##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2009
 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: 1-32212
 Endeavour International Corporation
  Nevada
    
    88-0448389(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 1001 Fannin Street, Suite 1600, Houston, Texas 77002
 (713) 307-8700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Index
 Part I: Financial InformationItem 1: Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4: Controls and Procedures
    
    
    33Part II. Other InformationItem 1A: Risk Factors
    
    
    33Item 6: Exhibits
    
    
    34Signatures
    
    
    35EX-31.1EX-31.2EX-32.1EX-32.2
  Quantities of natural gas are expressed in this report in terms of thousand cubic feet (Mcf)
and million cubic feet (MMcf). Oil is quantified in terms of barrels (Bbls) and thousands of
barrels (Mbbls). Natural gas is compared to oil in terms of barrels of oil equivalent (BOE),
thousand barrels of oil equivalent (MBOE) or million barrels of oil equivalent (MMBOE). One barrel
of oil is the energy equivalent of six Mcf of natural gas. With respect to information relating to
our working interest in wells or acreage, net oil and natural gas wells or acreage is determined
by multiplying gross wells or acreage by our working interest therein.




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##### Table of Contents



Part I: Financial Information
 
  Item 1: Financial Statements
 Endeavour International Corporation
Condensed Consolidated Balance Sheets
 September 30,
    
    December 31,2009
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    77,805
    
    
    $
    31,421Restricted cash
    
    
    374
    
    
    
    20,739Accounts receivable
    
    
    12,185
    
    
    
    22,325Prepaid expenses and other current assets
    
    
    18,781
    
    
    
    42,194Current assets of discontinued operations
    
    
    
    
    
    
    16,726Total Current Assets
    
    
    109,145
    
    
    
    133,405Property and Equipment, Net
    
    
    243,834
    
    
    
    232,346Goodwill
    
    
    211,886
    
    
    
    213,949Other Assets
    
    
    5,964
    
    
    
    9,165Long Term Assets of Discontinued Operations
    
    
    
    
    
    
    148,605Total Assets
    
    $
    570,829
    
    
    $
    737,470
  1




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##### Table of Contents



Endeavour International Corporation
Condensed Consolidated Balance Sheets
 September 30,
    
    December 31,2009
    
    2008Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    12,725
    
    
    $
    38,630Current maturities of debt
    
    
    
    
    
    
    13,000Accrued expenses and other
    
    
    23,157
    
    
    
    36,641Current liabilities of discontinued operations
    
    
    
    
    
    
    22,232Total Current Liabilities
    
    
    35,882
    
    
    
    110,503Long-Term Debt
    
    
    169,656
    
    
    
    214,855Deferred Taxes
    
    
    69,847
    
    
    
    67,299Other Liabilities
    
    
    68,426
    
    
    
    55,791Long-term Liabilities of Discontinued Operations
    
    
    
    
    
    
    46,051Total Liabilities
    
    
    343,811
    
    
    
    494,499Commitments and ContingenciesSeries C Convertible Preferred Stock (Liquidation
preference: $125,000)
    
    
    125,000
    
    
    
    125,000Stockholders Equity:Series B preferred stock (Liquidation preference: $3,075)Common stock; shares issued and outstanding  131,072
and 128,572 shares at 2009 and 2008, respectively
    
    
    131
    
    
    
    129Additional paid-in capital
    
    
    247,114
    
    
    
    244,471Treasury stock, at cost (463 and 327 shares at 2009
and 2008, respectively)
    
    
    (543
    )
    
    
    (450
    )Accumulated other comprehensive loss
    
    
    (184
    )
    
    
    (1,266
    )Accumulated deficit
    
    
    (144,500
    )
    
    
    (124,913
    )Total Stockholders Equity
    
    
    102,018
    
    
    
    117,971Total Liabilities and Stockholders Equity
    
    $
    570,829
    
    
    $
    737,470
  2




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##### Table of Contents



Endeavour International Corporation
Condensed Consolidated Statement of Operations
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Revenues
    
    $
    7,759
    
    
    $
    44,160
    
    
    $
    42,179
    
    
    $
    145,312Cost of Operations:Operating expenses
    
    
    3,876
    
    
    
    7,154
    
    
    
    14,455
    
    
    
    23,681Depreciation, depletion and amortization
    
    
    5,646
    
    
    
    14,856
    
    
    
    24,828
    
    
    
    53,247Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    30,645
    
    
    
    General and administrative
    
    
    4,091
    
    
    
    4,064
    
    
    
    12,041
    
    
    
    11,617Total Expenses
    
    
    13,613
    
    
    
    26,074
    
    
    
    81,969
    
    
    
    88,545Income (Loss) From Operations
    
    
    (5,854
    )
    
    
    18,086
    
    
    
    (39,790
    )
    
    
    56,767Other Income (Expense):Derivatives:Realized gains (losses)
    
    
    7,530
    
    
    
    (13,631
    )
    
    
    28,581
    
    
    
    (31,276
    )Unrealized gains (losses)
    
    
    (4,360
    )
    
    
    119,089
    
    
    
    (38,455
    )
    
    
    (41,239
    )Interest expense
    
    
    (3,919
    )
    
    
    (4,694
    )
    
    
    (12,054
    )
    
    
    (18,489
    )Interest income and other
    
    
    1,402
    
    
    
    2,863
    
    
    
    (6,932
    )
    
    
    2,834Total Other Income (Expense)
    
    
    653
    
    
    
    103,627
    
    
    
    (28,860
    )
    
    
    (88,170
    )Income (Loss) Before Income Taxes
    
    
    (5,201
    )
    
    
    121,713
    
    
    
    (68,650
    )
    
    
    (31,403
    )Income Tax Expense (Benefit)
    
    
    (441
    )
    
    
    57,736
    
    
    
    (10,477
    )
    
    
    (9,195
    )Income (Loss) from Continuing Operations
    
    
    (4,760
    )
    
    
    63,977
    
    
    
    (58,173
    )
    
    
    (22,208
    )Discontinued Operations, net of tax:Income (loss) from operations
    
    
    
    
    
    
    14,219
    
    
    
    (774
    )
    
    
    19,588Gain on sale
    
    
    277
    
    
    
    
    
    
    
    47,420
    
    
    
    Income from Discontinued Operations
    
    
    277
    
    
    
    14,219
    
    
    
    46,646
    
    
    
    19,588Net Income (Loss)
    
    
    (4,483
    )
    
    
    78,196
    
    
    
    (11,527
    )
    
    
    (2,620
    )Preferred Stock Dividends
    
    
    2,696
    
    
    
    2,709
    
    
    
    8,061
    
    
    
    8,113Net Income (Loss) to Common Stockholders
    
    $
    (7,179
    )
    
    $
    75,487
    
    
    $
    (19,588
    )
    
    $
    (10,733
    )Basic Net Income (Loss) per Common Share:Continuing operations
    
    $
    (0.06
    )
    
    $
    0.48
    
    
    $
    (0.51
    )
    
    $
    (0.23
    )Discontinued operations
    
    
    
    
    
    
    0.11
    
    
    
    0.36
    
    
    
    0.15Total
    
    $
    (0.06
    )
    
    $
    0.59
    
    
    $
    (0.15
    )
    
    $
    (0.08
    )Diluted Net Income (Loss) per Common Share:Continuing operations
    
    $
    (0.06
    )
    
    $
    0.29
    
    
    $
    (0.51
    )
    
    $
    (0.23
    )Discontinued operations
    
    
    
    
    
    
    0.07
    
    
    
    0.36
    
    
    
    0.15Total
    
    $
    (0.06
    )
    
    $
    0.36
    
    
    $
    (0.15
    )
    
    $
    (0.08
    )Weighted Average Number of Common Shares Outstanding:Basic
    
    
    130,109
    
    
    
    127,810
    
    
    
    129,719
    
    
    
    127,658Diluted
    
    
    130,109
    
    
    
    211,811
    
    
    
    129,719
    
    
    
    127,658
  3




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Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
 Nine Months Ended September 30,2009
    
    2008Cash Flows from Operating Activities:Net loss
    
    $
    (11,527
    )
    
    $
    (2,620
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    29,509
    
    
    
    64,073Impairment of oil and gas properties
    
    
    30,645
    
    
    
    Deferred tax benefit
    
    
    (3,269
    )
    
    
    (5,568
    )Unrealized losses on derivatives
    
    
    38,455
    
    
    
    41,239Gain on sale of Norwegian operations
    
    
    (47,420
    )
    
    
    Other
    
    
    13,577
    
    
    
    7,945Changes in operating assets and liabilities:(Increase) decrease in receivables
    
    
    6,593
    
    
    
    (4,259
    )(Increase) decrease in other current assets
    
    
    5,060
    
    
    
    (6,716
    )Increase (decrease) in liabilities
    
    
    (21,939
    )
    
    
    5,520Net Cash Provided by Operating Activities
    
    
    39,684
    
    
    
    99,614Cash Flows From Investing Activities:Capital expenditures
    
    
    (92,766
    )
    
    
    (46,512
    )Proceeds from sales, net of cash
    
    
    144,765
    
    
    
    Decrease in restricted cash
    
    
    20,366
    
    
    
    Net Cash Provided by (Used in) Investing Activities
    
    
    72,365
    
    
    
    (46,512
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (64,458
    )
    
    
    (120,000
    )Borrowings under debt agreements
    
    
    
    
    
    
    88,000Dividends paid
    
    
    (7,969
    )
    
    
    (7,969
    )Financing costs paid
    
    
    
    
    
    
    (3,382
    )Other financing
    
    
    27
    
    
    
    (514
    )Net Cash Used in Financing Activities
    
    
    (72,400
    )
    
    
    (43,865
    )Net Increase in Cash and Cash Equivalents
    
    
    39,649
    
    
    
    9,237Cash and Cash Equivalents, Beginning of Period
    
    
    38,156
    
    
    
    16,440Cash and Cash Equivalents, End of Period
    
    $
    77,805
    
    
    $
    25,677Cash and Cash Equivalents, End of Period:Continuing operations
    
    $
    77,805
    
    
    $
    18,260Discontinued operations
    
    
    
    
    
    
    7,417Total
    
    $
    77,805
    
    
    $
    25,677
  4




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 1  General
  Basis of Presentation and Use of Estimates
   
    
    proved oil and gas reserves,
    
    expected future cash flow from proved oil and gas properties,
    
    future dismantlement and restoration costs,
    
    fair values used in purchase accounting; and
    
    fair value of derivative instruments.
 Income (Loss) Per Share
  5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss) to common shareholdersBasic
    
    $
    (7,179
    )
    
    $
    75,487
    
    
    $
    (19,588
    )
    
    $
    (10,733
    )Add Effect of:Preferred dividends
    
    
    
    
    
    
    2,656
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    (2,861
    )
    
    
    
    
    
    
    Diluted
    
    $
    (7,179
    )
    
    $
    75,282
    
    
    $
    (19,588
    )
    
    $
    (10,733
    )Weighted Average Number of Common
Shares Outstanding:Basic
    
    
    130,109
    
    
    
    127,810
    
    
    
    129,719
    
    
    
    127,658Add Effect of:Preferred stock
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    34,001
    
    
    
    
    
    
    
    Diluted
    
    
    130,109
    
    
    
    211,811
    
    
    
    129,719
    
    
    
    127,658
 New Accounting Developments
  
    
    Business combinations Guidance related to the measurement of identifiable assets
acquired, liabilities assumed and disclosure of information related to business
combinations and their effect.
    
    Noncontrolling interests Guidance for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. Specifically, this standard requires the
recognition of a noncontrolling interest (minority interest) as a component of consolidated
equity. Similarly, the new standard requires consolidated net income and comprehensive
income to be reported at amounts that include the amounts attributable to both the parent
and the noncontrolling interests.
    
    Expanded disclosures of derivatives Expanded and detailed financial statement
disclosures for derivatives and hedged financial instruments. This standard applies to all
derivatives and non-derivative instruments designated and qualifying as hedges, including
bifurcated derivative instruments and related hedged items.
    
    Convertible debt Guidance for convertible debt that may be settled in part or in
whole in cash upon conversion requiring issuers of this form of debt to account for its
debt and equity components separately. The new guidance also expands the definition of
mandatorily redeemable convertible preferred shares that should be classified as
liabilities.
    
    Share-based payments Guidance for instruments that are granted in share-based payment
transactions to treat unvested share-based payment awards with non-forfeitable rights to
dividend or dividend equivalents as a separate class of securities in calculating
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 earnings per share (EPS). The impact of the adoption of this standard on our weighted
average shares outstanding and EPS was not material, therefore, we have not restated prior
periods.
    
    Fair Value Framework for measuring fair value and expanded disclosures about fair
value measurements. New fair value measurements are not required; rather, the provisions
apply when fair value measurements are performed under other accounting pronouncements.
  
    
    Subsequent Events Standards of accounting for and disclosure of events that occur
after the balance sheet date but before the financial statements are issued.
 Subsequent Events
  Note 2  Discontinued Operations
   September 30, 2009
    
    December 31, 2008Current Assets:Cash
    
    $
    
    
    
    $
    6,735Accounts receivable
    
    
    
    
    
    
    4,559Prepaid expenses and other
    
    
    
    
    
    
    5,432
    
    
    
    16,726Long-term Assets:
 7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 September 30, 2009
    
    December 31, 2008Property, plant and
equipment, net
    
    
    
    
    
    
    80,611Goodwill
    
    
    
    
    
    
    67,994
    
    
    
    148,605Current Liabilities:Accounts payable
    
    
    
    
    
    
    (3,717
    )Accrued expenses and other
    
    
    
    
    
    
    (18,514
    )
    
    
    
    (22,231
    )Long-term Liabilities:Deferred tax liability
    
    
    
    
    
    
    (36,828
    )Asset retirement obligation
    
    
    
    
    
    
    (9,223
    )(46,051
    )Net Assets and Liabilities
    
    $
    
    
    
    $
    97,049
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Sales
    
    $
    
    
    
    $
    27,315
    
    
    $
    17,550
    
    
    $
    73,760Income before Taxes
    
    $
    
    
    
    $
    21,878
    
    
    $
    4,656
    
    
    $
    51,784Income Tax Expense
    
    
    
    
    
    
    (7,659
    )
    
    
    (5,430
    )
    
    
    (32,196
    )Income (Loss) from Operations
    
    
    
    
    
    
    14,219
    
    
    
    (774
    )
    
    
    19,588Gain on sale
    
    
    277
    
    
    
    
    
    
    
    47,420
    
    
    
    Net Income from Discontinued
Operations
    
    $
    277
    
    
    $
    14,219
    
    
    $
    46,646
    
    
    $
    19,588
 Note 3  Stock-Based Compensation Arrangements
   8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008G & A Expenses
    
    $
    409
    
    
    $
    562
    
    
    $
    1,334
    
    
    $
    808Capitalized G & A
    
    
    158
    
    
    
    496
    
    
    
    346
    
    
    
    1,551Total non-cash
stock-based
compensation
    
    $
    567
    
    
    $
    1,058
    
    
    $
    1,680
    
    
    $
    2,359
 Stock Options
   For the Nine Months Ended September 30,2009
    
    2008Risk-free rate
    
    
    1.3
    %
    
    
    3.9
    %Expected years until exercise
    
    
    4.30
    
    
    
    4.10Expected stock volatility
    
    
    56
    %
    
    
    44
    %Dividend yield
    
    
    
    
    
    
    
  9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Weighted
    
    WeightedNumber of
    
    Average
    
    AverageShares
    
    Exercise
    
    Contractual
    
    AggregateUnderlying
    
    Price per
    
    Life in
    
    IntrinsicOptions
    
    Share
    
    Years
    
    ValueBalance outstanding January 1, 2009
    
    
    4,807
    
    
    $
    2.35Granted
    
    
    1,170
    
    
    
    0.54Exercised
    
    
    (164
    )
    
    
    0.81Forfeited
    
    
    (281
    )
    
    
    3.69Expired
    
    
    (932
    )
    
    
    2.09Balance outstanding   September
30, 2009
    
    
    4,600
    
    
    $
    1.89
    
    
    
    6.3
    
    
    $
    849Currently exercisable  September
30, 2009
    
    
    2,004
    
    
    $
    2.99
    
    
    
    3.6
    
    
    $
    4,667
  Restricted Stock
   WeightedAverage GrantDate FairNumber of
    
    Value perShares
    
    ShareBalance outstanding  January 1, 2009
    
    
    3,966
    
    
    $
    1.88Granted
    
    
    1,698
    
    
    
    0.68Vested
    
    
    (2,354
    )
    
    
    2.13Forfeited
    
    
    (74
    )
    
    
    1.66Balance outstanding  September 30, 2009
    
    
    3,236
    
    
    $
    1.03Total grant date fair value of shares vesting during the period
    
    $
    4,825
 10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 4  Property and Equipment
  September 30,
    
    December 31,2009
    
    2008Oil and gas properties under the full cost method:Subject to amortization
    
    $
    239,983
    
    
    $
    239,024Not subject to amortization:Acquired in 2009
    
    
    43,405
    
    
    
    Acquired in 2008
    
    
    33,683
    
    
    
    37,288Acquired in 2007
    
    
    10,837
    
    
    
    14,746Acquired prior to 2007
    
    
    77,586
    
    
    
    82,522405,494
    
    
    
    373,580Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    2,912
    
    
    
    3,236Total property and equipment
    
    
    413,281
    
    
    
    381,691Accumulated depreciation, depletion and amortization
    
    
    (169,447
    )
    
    
    (149,345
    )Net property and equipment
    
    $
    243,834
    
    
    $
    232,346
   11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Note 5  Debt Obligations
  September 30,
    
    December 31,2009
    
    2008Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011
    
    
    48,542
    
    
    
    113,000Convertible bonds, 11.5%, due 2014
    
    
    48,445
    
    
    
    44,496Less: debt discount
    
    
    (8,581
    )
    
    
    (10,891
    )Less: current maturities
    
    
    
    
    
    
    (13,000
    )Long-term debt
    
    $
    169,656
    
    
    $
    214,855Standby letters of credit outstanding for abandonment liabilities
    
    $
    32,941
    
    
    $
    30,115
   12




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6  Asset Retirement Obligations
  Nine Months EndedSeptember 30,2009
    
    2008Carrying amount of asset retirement obligations as of beginning of
period
    
    $
    38,776
    
    
    $
    30,790Accretion expense
    
    
    3,082
    
    
    
    2,165Impact of foreign currency exchange rate changes
    
    
    3,782
    
    
    
    (3,325
    )Payment of asset retirement obligation
    
    
    (6,620
    )
    
    
    Sale of assets
    
    
    (248
    )
    
    
    Carrying amount of asset retirement obligations as of end of period
    
    $
    38,772
    
    
    $
    29,630
 Note 7  Fair Value Measurements
  Level 1:
    
    Fair value is based on actively-quoted market prices, if available.
 Level 2:
    
    In the absence of actively-quoted market prices, we seek price information from external sources, including broker
quotes and industry publications. Substantially all of these inputs are observable in the marketplace during the
entire term of the instrument, can be derived from observable data, or supported by observable levels at which
transactions are executed in the marketplace.
 Level 3:
    
    If valuations require inputs that are both significant to the fair value measurement and less observable from
objective sources, we must estimate prices based on available historical and near-term future price information and
certain statistical methods that reflect our market assumptions.
 13




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Quoted Market Prices
    
    Significant Other
    
    Significantin Active Markets -
    
    Observable Inputs -
    
    Unobservable Inputs -
    
    TotalLevel 1
    
    Level 2
    
    Level 3
    
    Fair ValueOil and gas derivative contracts:Oil and gas swaps
    
    $
    
    
    
    $
    (3,600
    )
    
    $
    
    
    
    $
    (3,600
    )Oil and gas collars
    
    
    
    
    
    
    3,079
    
    
    
    1,852
    
    
    
    4,931Interest rate swaps
    
    
    
    
    
    
    (427
    )
    
    
    
    
    
    
    (427
    )Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (23,450
    )
    
    
    (23,450
    )Total derivative liabilities
    
    $
    
    
    
    $
    (948
    )
    
    $
    (21,598
    )
    
    $
    (22,546
    )
   14




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Nine Months EndedSeptember 30,2009Balance at beginning of period
    
    $
    (12,057
    )Total gains or losses (realized/unrealized)Included in earnings
    
    
    (9,541
    )Balance at end of period
    
    $
    (21,598
    )Changes in unrealized gains (losses) relating to derivatives
assets and liabilities still held at
September 30, 2009
    
    $
    (6,663
    )
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Asset Retirement Obligations 
 Goodwill 
 Note 8  Derivative Instruments
   15




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 September 30,
    
    December 31,2009
    
    2008Derivatives not designated as hedges:Oil and gas commodity derivatives:Assets:Prepaid expenses and other current assets
    
    $
    9,156
    
    
    $
    31,649Other assets  long term
    
    
    324
    
    
    
    1,702Liabilities:Accrued expenses and other
    
    
    (1,943
    )
    
    
    Other liabilities  long-term
    
    
    (6,205
    )
    
    
    (2,375
    )$
    1,332
    
    
    $
    30,976Embedded derivatives related to debt instrument:Liabilities:Other liabilities  long-term
    
    
    (23,450
    )
    
    
    (14,640
    )Derivatives designated as cash flow hedge:Interest rate swapLiabilities:Accrued expenses and other
    
    
    (427
    )
    
    
    (1,334
    )
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Derivatives not designated as hedges:Oil and gas commodity derivativesRealized gains (losses)
    
    $
    7,530
    
    
    $
    (13,631
    )
    
    $
    28,581
    
    
    $
    (31,276
    )Unrealized gains (losses)
    
    
    (2,950
    )
    
    
    112,809
    
    
    
    (29,645
    )
    
    
    (25,919
    )4,580
    
    
    
    99,178
    
    
    
    (1,064
    )
    
    
    (57,195
    )Embedded derivatives related to debt instrumentUnrealized gains (losses)
    
    $
    (1,410
    )
    
    $
    6,280
    
    
    $
    (8,810
    )
    
    $
    (15,320
    )
  16




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Location ofReclassificationinto Income
    
    2009
    
    2008
    
    2009
    
    2008Interest rate swap(Gain) loss recognized in other
comprehensive
income, net of tax
    
    
    
    
    
    $
    (21
    )
    
    $
    4
    
    
    $
    (94
    )
    
    $
    (21
    )(Gain) loss reclassified from
accumulated other
comprehensive income into income
    
    Interest expense
    
    
    418
    
    
    
    213
    
    
    
    1,176
    
    
    
    532
     Note 9  Supplemental Cash Flow Information
  Nine Months Ended September 30,2009
    
    2008Interest paid
    
    $
    6,191
    
    
    $
    14,485Income taxes paid
    
    $
    4,334
    
    
    $
    12,737
  17




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    Note 10  Comprehensive Loss
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income (loss)
    
    $
    (4,483
    )
    
    $
    78,196
    
    
    $
    (11,527
    )
    
    $
    (2,620
    )Unrealized (gain) loss on interest rate swap
derivative instrument, net of tax
    
    
    (21
    )
    
    
    4
    
    
    
    (94
    )
    
    
    (21
    )Unrealized loss on marketable securities, net of tax
    
    
    
    
    
    
    (1,225
    )
    
    
    
    
    
    
    (480
    )Reclassification adjustment for (gain) loss
realized in net income (loss) above
    
    
    418
    
    
    
    213
    
    
    
    1,176
    
    
    
    532Net impact on comprehensive income (loss)
    
    
    397
    
    
    
    (1,008
    )
    
    
    1,082
    
    
    
    31Comprehensive income (loss)
    
    $
    (4,086
    )
    
    $
    77,188
    
    
    $
    (10,445
    )
    
    $
    (2,589
    )
 Note 11  Commitments and Contingencies
 Rig Commitment
  18




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Participation Agreement
  Contingencies
  Note 12  Subsequent Events
  19




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Endeavour International Corporation
 
 Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
     20




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Endeavour International Corporation
   Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Sales volume (1)Oil and condensate sales (Mbbls):United Kingdom
    
    
    82
    
    
    
    235
    
    
    
    494
    
    
    
    834United States
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    Continuing operations
    
    
    83
    
    
    
    235
    
    
    
    496
    
    
    
    834Discontinued operations  Norway
    
    
    
    
    
    
    204
    
    
    
    310
    
    
    
    545Total
    
    
    83
    
    
    
    439
    
    
    
    806
    
    
    
    1,379Gas sales (MMcf):United Kingdom
    
    
    629
    
    
    
    1,470
    
    
    
    2,777
    
    
    
    5,149United States
    
    
    19
    
    
    
    
    
    
    
    130
    
    
    
    Continuing operations
    
    
    648
    
    
    
    1,470
    
    
    
    2,907
    
    
    
    5,149Discontinued operations  Norway
    
    
    
    
    
    
    575
    
    
    
    686
    
    
    
    1,640Total
    
    
    648
    
    
    
    2,045
    
    
    
    3,593
    
    
    
    6,789Oil equivalent sales (MBOE)United Kingdom
    
    
    187
    
    
    
    480
    
    
    
    957
    
    
    
    1,692United States
    
    
    4
    
    
    
    
    
    
    
    23
    
    
    
    Continuing operations
    
    
    191
    
    
    
    480
    
    
    
    980
    
    
    
    1,692Discontinued operations  Norway
    
    
    
    
    
    
    299
    
    
    
    425
    
    
    
    819Total
    
    
    191
    
    
    
    779
    
    
    
    1,405
    
    
    
    2,511Total BOE per day
    
    
    2,072
    
    
    
    8,477
    
    
    
    5,147
    
    
    
    9,162Physical production volume (BOE per day):United Kingdom
    
    
    2,777
    
    
    
    5,075
    
    
    
    3,675
    
    
    
    6,064United States
    
    
    32
    
    
    
    
    
    
    
    54
    
    
    
    Continuing operations
    
    
    2,809
    
    
    
    5,075
    
    
    
    3,729
    
    
    
    6,064Discontinued operations  Norway
    
    
    
    
    
    
    2,763
    
    
    
    1,545
    
    
    
    2,816Total
    
    
    2,809
    
    
    
    7,838
    
    
    
    5,274
    
    
    
    8,880Realized Prices (2)Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    61.73
    
    
    $
    106.22
    
    
    $
    47.38
    
    
    $
    101.60
 21




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Endeavour International Corporation
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Effect of commodity derivatives
    
    
    46.05
    
    
    
    (23.70
    )
    
    
    24.47
    
    
    
    (20.78
    )Realized prices including
commodity derivatives
    
    $
    107.78
    
    
    $
    82.52
    
    
    $
    71.85
    
    
    $
    80.82Gas price ($  per Mcf):Before commodity derivatives
    
    $
    4.10
    
    
    $
    12.14
    
    
    $
    5.99
    
    
    $
    11.63Effect of commodity derivatives
    
    
    5.75
    
    
    
    (1.58
    )
    
    
    2.46
    
    
    
    (0.39
    )Realized prices including
commodity derivatives
    
    $
    9.85
    
    
    $
    10.56
    
    
    $
    8.45
    
    
    $
    11.24Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    40.70
    
    
    $
    91.65
    
    
    $
    42.51
    
    
    $
    87.26Effect of commodity derivatives
    
    
    39.50
    
    
    
    (17.48
    )
    
    
    20.34
    
    
    
    (12.46
    )Realized prices including
commodity derivatives
    
    $
    80.20
    
    
    $
    74.17
    
    
    $
    62.85
    
    
    $
    74.80
 
 (1)
    
    We record oil revenues using the sales method, i.e. when delivery has
occurred. Actual production may differ based on the timing of tanker liftings. We use the
entitlements method to account for sales of gas production.(2)
    
    The average sales prices reflect both our continuing and discontinued
operations and include gains and losses for derivative contracts we utilize to manage price
risk related to our future cash flows.    22




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Endeavour International Corporation
    Expenses
    23




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##### Table of Contents



Endeavour International Corporation
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Compensation
    
    $
    3,659
    
    
    $
    2,228
    
    
    $
    10,448
    
    
    $
    8,423Consulting, legal and accounting fees
    
    
    1,537
    
    
    
    1,491
    
    
    
    3,529
    
    
    
    3,358Occupancy costs
    
    
    221
    
    
    
    245
    
    
    
    717
    
    
    
    866Other expenses
    
    
    85
    
    
    
    1,027
    
    
    
    1,062
    
    
    
    3,070Total gross cash G&A expenses
    
    
    5,502
    
    
    
    4,991
    
    
    
    15,756
    
    
    
    15,717Non-cash stock-based compensation
    
    
    567
    
    
    
    1,058
    
    
    
    1,680
    
    
    
    1,907Gross G&A expenses
    
    
    6,069
    
    
    
    6,049
    
    
    
    17,436
    
    
    
    17,624Less: capitalized G & A expenses
    
    
    (1,978
    )
    
    
    (1,985
    )
    
    
    (5,395
    )
    
    
    (6,007
    )Net G&A expenses
    
    $
    4,091
    
    
    $
    4,064
    
    
    $
    12,041
    
    
    $
    11,617
  Income Taxes
  24




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##### Table of Contents



Endeavour International Corporation
 UK
    
    U.S.
    
    Other
    
    TotalNine Months Ended September 30, 2009Net loss before taxes from
continuing operations
    
    $
    (44,641
    )
    
    $
    (7,914
    )
    
    $
    (16,095
    )
    
    $
    (68,650
    )Current tax expense (benefit)
    
    
    (1,176
    )
    
    
    
    
    
    
    
    
    
    
    (1,176
    )Deferred tax expense (benefit)
    
    
    (16,203
    )
    
    
    
    
    
    
    
    
    
    
    (16,203
    )Foreign currency losses on
deferred tax liabilities
    
    
    6,902
    
    
    
    
    
    
    
    
    
    
    
    6,902Income tax expense (benefit)
    
    
    (10,477
    )
    
    
    
    
    
    
    
    
    
    
    (10,477
    )Net loss from continuing operations
    
    $
    (34,164
    )
    
    $
    (7,914
    )
    
    $
    (16,095
    )
    
    $
    (58,173
    )Nine Months Ended September 30, 2008Net loss before taxes from
continuing operations
    
    $
    (17,582
    )
    
    $
    (5,656
    )
    
    $
    (8,165
    )
    
    $
    (31,403
    )Current tax expense (benefit)
    
    
    6,043
    
    
    
    
    
    
    
    
    
    
    
    6,043Deferred tax expense (benefit)
    
    
    (15,256
    )
    
    
    
    
    
    
    
    
    
    
    (15,256
    )Foreign currency losses on
deferred tax liabilities
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18Income tax expense (benefit)
    
    
    (9,195
    )
    
    
    
    
    
    
    
    
    
    
    (9,195
    )Net loss from continuing operations
    
    $
    (8,387
    )
    
    $
    (5,656
    )
    
    $
    (8,165
    )
    
    $
    (22,208
    )
    Reconciliation of Non-GAAP Measures
  25




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##### Table of Contents



Endeavour International Corporation
     
    
    our cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
    
    changes in, or cash requirements for, our working capital needs;
    
    unrealized gains (losses) on derivatives;
    
    non-cash foreign currency gains (losses);
    
    our interest expense, or the cash requirements necessary to service interest and
principal payments on our debts;
    
    our preferred stock dividend requirements; and
    
    depreciation, depletion and amortization.
 26




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##### Table of Contents



Endeavour International Corporation
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income (loss)
    
    $
    (4,483
    )
    
    $
    78,196
    
    
    $
    (11,527
    )
    
    $
    (2,620
    )Depreciation, depletion and amortization
    
    
    5,646
    
    
    
    18,949
    
    
    
    29,509
    
    
    
    64,073Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    30,645
    
    
    
    Deferred tax expense (benefit)
    
    
    327
    
    
    
    52,709
    
    
    
    (3,269
    )
    
    
    (5,568
    )Gain on asset sales
    
    
    (277
    )
    
    
    
    
    
    
    (47,420
    )
    
    
    Unrealized (gain) loss on derivatives
    
    
    4,360
    
    
    
    (119,089
    )
    
    
    38,455
    
    
    
    41,239Other
    
    
    2,042
    
    
    
    (621
    )
    
    
    13,577
    
    
    
    7,946Discretionary Cash Flow (1)
    
    $
    7,615
    
    
    $
    30,144
    
    
    $
    49,970
    
    
    $
    105,070Net income (loss) to common shareholders
    
    $
    (7,179
    )
    
    $
    75,487
    
    
    $
    (19,588
    )
    
    $
    (10,733
    )Impairment of oil and gas properties
(net of tax) (2)
    
    
    
    
    
    
    
    
    
    
    15,322
    
    
    
    Unrealized (gain) loss on derivatives
(net of tax) (3)
    
    
    2,885
    
    
    
    (62,684
    )
    
    
    23,632
    
    
    
    21,549Currency impact on deferred taxes
    
    
    (2,106
    )
    
    
    (6,926
    )
    
    
    8,143
    
    
    
    (4,203
    )Net Income (Loss) as Adjusted
    
    $
    (6,400
    )
    
    $
    5,877
    
    
    $
    27,509
    
    
    $
    6,613Net income (loss) to common shareholders
    
    $
    (7,179
    )
    
    $
    75,487
    
    
    $
    (19,588
    )
    
    $
    (10,733
    )Unrealized (gain) loss on derivatives
    
    
    4,360
    
    
    
    (119,089
    )
    
    
    38,455
    
    
    
    41,239Net interest expense
    
    
    3,877
    
    
    
    4,338
    
    
    
    11,860
    
    
    
    17,182Depreciation, depletion and amortization
    
    
    5,646
    
    
    
    18,949
    
    
    
    29,509
    
    
    
    64,073Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    30,645
    
    
    
    Income tax expense (benefit)
    
    
    (441
    )
    
    
    65,395
    
    
    
    (5,047
    )
    
    
    23,001Gain on asset sales
    
    
    (277
    )
    
    
    
    
    
    
    (47,420
    )
    
    
    Preferred stock dividends
    
    
    2,696
    
    
    
    2,709
    
    
    
    8,061
    
    
    
    8,113Adjusted EBITDA
    
    $
    8,682
    
    
    $
    47,789
    
    
    $
    46,475
    
    
    $
    142,875
 
 (1)
    
    Discretionary cash flow is equal to cash flow from operating activities before
the changes in operating assets and liabilities.(2)
    
    Net of tax benefits of $ (15,323) for the nine months ended September 30, 2009.(3)
    
    Net of tax expense (benefit) of $ (1,475), $ 56,404, $ (14,823) and $ (19,689),
respectively. 27




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Endeavour International Corporation
 Liquidity and Capital Resources
      Nine Months Ended September 30,2009
    
    2008Net cash provided by operating activities
    
    $
    39,684
    
    
    $
    99,614Net cash provided by (used in) investing activities
    
    $
    72,365
    
    
    $
    (46,512
    )Net cash used in financing activities
    
    $
    (72,400
    )
    
    $
    (43,865
    )
 Drilling Program
  28




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##### Table of Contents



Endeavour International Corporation
 
    
    Value creation, such as net present value per BOE and internal rate of return;
    
    Lead time from initial acquisition to first production;
    
    Ownership interest, risks and rewards, for example lower interests in high risk
projects;
    
    Financial impact, for example finding costs per BOE and timing of capital commitments;
    
    Growth opportunities, i.e. a successful well unlocks a play and supplies a string of
future drill locations;
    
    Gas versus oil; and
    
    UK and US.
        29




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##### Table of Contents



Endeavour International Corporation
  Rig Commitments
 
 2009 Outlook
  Estimated Average Production (A)Daily Production (BOE per day)
    
    4,000
    to
    
    5,000Differentials (B)Oil ($/Bbl)
    
    $(5.50)
    to
    $
    (6.50
    )Gas ($Mcf)
    
    $(0.10)
    to
    $
    (0.20
    )Gas percentage of Total
    
    50%
    to
    
    55
    %Lease Operating Expense ($  per barrel)
    
    $9.50
    to
    $
    12.00
 
 (A)
    
    Actual results may differ materially from these estimates.(B)
    
    For purposes of the estimates, assumptions of price differentials are based on
location, quality and other factors, excluding the effects of derivative financial
instruments. Gas price differentials are stated as premiums (discounts) from National
Balancing Point pricing, and oil price differentials are stated as premiums (discounts)
from Dated Brent pricing.  30




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##### Table of Contents



Endeavour International Corporation
 Disclosures About Contractual Obligations and Commercial Commitments
 
 Cautionary Statement for Forward-Looking Statements
  
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Foreign Exchange Risk
  31




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##### Table of Contents



Endeavour International Corporation
 Commodity Price Risk
   2009
    
    2010
    
    2011
    
    TotalOil:Fixed Price Swaps (Mbbl)
    
    
    80
    
    
    
    573
    
    
    
    487
    
    
    
    1,140Weighted Average Price ($/Barrel)
    
    $
    69.08
    
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    67.42Costless Collar (Mbbl)
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Weighted Average Ceiling Price
($/Barrel)
    
    $
    121.88
    
    
    $
    
    
    
    $
    
    
    
    $
    121.88Weighted Average Floor Price
($/Barrel)
    
    $
    100.00
    
    
    $
    
    
    
    $
    
    
    
    $
    100.00Gas: (1)Fixed Price Swaps (MMcf)
    
    
    347
    
    
    
    1,032
    
    
    
    627
    
    
    
    2,006Weighted Average Price ($/Mcf)
    
    $
    9.58
    
    
    $
    8.57
    
    
    $
    8.21
    
    
    $
    8.63Costless Collar (MCF)
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    353Weighted Average Ceiling Price
($/Mcf)
    
    $
    14.50
    
    
    $
    
    
    
    $
    
    
    
    $
    14.50Weighted Average Floor Price ($/Mcf)
    
    $
    10.20
    
    
    $
    
    
    
    $
    
    
    
    $
    10.20
 
 (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, 2009 was 1.5991 to £1.00. Interest Rate Risk
   32




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##### Table of Contents



Endeavour International Corporation
 Evaluation of Disclosure Controls and Procedures
 
 Item 4: Controls and Procedures
    Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1A: Risk Factors
 Risk Factors
 The adoption of derivatives legislation by the U.S. Congress could have an adverse impact on our
ability to hedge risks associated with our business.
  33




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##### Table of Contents



Endeavour International Corporation
   
 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 Section 302 of
the Sarbanes-Oxley Act of 2002.31.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 34




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##### Table of Contents



Endeavour International Corporation
 
 Signatures
  Endeavour International Corporation
 Date: November 6, 2009
    
    /s/ J. Michael Kirksey
    
    /s/ Robert L. ThompsonJ. Michael Kirksey
    
    Robert L. ThompsonExecutive Vice President and
    
    Senior Vice President andChief Financial Officer
    
    Chief Accounting Officer(Principal Financial Officer)
    
    (Principal Accounting Officer)