #2-34 well,
along with the presentation of a development plan and the commencement of the next exploration or
development well in the Potato Hills Deep Prospect. Plaintiffs allege in their petition that BWP,
HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for
failing to deliver to Plaintiffs the Endeavour common stock. Plaintiffs seek delivery of the stock
as well as a temporary restraining order and a primary and permanent injunction (i) enjoining all
dilutions of Plaintiffs rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all
future stock issuances and transfers of assets not in the ordinary course of business and (iii)
prohibiting the alienation or encumbrance of the Endeavour stock that is allegedly in HBAs
possession. On April 6, 2004, the defendants removed the action from the state court to the United
States District Court for the Western District of Oklahoma. On October 21, 2004, the United States
District Court granted a motion to remand to state court filed by the Plaintiffs and remanded the
matter to the District Court of Oklahoma County, Oklahoma. While the outcome can not be predicted
at this time, management believes it has good and valid defenses in this litigation and intends to
litigate vigorously. 11




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Endeavour International Corporation
Notes to Condensed Consolidated Statements
(Unaudited) Note 10  Subsequent Events In April 2005, we sold our partnership interest in PHT Partners, L.P. to a private entity for
$19.5 million in cash. The son of an executive officer of the
Company became an employee in April 2005 of that
UK private entity. The sale price was determined by negotiations between our management and the
management of the purchasing entity and approved by our Board of Directors after disclosure of such
relationship. At March 31, 2005, the net book value in our investment in PHT Partners, L.P. was
approximately $4 million. In April 2005, we also entered into an agreement for the provision of an offshore rig to drill two
exploratory wells in the United Kingdom sector of the North Sea. 12




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Endeavour International Corporation Cautionary Statement for Forward-Looking Statements The information contained in this Quarterly Report on Form 10-Q and in other public statements
by the Company and Company officers or directors includes or may contain certain forward-looking
statements. The words may, will, expect, anticipate, believe, continue, estimate,
project, intend, and similar expressions used in this Report are intended to identify
forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and
Section 21E of the U.S. Securities Exchange Act of 1934. You should not place undue reliance on
these forward-looking statements, which speak only as of the date made. We undertake no obligation
to publicly release the result of any revision of these forward-looking statements to reflect
events or circumstances after the date they are made or to reflect the occurrence of unanticipated
events. You should also know that such statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions. These factors include, but are not limited to,
those risks described in detail in the Companys Annual Report on Form 10-K under the caption Risk
Factors and other filings with the Securities and Exchange Commission. Should any of these risks
or uncertainties materialize, or should any of these assumptions prove incorrect, actual results
may differ materially from those included within the forward-looking statements. 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations Unless the context otherwise requires, references to the Company, Endeavour, we, us or
our, mean Endeavour International Corporation or any of our consolidated subsidiaries or
partnership interests. The following discussion should be read in conjunction with our Condensed
Consolidated Financial Statements and related Notes thereto included elsewhere in this Report. General During the fourth quarter of 2004, we purchased a 76.66% majority interest in OER oil AS (OER), a
privately held Norwegian exploration and production company based in Oslo. In the first quarter of
2005, we purchased the remaining minority interest in OER. During the first quarter of 2004, we completed a series of mutually interdependent transactions
that significantly expanded our scope and provided a new focus, primarily on international oil and
gas exploration. As a result of the 2004 transactions, all of our producing operations were sold
as well as our exploration activities in Mississippi. We retained our equity interests relating to
Thailand and Louisiana through the end of the first quarter of 2004; however our equity interests
in Louisiana were sold in May 2004 and our equity interests in a partnership with indirect
interests in a project in Thailand were sold in April 2005. 13




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Endeavour International Corporation Results of Operations As a result of our acquisition of producing oil and gas properties in Norway, we had revenues of
$7.7 million for the first quarter of 2005, with sales volumes of 1,874 barrels of oil equivalent
per day. Our Norwegian operations are also responsible for nearly all of the increases in
operating expenses of $2.4 million, DD&A expense of $2.1 million and income taxes of $1.0 million. General and administrative (G&A) expenses increased to $4.2 million during the three months ended
March 31, 2005 as compared to $2.5 million for the corresponding period in 2004. This increase was
driven primarily by the significant increase in operations through the acquisition of NSNV at the
end of February 2004 and our Norway operations at the end of November 2004, partially offset by the
fair market value adjustment of stock options under variable plan accounting. Components of G&A
expenses for these periods are as follows: Three Months Ended(Amounts in thousands)
    March 31,2005
    
    
    2004Compensation
    
    $
    2,528
    
    
    $
    253Non-cash stock-based compensation
    
    
    2,133
    
    
    
    1,074Fair market value adjustment of stock options
    
    
    (489
    )
    
    
    1,106Consulting, legal and accounting fees
    
    
    906
    
    
    
    375Occupancy costs
    
    
    286
    
    
    
    23Other expenses
    
    
    355
    
    
    
    196Gross G&A expenses
    
    
    5,719
    
    
    
    3,027Less: capitalized G&A expenses
    
    
    (1,567
    )
    
    
    (495
    )Net G&A expenses
    
    $
    4,152
    
    
    $
    2,532
 Interest expense increased to $0.8 million for the three months ended March 31, 2005 as compared to
$0.3 million for the corresponding period in 2004 primarily due to the issuance of our convertible
senior notes during the first quarter of 2005. Income Taxes Our tax expense for the first quarter of 2005 of $1.0 million, including $0.7 million of foreign
currency gains attributable to tax liability balances, relates solely to our Norwegian operations.
In the first quarter of 2005, our Norwegian operations had income before taxes of $3.1 million as
compared to a net loss before taxes of $1.6 million for the total company. During the first
quarter of 2005 and 2004, we did not record any income tax benefits on our non-Norwegian operations
as there was no assurance that we could generate any taxable earnings, and therefore recorded
valuation allowances on the full amount of deferred tax assets generated. 14




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Endeavour International Corporation Liquidity and Capital Resources In the first quarter of 2005, we issued $81.25 million in convertible senior notes due 2012.
Interest expense on the senior notes is expected to be approximately $4.9 million annually and we
anticipate being able to fund interest payments from cash flows from operating activities. We anticipate exploration and development expenditures in 2005 to be $37 million. These
expenditures include $19 million in the United Kingdom, $8 million in Norway, $1 million in the
Netherlands, $2 million on other exploration expenditures and $7 million in capitalized employee
costs and interest. We may increase or decrease our planned activities for 2005, depending upon
drilling results, potential acquisition candidates, product prices, the availability of capital
resources, and other factors affecting the economic viability of such activities. In addition, we sold our equity interests in a partnership with indirect interests in a project in
Thailand in April 2005 for $19.5 million. Proceeds from the sale and capital expenditures
originally targeted for Thailand will be used to accelerate North Sea drilling activity in 2005. Disclosures About Contractual Obligations and Commercial Commitments As discussed above, we issued $81.25 million in convertible senior notes due 2012. As of March 31,
2005, there have been no other material changes in our contractual obligations. In April 2005, we entered into an agreement for an offshore rig to drill two exploratory wells on a
turnkey basis during 2005 in the United Kingdom sector of the North Sea. The rig commitment
secures the use of a semi-submersible owned by a subsidiary of GlobalSantaFe Corporation.
Endeavour will operate the rig through its drilling management contract with Applied Drilling
Technology International, a division of GlobalSantaFe Drilling U.K. Limited, a wholly-owned
subsidiary of GlobalSantaFe Corporation. 
 Item 3: Quantitative and Qualitative Disclosures about Market Risk Foreign Exchange Risk The international scope of our business operations exposes us to the risk of fluctuations in
foreign currency markets. As a result, we are subject to foreign currency exchange rate risk due
to effects that foreign exchange rate movements of those currencies have on our costs and on the
cash flows that we receive from foreign operations. We operate a centralized currency management
operation to take advantage of potential opportunities to naturally offset exposures against each
other. To date, we have addressed our foreign currency exchange rate risks principally by
maintaining our liquid assets in interest-bearing accounts in U.S. dollars, until payments in
foreign currency are required, but we have not reduced this risk by hedging to date. 15




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Endeavour International Corporation Commodity Price Risk We produce and sell crude oil and natural gas. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot market prices applicable which have been volatile
and unpredictable for several years. As a result, our financial results can be significantly
impacted as these commodity prices fluctuate widely in response to changing market forces. At
March 31, 2005, we had an oil commodity swap where we pay market IPE Brent and receive a fixed
price that ranges from $46.20 per barrel in the initial month to $40.00 per barrel at the end of
the contract covering 600 barrels per day through December 2006. At March 31, 2005, a $1.00 change
in the Brent oil price would result in a $0.4 million change in revenues through 2005 and 2006. Interest Rate Risk We have exposure to changes in interest rates. Changes in interest rates affect the interest
earned on cash and cash equivalents and the interest rate paid on borrowings under debt from our
newly acquired Norwegian subsidiary. This debt, with approximately $4 million outstanding at March
31, 2005, bears interest at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%,
currently 3.43%, and is payable in equal installments in July 2005 and January 2006. A 1% per
annum increase in NIBOR over the remaining life of this loan would not result in a material change
to our interest expense. Our newly issued convertible senior notes bear interest at a fixed rate
of 6%. We do not currently use interest rate derivative financial instruments to manage exposure to
interest rate changes, but may do so in the future. Since the filing of our 2004 Annual Report on Form 10-K, there have been no material changes, other
than those discussed above, in reported market risk as it relates to foreign currencies, interest
rates and commodity prices. 
 Item 4: Controls and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, our management carried out an evaluation,
with the participation of our co-chief executive officers (the CEOs) and our chief accounting
officer (the CAO), of the effectiveness of our disclosure controls and procedures required by
Rule 13a-15 of the Securities Exchange Act of 1934. Based on that evaluation, the CEOs and CAO
believe: (i) that our disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is 16




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##### Table of Contents



Endeavour International Corporation accumulated and communicated to our management, including the CEOs and CAO, as appropriate
to allow timely decisions regarding required disclosure; and (ii) that our disclosure controls and procedures are effective. Changes in Internal Controls over Financial Reporting There has been no significant change in our internal controls over financial reporting during
the period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting. In reaching this conclusion,
management, with the participation of CEOs and CAO, included in its assessment of internal controls
over financial reporting all consolidated entities except those falling under OER oil AS.
Endeavour International Corporation acquired OER oil AS on November 23, 2004. OER oil ASs
internal control over financial reporting related to total assets of $63.3 million and total
revenues of $3.7 million as of and for the year ended December 31, 2004. As permitted by the SECs
published guidance, we excluded these entities from our assessment as they were acquired late in
the year, and it was not possible to conduct our assessment between the date of acquisition and the
end of the quarter. 
 Part II. Other Information
Item 1: Legal Proceedings In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf
(collectively Plaintiffs) commenced an action against Endeavour International Corporation
(Endeavour), f/k/a Continental Southern Resources, Inc. (CSOR), as well as BWP Gas, L.L.C.
(BWP) and HBA Gas, Inc. (HBA) in state court in Oklahoma City, Oklahoma. In the petition,
Plaintiffs allege that in 2003, at a time when CSOR intended to acquire a majority of the
membership interests in BWP, that BWP entered into an agreement to assign to Plaintiffs 2.5 million
common shares of Endeavour stock upon compliance by Plaintiffs with certain contractual obligations
including but not limited to completion and initial commercial production of the Mary #2-34 well,
along with the presentation of a development plan and the commencement of the next exploration or
development well in the Potato Hills Deep Prospect. Plaintiffs allege in their petition that BWP,
HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for
failing to deliver to Plaintiffs the Endeavour common stock. Plaintiffs seek delivery of the stock
as well as a temporary restraining order and a primary and permanent injunction (i) enjoining all
dilutions of Plaintiffs rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all
future stock issuances and transfers of assets not in the ordinary course of business and (iii)
prohibiting the alienation or encumbrance of the Endeavour stock that is allegedly in HBAs
possession. On April 6, 2004, the defendants removed the action from the state court to the United
States District Court for the Western District of Oklahoma. On October 21, 2004, the United States
District Court granted a motion to remand to state court filed by the Plaintiffs and remanded the
matter to the District Court of Oklahoma County, Oklahoma. While the outcome can not be predicted
at this time, management believes it has good and valid defenses in this litigation and intends to
litigate vigorously. 17




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##### Table of Contents



Endeavour International Corporation 
 Item 6: Exhibits The following exhibits are included herein: 31.1*
    
    Certification of William L. Transier, Co-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 John N. Seitz, Co-Chief Executive 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, Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3*
    
    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. 
 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Endeavour International Corporation Date: May 6, 2005
    
    /s/ William L. Transier
    
    /s/ John N. SeitzWilliam L. Transier
Co-Chief Executive Officer
    
    John N. Seitz
Co-Chief Executive Officer/s/ Robert L. ThompsonRobert L. ThompsonVice President and Chief Accounting Officer(Principal Financial Officer and Principal Accounting Officer)
 18




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##### Table of Contents



Index to Exhibits ExhibitNumber
    
    Description31.1*
    
    Certification of William L. Transier, Co-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 John N. Seitz, Co-Chief Executive 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, Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3*
    
    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.