##### 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 June 30, 2011
 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
 þ 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
    
    
    18Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4: Controls and Procedures
    
    
    37Part II. Other InformationItem 1A: Risk Factors
    
    
    38Item 6: Exhibits
    
    
    38Signatures
    
    
    40EX-2.1EX-2.2EX-10.1EX-10.2EX-10.3EX-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. References to number of
potential well locations are gross, unless otherwise indicated.
 References to GAAP refer to U.S. generally accepted accounting principles.




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##### Table of Contents



Part I: Financial Information
 
 Item 1:

    Financial Statements
 Endeavour International Corporation
 
 Condensed Consolidated Balance Sheets
 June 30,
    
    
    December 31,2011
    
    
    2010AssetsCurrent Assets:Cash and cash equivalents
    
    $
    10,229
    
    
    $
    99,267Restricted cash (released to general use in July 2011)
    
    
    33,123
    
    
    
    31,776Accounts receivable
    
    
    9,755
    
    
    
    8,068Prepaid expenses and other current assets
    
    
    13,021
    
    
    
    8,718Total Current Assets
    
    
    66,128
    
    
    
    147,829Property and Equipment, Net ($241,036 and $161,430 not subject
to amortization at 2011 and 2010, respectively)
    
    
    499,493
    
    
    
    364,677Goodwill
    
    
    211,886
    
    
    
    211,886Other Assets
    
    
    19,570
    
    
    
    25,895Total Assets
    
    $
    797,077
    
    
    $
    750,287
  1




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##### Table of Contents



Endeavour International Corporation
Condensed Consolidated Balance Sheets
 June 30,
    
    
    December 31,2011
    
    
    2010Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    59,652
    
    
    $
    32,442Current maturities of debt
    
    
    16,600
    
    
    
    21,600Accrued expenses and other
    
    
    20,495
    
    
    
    22,642Total Current Liabilities
    
    
    96,747
    
    
    
    76,684Long-Term Debt
    
    
    244,438
    
    
    
    323,706Deferred Taxes
    
    
    93,911
    
    
    
    77,200Other Liabilities
    
    
    57,559
    
    
    
    64,927Total Liabilities
    
    
    492,655
    
    
    
    542,517Commitments and ContingenciesSeries C Convertible Preferred StockFace value (liquidation preference)
    
    
    41,000
    
    
    
    45,000Net non-cash premiums under fair value accounting on redemption
    
    
    7,428
    
    
    
    8,152Total Series C Convertible Preferred Stock
    
    
    48,428
    
    
    
    53,152Stockholders Equity:Series B preferred stock  Liquidation preference: $3,351
and $3,273 at 2011 and 2010, respectively)
    
    
    
    
    
    
    Common stock; shares issued and outstanding  37,127
and 24,784 shares at 2011 and 2010, respectively
    
    
    37
    
    
    
    25Additional paid-in capital
    
    
    413,470
    
    
    
    287,995Treasury stock, at cost  72 and 72 shares at 2011
and 2010, respectively
    
    
    (587
    )
    
    
    (587
    )Accumulated deficit
    
    
    (156,926
    )
    
    
    (132,815
    )Total Stockholders Equity
    
    
    255,994
    
    
    
    154,618Total Liabilities and Stockholders Equity
    
    $
    797,077
    
    
    $
    750,287
  2




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenues
    
    $
    19,053
    
    
    $
    21,532
    
    
    $
    33,157
    
    
    $
    35,253Cost of Operations:Operating expenses
    
    
    6,352
    
    
    
    3,465
    
    
    
    11,392
    
    
    
    6,286Depreciation, depletion and amortization
    
    
    7,004
    
    
    
    7,912
    
    
    
    13,326
    
    
    
    13,593Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,692General and administrative
    
    
    4,948
    
    
    
    4,205
    
    
    
    9,662
    
    
    
    8,636Total Expenses
    
    
    18,304
    
    
    
    15,582
    
    
    
    34,380
    
    
    
    36,207Income (Loss) From Operations
    
    
    749
    
    
    
    5,950
    
    
    
    (1,223
    )
    
    
    (954
    )Other Income (Expense):Derivatives:Realized losses
    
    
    
    
    
    
    (1,332
    )
    
    
    
    
    
    
    (1,100
    )Unrealized gains (losses)
    
    
    (6,448
    )
    
    
    6,108
    
    
    
    (1,984
    )
    
    
    5,036Interest expense
    
    
    (7,831
    )
    
    
    (5,623
    )
    
    
    (20,354
    )
    
    
    (11,259
    )Interest income and other
    
    
    (48
    )
    
    
    586
    
    
    
    (186
    )
    
    
    3,609Total Other Expense
    
    
    (14,327
    )
    
    
    (261
    )
    
    
    (22,524
    )
    
    
    (3,714
    )Income (Loss) Before Income Taxes
    
    
    (13,578
    )
    
    
    5,689
    
    
    
    (23,747
    )
    
    
    (4,668
    )Income Tax Expense (Benefit)
    
    
    2,026
    
    
    
    5,084
    
    
    
    (687
    )
    
    
    9,917Net Income (Loss)
    
    
    (15,604
    )
    
    
    605
    
    
    
    (23,060
    )
    
    
    (14,585
    )Preferred Stock Dividends
    
    
    506
    
    
    
    547
    
    
    
    1,052
    
    
    
    1,136Net Income (Loss) to Common Stockholders
    
    $
    (16,110
    )
    
    $
    58
    
    
    $
    (24,112
    )
    
    $
    (15,721
    )Net Loss per Common Share  Basic and Diluted
    
    $
    (0.42
    )
    
    $
    
    
    
    $
    (0.74
    )
    
    $
    (0.71
    )Weighted Average Number of Common Shares Outstanding:Basic and Diluted
    
    
    38,612
    
    
    
    23,145
    
    
    
    32,714
    
    
    
    22,259
  3




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Cash Flows
 Six Months Ended June 30,2011
    
    
    2010Cash Flows from Operating Activities:Net loss
    
    $
    (23,060
    )
    
    $
    (14,585
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation, depletion and amortization
    
    
    13,326
    
    
    
    13,593Impairment of oil and gas properties
    
    
    
    
    
    
    7,692Deferred tax expense (benefit)
    
    
    (875
    )
    
    
    8,445Unrealized (gains) losses on derivatives
    
    
    1,984
    
    
    
    (5,036
    )Amortization of non-cash compensation
    
    
    1,792
    
    
    
    1,998Amortization of loan costs and discount
    
    
    6,560
    
    
    
    3,313Non-cash interest expense
    
    
    5,928
    
    
    
    3,409Other
    
    
    2,789
    
    
    
    (3,565
    )Changes in operating assets and liabilities:(Increase) decrease in receivables
    
    
    (1,687
    )
    
    
    6,027Increase in other current assets
    
    
    (9,376
    )
    
    
    (1,738
    )Increase (decrease) in liabilities
    
    
    (21,248
    )
    
    
    4,900Net Cash Provided by (Used in) Operating Activities
    
    
    (23,867
    )
    
    
    24,453Cash Flows From Investing Activities:Capital expenditures
    
    
    (66,727
    )
    
    
    (41,392
    )Acquisitions
    
    
    (22,240
    )
    
    
    (33,047
    )(Increase) decrease in restricted cash
    
    
    (1,347
    )
    
    
    2,878Net Cash Used in Investing Activities
    
    
    (90,314
    )
    
    
    (71,561
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (92,050
    )
    
    
    (9,317
    )Borrowings under debt agreements
    
    
    
    
    
    
    25,000Proceeds from issuance of common stock
    
    
    118,444
    
    
    
    20,011Dividends paid
    
    
    (973
    )
    
    
    (1,057
    )Other financing
    
    
    (278
    )
    
    
    (1,223
    )Net Cash Provided by Financing Activities
    
    
    25,143
    
    
    
    33,414Net Decrease in Cash and Cash Equivalents
    
    
    (89,038
    )
    
    
    (13,694
    )Cash and Cash Equivalents, Beginning of Period
    
    
    99,267
    
    
    
    27,287Cash and Cash Equivalents, End of Period
    
    $
    10,229
    
    
    $
    13,593
  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)
   June 30,2011
    
    
    2010Warrants, options and stock-based compensation
    
    
    141
    
    
    
    104Convertible debt
    
    
    3,576
    
    
    
    5,505Convertible preferred stock
    
    
    4,686
    
    
    
    5,1438,403
    
    
    
    10,752
 New Accounting Developments
  
    
    Subsequent Events Amended standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are issued; and
    
    Fair Value New, expanded disclosures are required for recurring or nonrecurring
fair-value measurements and the reconciliation of specific fair value measurements.
   6




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 2  Property and Equipment
  June 30,
    
    
    December 31,2011
    
    
    2010Oil and gas properties under the full cost method:Subject to amortization
    
    $
    455,001
    
    
    $
    389,575Not subject to amortization:Acquired in 2011
    
    
    89,902
    
    
    
    Acquired in 2010
    
    
    63,555
    
    
    
    67,612Acquired in 2009
    
    
    29,204
    
    
    
    31,134Acquired prior to 2009
    
    
    58,375
    
    
    
    62,684696,037
    
    
    
    551,005Computers, furniture and fixtures
    
    
    4,620
    
    
    
    4,222Total property and equipment
    
    
    700,657
    
    
    
    555,227Accumulated depreciation, depletion and amortization
    
    
    (201,164
    )
    
    
    (190,550
    )Net property and equipment
    
    $
    499,493
    
    
    $
    364,677
   Assets Acquisition
  7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Pending Acquisition
  Note 3  Debt Obligations
  June 30,
    
    
    December 31,2011
    
    
    2010Senior notes, 6% fixed rate, due 2012
    
    $
    
    
    
    $
    81,250Convertible bonds, 11.5%, due 2016
    
    
    59,077
    
    
    
    55,821Subordinated notes, 12.0%, due 2014
    
    
    41,620
    
    
    
    51,132Senior term loan, 15%, due 2013
    
    
    163,011
    
    
    
    161,371263,708
    
    
    
    349,574Less: debt discount
    
    
    (2,670
    )
    
    
    (4,268
    )Less: current maturities
    
    
    (16,600
    )
    
    
    (21,600
    )Long-term debt
    
    $
    244,438
    
    
    $
    323,706Standby letters of credit outstanding for abandonment liabilities
    
    $
    33,166
    
    
    $
    31,726
   6% Senior Notes
  8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  11.5% Convertible Bonds
  
    
    the amendment of the maturity date of the 11.5% Convertible Bonds from January 24, 2014
to January 24, 2016;
    
    the amendment of the date upon which the holders of the 11.5% Convertible Bonds may
first exercise a put right, and the occurrence of the conversion price reset if such put
right is not exercised, from January 24, 2012 to January 24, 2016; and
    
    a reduction in the interest rate payable from 11.5% to 7.5% on and after March 31, 2014.
  Senior Term Loan
    5.5% Convertible Senior Notes
  9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 4  Asset Retirement Obligations
  Six Months EndedJune 30,2011
    
    
    2010Carrying amount of asset retirement obligations as of beginning of
period
    
    $
    42,997
    
    
    $
    47,362Accretion expense (included in DD&A expense)
    
    
    2,434
    
    
    
    2,245Impact of foreign currency exchange rate changes
    
    
    1,871
    
    
    
    (3,640
    )Payment of asset retirement obligations
    
    
    (10,680
    )
    
    
    (567
    )Reduction in asset retirement obligations
    
    
    
    
    
    
    (1,812
    )Carrying amount of asset retirement obligations as of end of period
    
    
    36,622
    
    
    
    43,588Less: Current portion
    
    
    (6,677
    )
    
    
    (4,849
    )Long-term asset retirement obligations
    
    $
    29,945
    
    
    $
    38,739
 Note 5  Equity Transactions
 New York Stock Exchange Listing of Common Stock
  Common Stock Offering
  Series C Convertible Preferred Stock
  10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6  Stock-Based Compensation Arrangements
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010G & A Expenses
    
    $
    634
    
    
    $
    615
    
    
    $
    1,277
    
    
    $
    1,498Capitalized G & A
    
    
    283
    
    
    
    230
    
    
    
    515
    
    
    
    500Total non-cash
stock-based
compensation
    
    $
    917
    
    
    $
    845
    
    
    $
    1,792
    
    
    $
    1,998
  Stock Options
  Weighted
    
    
    WeightedNumber of
    
    
    Average
    
    
    AverageShares
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateUnderlying
    
    
    Price per
    
    
    Life in
    
    
    IntrinsicOptions
    
    
    Share
    
    
    Years
    
    
    ValueBalance outstanding  January 1, 2011
    
    
    464
    
    
    $
    10.04Exercised
    
    
    (56
    )
    
    
    6.80Forfeited
    
    
    (21
    )
    
    
    12.95Expired
    
    
    (48
    )
    
    
    24.16Balance outstanding  June 30, 2011
    
    
    339
    
    
    $
    8.37
    
    
    
    6.5
    
    
    $
    2,293Currently exercisable  June 30, 2011
    
    
    297
    
    
    $
    8.98
    
    
    
    6.4
    
    
    $
    1,829
 11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Restricted Stock
  WeightedAverage GrantDate FairNumber of
    
    
    Value perShares
    
    
    ShareBalance outstanding  January 1, 2011
    
    
    816
    
    
    $
    7.39Granted
    
    
    374
    
    
    
    13.65Vested
    
    
    (299
    )
    
    
    7.38Forfeited
    
    
    (44
    )
    
    
    7.51Balance outstanding  June 30, 2011
    
    
    847
    
    
    $
    10.15Total grant date fair value of shares vesting during the period
    
    $
    3,995
 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, 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.
 12




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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 ValueAs of June 30, 2011:Oil and gas derivative contracts:Oil and gas puts
    
    $
    
    
    
    $
    694
    
    
    $
    161
    
    
    $
    855Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (27,090
    )
    
    
    (27,090
    )Total derivative liabilities
    
    $
    
    
    
    $
    694
    
    
    $
    (26,929
    )
    
    $
    (26,235
    )As of December 31, 2010:Oil and gas derivative contracts:Oil and gas puts
    
    $
    
    
    
    $
    1,213
    
    
    $
    792
    
    
    $
    2,005Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (27,495
    )
    
    
    (27,495
    )Total derivative liabilities
    
    $
    
    
    
    $
    1,213
    
    
    $
    (26,703
    )
    
    $
    (25,490
    )
   13




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Six Months Ended June 30, 2011:Balance at beginning of period
    
    $
    (26,703
    )Realized and unrealized gains (losses) included in earnings
    
    
    (226
    )Balance at end of period
    
    $
    (26,929
    )Changes in unrealized gains (losses) relating to derivatives assets and liabilities still held at June 30, 2011:
    
    $
    (226
    )Six Months Ended June 30, 2010:Balance at beginning of period
    
    $
    (12,057
    )Realized and unrealized gains (losses) included in earnings
    
    
    (6,515
    )Balance at end of period
    
    $
    (18,572
    )Changes in unrealized gains (losses) relating to derivatives assets and liabilities still held at June 30, 2010 :
    
    $
    (5,618
    )
 Note 8  Derivative Instruments
   14




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 June 30,
    
    
    December 31,2011
    
    
    2010Derivatives not designated as hedges:Oil and gas commodity derivatives:Assets:Prepaid expenses and other current assets
    
    $
    487
    
    
    $
    709Other assets  long term
    
    
    368
    
    
    
    1,296$
    855
    
    
    $
    2,005Embedded derivatives related to debt and equity instruments:Assets:Other assets  long-term
    
    $
    
    
    
    $
    315Liabilities:Other liabilities  long-term
    
    $
    (27,090
    )
    
    $
    (27,810
    )
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Derivatives not designated as hedges:Oil and gas commodity derivativesRealized gains (losses)
    
    $
    
    
    
    $
    (1,332
    )
    
    $
    
    
    
    $
    (1,100
    )Unrealized gains (losses)
    
    
    (378
    )
    
    
    4,553
    
    
    
    (2,389
    )
    
    
    4,758(378
    )
    
    
    3,221
    
    
    
    (2,389
    )
    
    
    3,658Embedded derivatives related to debt
and equity instrumentsUnrealized gains (losses)
    
    $
    (6,070
    )
    
    $
    1,555
    
    
    $
    405
    
    
    $
    278
  15




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 9  Supplemental Cash Flow Information
  Six Months Ended June 30,2011
    
    
    2010Interest paid
    
    $
    15,923
    
    
    $
    6,007Income taxes paid (refunded)
    
    $
    5,786
    
    
    $
    (10
    )
 Note
10  Commitments and Contingencies
  Note 11  Subsequent Events
  
    
    consent and approval by the lenders of the issuance of the 5.5% Convertible Senior Notes
and certain conforming amendments with respect to the issuance of those notes, including
an increase in the basket available for the issuance of junior debt from $100 million to
$135 million;
    
    an amendment to the negative pledge provision to allow us to provide up to $10 million
of cash margin to secure hedging obligations and;
    
    an extension by one additional quarters to the scheduled step up in the minimum secured
debt coverage ratio.
  16




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     17




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Endeavour International Corporation
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    18




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##### Table of Contents



Endeavour International Corporation
  
    
    In July 2011, we secured new letters of credit that allowed us to release the $33
million of restricted cash into operations that served as collateral for previous letters
of credit.
    
    In July 2011, we entered into purchase and sale agreements with SM Energy Company and
certain other minority owners to acquire the leasehold and producing interests held by SM
Energy and its partners in the Marcellus shale in north central Pennsylvania, as well as a
pipeline and related facilities, for aggregate consideration of $110 million.
    
    In July 2011, we issued $135 million aggregate principal amount of our 5.5% Convertible
Senior Notes and intend to use substantially all of the net proceeds of this offering to
fund our pending acquisition of acreage and related midstream assets in the Marcellus shale
play.
    
    In July 2011, we entered into an amendment to our Senior Term Loan providing for an
increase of $75 million in the amounts available under the Senior Term Loan. The proceeds
will be used for general corporate purposes.
    
    In April 2011, we redeemed all $81.25 million of our outstanding 6% Senior Notes with a
portion of the proceeds from our common stock offering completed in March 2011.
    
    In March 2011, we closed a public offering of 11.5 million shares of our common stock
offering for net proceeds of $118.4 million.
    
    In March 2011, we completed the transfer of the primary listing for our common stock
from the NYSE Amex to the New York Stock Exchange.
    
    In March 2011, we entered into an Amendment to the Trust Deed dated as of January 24,
2008 with Smedvig QIF PLC and the other parties thereto related to our 11.5% Convertible
Bonds. The amendment provides for an extension of the maturity date of the 11.5%
Convertible Bonds; extends the date on which holders may exercise a put right, and the
occurrence of price reset if not exercised; and a reduction in the interest rate payable
after March 31, 2014 to 7.5%.
    
    In February 2011, the Department of Energy and Climate Change (the DECC) approved the
Rochelle FDP for Block 15/27 in East Rochelle. In April 2011, we announced the agreement
of the commercial terms for the processing and transportation of East Rochelle production
on the Scott Platform in the Central North Sea. As the operator, we plan to award
contracts and commence immediate construction of the production facilities. First
production from East Rochelle is planned for the second half of 2012.
    
    In February 2011, we finalized our acquisition of an additional 20% working interest in
the Bacchus development for approximately $9.2 million in cash payable at closing and
approximately $6.2 million in cash payable at the earlier of three months after first
production or the last business day of 2011. In addition, we paid capital costs previously
incurred by the seller of $9.4 million. Following the acquisition, we now hold an aggregate
working interest of 30%.
 19




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Endeavour International Corporation
 
    
    In February 2011, we amended our Senior Term Loan to increase the security reserved for
potential letters of credit from $25 million to $35 million. In July 2011, we secured new letters
of credit that allowed us to release the $33 million of restricted cash that served as collateral
for previous letters of credit.
 Results of Operations
       20




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Endeavour International Corporation
  Revenue and Sales Volume
   21




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Endeavour International Corporation
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales volume (1)Oil and condensate sales (Mbbls):United Kingdom
    
    
    125
    
    
    
    188
    
    
    
    225
    
    
    
    301United States
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    3Total
    
    
    126
    
    
    
    189
    
    
    
    227
    
    
    
    304Gas sales (MMcf):United Kingdom
    
    
    34
    
    
    
    979
    
    
    
    78
    
    
    
    1,745United States
    
    
    1,012
    
    
    
    441
    
    
    
    1,976
    
    
    
    721Total
    
    
    1,046
    
    
    
    1,420
    
    
    
    2,054
    
    
    
    2,466Oil equivalent sales (MBOE)United Kingdom
    
    
    131
    
    
    
    351
    
    
    
    238
    
    
    
    592United States
    
    
    169
    
    
    
    75
    
    
    
    332
    
    
    
    123Total
    
    
    300
    
    
    
    426
    
    
    
    570
    
    
    
    715Total BOE per day
    
    
    3,295
    
    
    
    4,684
    
    
    
    3,149
    
    
    
    3,951Physical production volume (BOE per day) (1):United Kingdom
    
    
    1,316
    
    
    
    3,279
    
    
    
    1,311
    
    
    
    3,199United States
    
    
    1,888
    
    
    
    824
    
    
    
    1,887
    
    
    
    680Total
    
    
    3,204
    
    
    
    4,103
    
    
    
    3,198
    
    
    
    3,879Realized Prices (2)Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    117.34
    
    
    $
    76.80
    
    
    $
    109.03
    
    
    $
    74.33Effect of commodity derivatives
    
    
    
    
    
    
    (8.50
    )
    
    
    
    
    
    
    (8.83
    )Realized prices including
commodity derivatives
    
    $
    117.34
    
    
    $
    68.30
    
    
    $
    109.03
    
    
    $
    65.50Gas price ($  per Mcf):Before commodity derivatives
    
    $
    4.13
    
    
    $
    4.91
    
    
    $
    4.07
    
    
    $
    5.13Effect of commodity derivatives
    
    
    
    
    
    
    0.20
    
    
    
    
    
    
    
    0.64Realized prices including
commodity derivatives
    
    $
    4.13
    
    
    $
    5.11
    
    
    $
    4.07
    
    
    $
    5.77Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    63.54
    
    
    $
    50.51
    
    
    $
    58.18
    
    
    $
    49.30Effect of commodity derivatives
    
    
    
    
    
    
    (3.12
    )
    
    
    
    
    
    
    (1.54
    )Realized prices including
commodity derivatives
    
    $
    63.54
    
    
    $
    47.39
    
    
    $
    58.18
    
    
    $
    47.76
 
 (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. 22




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Endeavour International Corporation
 
 (2)
    
    The average sales prices include gains and losses for derivative
contracts we utilize to manage price risk related to our future cash flows.      23




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Endeavour International Corporation
 Expenses
     24




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Endeavour International Corporation
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Compensation
    
    $
    4,829
    
    
    $
    4,166
    
    
    $
    9,867
    
    
    $
    8,409Consulting, legal and accounting fees
    
    
    1,437
    
    
    
    1,548
    
    
    
    3,158
    
    
    
    3,075Occupancy costs
    
    
    385
    
    
    
    273
    
    
    
    750
    
    
    
    522Other expenses
    
    
    1,211
    
    
    
    1,081
    
    
    
    1,715
    
    
    
    1,254Total gross cash G&A expenses
    
    
    7,862
    
    
    
    7,068
    
    
    
    15,490
    
    
    
    13,260Non-cash stock-based compensation
    
    
    917
    
    
    
    845
    
    
    
    1,792
    
    
    
    1,998Gross G&A expenses
    
    
    8,779
    
    
    
    7,913
    
    
    
    17,282
    
    
    
    15,258Less: capitalized G & A expenses
    
    
    (3,831
    )
    
    
    (3,708
    )
    
    
    (7,620
    )
    
    
    (6,622
    )Net G&A expenses
    
    $
    4,948
    
    
    $
    4,205
    
    
    $
    9,662
    
    
    $
    8,636
  25




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Endeavour International Corporation
 Income Taxes
  UK
    
    
    U.S.
    
    
    Other
    
    
    TotalSix Months Ended June 30, 2011:Net loss before taxes
    
    $
    (1,723
    )
    
    $
    (17,195
    )
    
    $
    (4,829
    )
    
    $
    (23,747
    )Current tax expense
    
    
    184
    
    
    
    4
    
    
    
    
    
    
    
    188Deferred tax benefit
    
    
    (875
    )
    
    
    
    
    
    
    
    
    
    
    (875
    )Income tax expense (benefit)
    
    
    (691
    )
    
    
    4
    
    
    
    
    
    
    
    (687
    )Net loss
    
    $
    (1,032
    )
    
    $
    (17,199
    )
    
    $
    (4,829
    )
    
    $
    (23,060
    )Six Months Ended June 30, 2010:Net income (loss) before taxes
    
    $
    13,654
    
    
    $
    (18,370
    )
    
    $
    48
    
    
    $
    (4,668
    )Current tax expense
    
    
    1,472
    
    
    
    
    
    
    
    
    
    
    
    1,472Deferred tax expense (benefit)
    
    
    8,591
    
    
    
    
    
    
    
    (146
    )
    
    
    8,445Income tax expense (benefit)
    
    
    10,063
    
    
    
    
    
    
    
    (146
    )
    
    
    9,917Net income (loss)
    
    $
    3,591
    
    
    $
    (18,370
    )
    
    $
    194
    
    
    $
    (14,585
    )
   2011 U.K. Tax Increase
  Reconciliation of Non-GAAP Measures
  26




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Endeavour International Corporation
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Net income (loss)
    
    $
    (15,604
    )
    
    $
    605
    
    
    $
    (23,060
    )
    
    $
    (14,585
    )Impairment of oil and gas properties (net of
tax) (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,692Unrealized (gain) loss on derivatives (net of
tax) (2)
    
    
    6,259
    
    
    
    (3,832
    )
    
    
    790
    
    
    
    (2,657
    )Currency impact on deferred taxes
    
    
    
    
    
    
    (87
    )
    
    
    
    
    
    
    (146
    )Net Loss as Adjusted
    
    $
    (9,345
    )
    
    $
    (3,314
    )
    
    $
    (22,270
    )
    
    $
    (9,696
    )Net income (loss)
    
    $
    (15,604
    )
    
    $
    605
    
    
    $
    (23,060
    )
    
    $
    (14,585
    )Unrealized (gain) loss on derivatives
    
    
    6,448
    
    
    
    (6,108
    )
    
    
    1,984
    
    
    
    (5,036
    )Net interest expense
    
    
    7,732
    
    
    
    5,605
    
    
    
    20,150
    
    
    
    11,237Depreciation, depletion and amortization
    
    
    7,004
    
    
    
    7,912
    
    
    
    13,326
    
    
    
    13,593Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,692Income tax expense (benefit)
    
    
    2,026
    
    
    
    5,084
    
    
    
    (687
    )
    
    
    9,917Adjusted EBITDA
    
    $
    7,606
    
    
    $
    13,098
    
    
    $
    11,713
    
    
    $
    22,818
 
 (1)
    
    Net of tax benefits of none.(2)
    
    Net of tax (benefit) expense of $189 and $(2,277) and $1,195 and $(2,379),
respectively. 27




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##### Table of Contents



Endeavour International Corporation
 Liquidity and Capital Resources
  Six Months Ended June 30,2011
    
    
    2010Net cash provided by (used in) operating activities
    
    $
    (23,867
    )
    
    $
    24,453Net cash used in investing activities
    
    $
    (90,314
    )
    
    $
    (71,561
    )Net cash provided by financing activities
    
    $
    25,143
    
    
    $
    33,414
     
    
    the amendment of the maturity date of the 11.5% Convertible Bonds from January 24, 2014
to January 24, 2016;
    
    the amendment of the date upon which the holders of the 11.5% Convertible Bonds may
first exercise a put right, and the occurrence of the conversion price reset if such put
right is not exercised, from January 24, 2012 to January 24, 2016; and
    
    a reduction in the interest rate payable from 11.5% to 7.5% on and after March 31, 2014.
  28




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Endeavour International Corporation
  Capital Program
      29




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Endeavour International Corporation
  United Kingdom Activity
     30




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Endeavour International Corporation
 United States Drilling
     Pending Acquisition
  31




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Endeavour International Corporation
  
    
    Approximately 50,000 net acres of leasehold with 100 percent operated working interests
in McKean and Potter counties;
    
    Current production from three existing wells of approximately three to four million
cubic feet of natural gas per day, including the Potato Creek #3H well that initially
flowed 11 million cubic feet of gas per day and is expected to recover in excess of 4
billion cubic feet of gas;
    
    100 percent ownership of Potato Creek LLC, which owns a midstream gathering system and
related facilities in southern McKean County, including a 10-mile 16 trunkline connected
and flowing to Tennessee Gas Pipelines 24 mainline; and
    
    Proprietary and fully processed 3-D seismic survey covering the entire Potato Creek
lease block.
  2011 Outlook and Liquidity
   
    
    The operator at Bacchus has experienced delays in moving the drilling rig to the
location. Drilling,  began in August 2011 and production is
now anticipated from the first well during the fourth quarter. The second and third wells
will subsequently be tied into production, without needing to move the rig.
    
    In the U.S., we have had drilling success and continue to tie in new wells
but due to infrastructure issues, have not increased production
at
the
rate that
 we had originally expected. We are working with the operators to increase access
to major pipelines, expand pipeline infrastructure or other alternatives to market
production.
    
    As discussed earlier, the Goldeneye field ceased production during the first quarter of
2011.
 32




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##### Table of Contents



Endeavour International Corporation
      
    
    an actual basis; and
    
    an as adjusted basis to give effect to our issuance of 5.5% Convertible Senior Notes and
our incremental borrowings under the amendment to the Senior Term Loan.
  33




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##### Table of Contents



Endeavour International Corporation
 As of June 30, 2011Actuals
    
    
    As Adjusted (1)Cash, cash equivalents and restricted cash
    
    $
    43,352
    
    
    $
    244,46411.5% convertible bonds due 2016
    
    $
    56,407
    
    
    $
    56,40712% subordinated notes due 2014
    
    
    41,620
    
    
    
    41,62015% senior term loan due 2013
    
    
    163,011
    
    
    
    238,0115.5% convertible senior notes due 2016
    
    
    
    
    
    
    135,000Total debt
    
    
    261,038
    
    
    
    471,038Series C convertible preferred stock
    
    
    48,428
    
    
    
    48,428Total equity
    
    
    255,994
    
    
    
    255,994Total capitalization
    
    $
    565,460
    
    
    $
    775,460
 (1)
    
    The adjustments do not include the use of proceeds for our
pending Marcellus acquisition for $110 million.
  
    
    Initial production date of the Bacchus field We expect to drill our initial
development well and commence production early in the fourth quarter of 2011 and follow
with two additional development wells thereafter. The precise initial production date,
rate of production and how long it may take for Bacchus to reach full production are key
variables to our overall 2011 production levels.
    
    U.S. drilling program results Since the beginning of 2011, we have completed and
begun producing from six wells. We currently have eleven wells in progress; with three of
those wells drilling and the remainder awaiting or in the process of completion.
    
    Increased Marcellus production The acreage in our Marcellus acquisition includes
three currently producing wells. These wells produced an aggregate of approximately 4
MMcf/d during the six months ended June 30, 2011. The acreage is situated in close
proximity to our existing Marcellus acreage.
  34




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##### Table of Contents



Endeavour International Corporation
 Disclosures About Contractual Obligations and Commercial Commitments
  (Amounts in thousands)
    
    Payments due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    After 5 YearsLong-term debtPrincipal
    
    $
    263,708
    
    
    $
    16,600
    
    
    $
    181,411
    
    
    $
    65,697
    
    
    $
    Interest (1)
    
    
    96,252
    
    
    
    29,188
    
    
    
    33,456
    
    
    
    33,608
    
    
    
    Asset retirement obligations
    
    
    36,622
    
    
    
    6,677
    
    
    
    11,347
    
    
    
    1,467
    
    
    
    17,131Operating leases for office
leases and equipment
    
    
    2,545
    
    
    
    597
    
    
    
    961
    
    
    
    658
    
    
    
    329Total Contractual Obligations
    
    $
    399,127
    
    
    $
    53,062
    
    
    $
    227,175
    
    
    $
    101,430
    
    
    $
    17,460
 Cautionary Statement for Forward-Looking Statements
  
    
    our future financial position;
    
    our business strategy;
    
    pending acquisitions;
    
    budgets;
    
    projected costs, savings and plans;
    
    objectives of management for future operations;
    
    legal strategies; and
    
    legal proceedings.
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##### Table of Contents



Endeavour International Corporation
  
    
    discovery, estimation, development and replacement of oil and gas reserves;
    
    decreases in proved reserves due to technical or economic factors;
    
    drilling of wells and other planned exploitation activities;
    
    timing and amount of future production of oil and gas;
    
    the volatility of oil and gas prices;
    
    availability and terms of capital;
    
    operating costs such as lease operating expenses, administrative costs and other
expenses;
    
    our future operating or financial results;
    
    amount, nature and timing of capital expenditures, including future development costs;
    
    cash flow and anticipated liquidity;
    
    availability of drilling and production equipment;
    
    uncertainties related to drilling and production operations in a new region;
    
    cost and access to natural gas gathering, treatment and pipeline facilities;
    
    business strategy and the availability of acquisition opportunities; and
    
    factors not known to us at this time.
  
 Item 3:
    
    Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
  36




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Endeavour International Corporation
   2011
    
    
    2012
    
    
    TotalOil:Fixed Price Puts (Mbbl)  Brent
    
    
    138
    
    
    
    100
    
    
    
    238Weighted Average Price ($/Barrel)
    
    $
    95.08
    
    
    $
    90.74
    
    
    $
    93.25Gas: (1)Fixed Price Puts (MMcf)  Heren National Balancing Point
    
    
    590
    
    
    
    548
    
    
    
    1,138Weighted Average Price ($/Mcf)
    
    $
    7.80
    
    
    $
    8.55
    
    
    $
    8.16
 
 (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 June 30, 2011 was $1.61 to £1.00. 
 Item 4:
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  37




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Endeavour International Corporation
 
 Part II. Other Information
 
 Item 1A:
    
    Risk Factors
 Risk Factors
 Recently Proposed Rules Regulating Air Emissions from Oil and Gas Operations Could Cause Us to
Incur Increased Capital Expenditures and Operating Costs
  
 Item 6:
    
    Exhibits
  38




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##### Table of Contents



Endeavour International Corporation
 2.1 *
    
    Purchase and Sale Agreement, dated as of July 17, 2011, by and among Endeavour Operating
Corporation, SM Energy Company, Potato Creek LLC, Open Flow Gas Supply Corporation and SJ
Exploration LLC.2.2 *
    
    Membership Interest Purchase Agreement, dated as of July 17, 2011, by and among Endeavour
Operating Corporation, SM Energy Company, and Potato Creek LLC.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).3.1(c)
    
    Certificate of Amendment dated June 1, 2010 (Incorporated by reference to Exhibit 3.1 to our
Current Report on Form 8-K (Commission File No. 001-32212) filed on June 3, 2010).3.1(d)
    
    Amendment to Articles of Incorporation, dated November 17, 2010 (Incorporated by reference
to Exhibit 3.1(d) of our Annual Report on Form 10-K (Commission File No. 001-32212) for the
year ended December 31, 2010).3.2(a)
    
    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).3.2(b)
    
    Amendment to Amended and Restated Bylaws dated December 12, 2007 (Incorporated by reference
to Exhibit 3.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on
December 13, 2007).4.1
    
    Indenture dated as of July 22, 2011 among Endeavour International Corporation, the Guarantors
named therein and Well Fargo Bank, National Association, as trustee (incorporated by reference
to Exhibit 4.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on July
22, 2011).10.1 *
    
    Second Amendment to Credit Agreement among Endeavour International Corporation, Endeavour
Energy UK Limited, various lenders and Cyan Partners, LP dated June 6, 2011.10.2 *
    
    Third Amendment to Credit Agreement, U.S. Security Agreement and Subsidiaries Guaranty,
dated as of July 15, 2011, by and among Endeavour International Corporation, Endeavour Energy
UK Limited, Cyan Partners, LP, as administrative agent, and certain lenders party thereto.10.3 *
    
    Letter of Credit Facility Agreement dated as of July 25, 2011 by and between Endeavour
International Corporation and Commonwealth Bank of Australia.10.4
    
    Employment Agreement, effective as of June 1, 2011, by and between William L. Transier and
Endeavour International Corporation (Incorporated by reference to Exhibit 10.1 to our Current
on Form 8-K (Commission File No. 001-32212) filed on June 1, 2011).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.
 39




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##### Table of Contents



Endeavour International Corporation
 
 Signatures
  Endeavour International CorporationDate: August 8, 2011
    
    /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)
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