##### 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, 2010
 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 
or organization)
    
    (I.R.S. Employer Identification No.)
 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
    
    
    21Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4: Controls and Procedures
    
    
    35Part II. Other InformationItem 1A: Risk Factors
    
    
    35Item 5. Other Information
    
    
    36Item 6: Exhibits
    
    
    36Signatures
    
    
    37EX-10.1EX-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 31,2010
    
    
    2009AssetsCurrent Assets:Cash and cash equivalents
    
    $
    13,593
    
    
    $
    27,287Restricted cash
    
    
    
    
    
    
    2,879Accounts receivable
    
    
    8,773
    
    
    
    14,800Prepaid expenses and other current assets
    
    
    11,617
    
    
    
    10,118Total Current Assets
    
    
    33,983
    
    
    
    55,084Property and Equipment, Net ($183,534 and $154,553 not subject
to amortization at 2010 and 2009, respectively)
    
    
    332,102
    
    
    
    266,587Goodwill
    
    
    211,886
    
    
    
    211,886Other Assets
    
    
    4,354
    
    
    
    5,322Total Assets
    
    $
    582,325
    
    
    $
    538,879
  1




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##### Table of Contents



Endeavour International Corporation
Condensed Consolidated Balance Sheets
 June 30,
    
    
    December 31,2010
    
    
    2009Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    30,147
    
    
    $
    12,401Current maturities of debt
    
    
    75,625
    
    
    
    Accrued expenses and other
    
    
    20,205
    
    
    
    17,798Total Current Liabilities
    
    
    125,977
    
    
    
    30,199Long-Term Debt
    
    
    168,552
    
    
    
    223,385Deferred Taxes
    
    
    91,401
    
    
    
    80,692Other Liabilities
    
    
    70,832
    
    
    
    85,412Total Liabilities
    
    
    456,762
    
    
    
    419,688Commitments and ContingenciesSeries C Convertible Preferred StockFace value (liquidation preference)
    
    
    45,000
    
    
    
    50,000Net non-cash premiums under fair value accounting on redemption
    
    
    8,152
    
    
    
    9,058Total Series C Convertible Preferred Stock
    
    
    53,152
    
    
    
    59,058Stockholders Equity:Series B preferred stock  Liquidation preference: $3,194Common stock; shares issued and outstanding  163,568
and 131,618 shares at 2010 and 2009, respectively
    
    
    164
    
    
    
    132Additional paid-in capital
    
    
    275,672
    
    
    
    247,707Treasury
stock, at cost  498 and 498 shares at 2010
and 2009, respectively
    
    
    (587
    )
    
    
    (587
    )Accumulated deficit
    
    
    (202,838
    )
    
    
    (187,119
    )Total Stockholders Equity
    
    
    72,411
    
    
    
    60,133Total Liabilities and Stockholders Equity
    
    $
    582,325
    
    
    $
    538,879
  2




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Operations
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    21,532
    
    
    $
    18,082
    
    
    $
    35,253
    
    
    $
    34,420Cost of Operations:Operating expenses
    
    
    3,465
    
    
    
    4,397
    
    
    
    6,286
    
    
    
    10,580Depreciation, depletion and amortization
    
    
    7,912
    
    
    
    7,858
    
    
    
    13,593
    
    
    
    19,182Impairment of oil and gas properties
    
    
    
    
    
    
    1,244
    
    
    
    7,692
    
    
    
    30,645General and administrative
    
    
    4,205
    
    
    
    4,115
    
    
    
    8,636
    
    
    
    7,950Total Expenses
    
    
    15,582
    
    
    
    17,614
    
    
    
    36,207
    
    
    
    68,357Income (Loss) From Operations
    
    
    5,950
    
    
    
    468
    
    
    
    (954
    )
    
    
    (33,937
    )Other Income (Expense):Derivatives:Realized gains (losses)
    
    
    (1,332
    )
    
    
    9,114
    
    
    
    (1,100
    )
    
    
    21,050Unrealized gains (losses)
    
    
    6,108
    
    
    
    (32,722
    )
    
    
    5,036
    
    
    
    (34,095
    )Interest expense
    
    
    (5,623
    )
    
    
    (4,224
    )
    
    
    (11,259
    )
    
    
    (8,135
    )Interest income and other
    
    
    586
    
    
    
    (7,992
    )
    
    
    3,609
    
    
    
    (8,333
    )Total Other Expense
    
    
    (261
    )
    
    
    (35,824
    )
    
    
    (3,714
    )
    
    
    (29,513
    )Income (Loss) Before Income Taxes
    
    
    5,689
    
    
    
    (35,356
    )
    
    
    (4,668
    )
    
    
    (63,450
    )Income Tax Expense (Benefit)
    
    
    5,084
    
    
    
    916
    
    
    
    9,917
    
    
    
    (10,036
    )Income (Loss) from Continuing Operations
    
    
    605
    
    
    
    (36,272
    )
    
    
    (14,585
    )
    
    
    (53,414
    )Income from Discontinued Operations
    
    
    
    
    
    
    46,092
    
    
    
    
    
    
    
    46,370Net Income (Loss)
    
    
    605
    
    
    
    9,820
    
    
    
    (14,585
    )
    
    
    (7,044
    )Preferred Stock Dividends
    
    
    547
    
    
    
    2,696
    
    
    
    1,136
    
    
    
    5,365Net Income (Loss) to Common Stockholders
    
    $
    58
    
    
    $
    7,124
    
    
    $
    (15,721
    )
    
    $
    (12,409
    )Basic and Diluted Net Income (Loss) per Common Share:Continuing operations
    
    $
    
    
    
    $
    (0.31
    )
    
    $
    (0.10
    )
    
    $
    (0.46
    )Discontinued operations
    
    
    
    
    
    
    0.36
    
    
    
    
    
    
    
    0.36Total
    
    $
    
    
    
    $
    0.05
    
    
    $
    (0.10
    )
    
    $
    (0.10
    )Weighted Average Number of Common Shares Outstanding:Basic and Diluted
    
    
    162,014
    
    
    
    129,741
    
    
    
    155,815
    
    
    
    129,521
  3




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Cash Flows
   Six Months Ended June 30,2010
    
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (14,585
    )
    
    $
    (7,044
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    13,593
    
    
    
    23,863Impairment of oil and gas properties
    
    
    7,692
    
    
    
    30,645Deferred tax expense (benefit)
    
    
    8,445
    
    
    
    (3,596
    )Unrealized (gains) losses on derivatives
    
    
    (5,036
    )
    
    
    34,095Gain on sale of Norwegian operations
    
    
    
    
    
    
    (47,144
    )Amortization of non-cash compensation
    
    
    1,998
    
    
    
    1,664Amortization of loan costs and discount
    
    
    3,313
    
    
    
    2,428Non-cash interest expense
    
    
    3,409
    
    
    
    2,595Other
    
    
    (3,565
    )
    
    
    4,849Changes in operating assets and liabilities:Decrease in receivables
    
    
    6,027
    
    
    
    2,687(Increase) decrease in other current assets
    
    
    (1,738
    )
    
    
    6,062Increase (decrease) in liabilities
    
    
    4,900
    
    
    
    (8,905
    )Net Cash Provided by Operating Activities
    
    
    24,453
    
    
    
    42,199Cash Flows From Investing Activities:Capital expenditures
    
    
    (41,392
    )
    
    
    (65,068
    )Acquisitions
    
    
    (33,047
    )
    
    
    (2,269
    )Proceeds from sales, net of cash
    
    
    
    
    
    
    139,797Decrease in restricted cash
    
    
    2,878
    
    
    
    18,592Net Cash Provided by (Used in) Investing Activities
    
    
    (71,561
    )
    
    
    91,052Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (9,317
    )
    
    
    (64,458
    )Borrowings under debt agreements
    
    
    25,000
    
    
    
    Proceeds from issuance of common stock
    
    
    20,011
    
    
    
    Dividends paid
    
    
    (1,057
    )
    
    
    (5,313
    )Other financing
    
    
    (1,223
    )
    
    
    (34
    )Net Cash Provided by (Used in) Financing Activities
    
    
    33,414
    
    
    
    (69,805
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (13,694
    )
    
    
    63,446Cash and Cash Equivalents, Beginning of Period
    
    
    27,287
    
    
    
    38,156Cash and Cash Equivalents, End of Period
    
    $
    13,593
    
    
    $
    101,602
  4




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Endeavour International Corporation
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
  Note 1  General
   
    
    Continuing to execute our current operating plans;
 
    
    Entering into a joint venture to accelerate activities in the North Sea; and
 
    
    Selling specific assets or the entire North Sea business.
  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.
 5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Income (Loss) Per Share
    June 30,2010
    
    
    2009Warrants, options and stock-based compensation
    
    
    731
    
    
    
    990Convertible debt
    
    
    38,535
    
    
    
    36,139Convertible preferred stock
    
    
    36,000
    
    
    
    50,00075,266
    
    
    
    87,129
 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.
 
    
    Fair Value New, expanded disclosures are required for recurring or nonrecurring
fair-value measurements and the reconciliation of specific fair value measurements.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 2  Discontinued Operations
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Sales
    
    $
    
    
    
    $
    4,180
    
    
    $
    
    
    
    $
    17,550Income before Taxes
    
    $
    
    
    
    $
    1,811
    
    
    $
    
    
    
    $
    4,656Income Tax Expense
    
    
    
    
    
    
    (2,863
    )
    
    
    
    
    
    
    (5,430
    )Loss from Operations
    
    
    
    
    
    
    (1,052
    )
    
    
    
    
    
    
    (774
    )Gain on sale
    
    
    
    
    
    
    47,144
    
    
    
    
    
    
    
    47,144Net Income from
Discontinued Operations
    
    $
    
    
    
    $
    46,092
    
    
    $
    
    
    
    $
    46,370
 7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 3  Income Tax Expense (Benefit)
  UK
    
    
    U.S.
    
    
    Other
    
    
    TotalSix Months Ended June 30, 2010Net income (loss) before taxes from
continuing operations
    
    $
    13,654
    
    
    $
    (18,370
    )
    
    $
    48
    
    
    $
    (4,668
    )Current tax expense
    
    
    1,472
    
    
    
    
    
    
    
    
    
    
    
    1,472Deferred tax expense
    
    
    8,591
    
    
    
    
    
    
    
    
    
    
    
    8,591Foreign currency losses on deferred tax
liabilities
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )Income tax expense (benefit)
    
    
    10,063
    
    
    
    
    
    
    
    (146
    )
    
    
    9,917Net income (loss) from continuing operations
    
    $
    3,591
    
    
    $
    (18,370
    )
    
    $
    194
    
    
    $
    (14,585
    )Six Months Ended June 30, 2009Net loss before taxes from continuing
operations
    
    $
    (46,620
    )
    
    $
    (9,384
    )
    
    $
    (7,446
    )
    
    $
    (63,450
    )Current tax benefit
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    (408
    )Deferred tax benefit
    
    
    (18,637
    )
    
    
    
    
    
    
    
    
    
    
    (18,637
    )Foreign currency losses on deferred tax
liabilities
    
    
    9,009
    
    
    
    
    
    
    
    
    
    
    
    9,009Income tax expense (benefit)
    
    
    (10,036
    )
    
    
    
    
    
    
    
    
    
    
    (10,036
    )Net loss from continuing operations
    
    $
    (36,584
    )
    
    $
    (9,384
    )
    
    $
    (7,446
    )
    
    $
    (53,414
    )
   8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 4  Property and Equipment
  June 30,
    
    
    December 31,2010
    
    
    2009Oil and gas properties under the full cost method:Subject to amortization
    
    $
    322,640
    
    
    $
    275,278Not subject to amortization:Acquired in 2010
    
    
    51,588
    
    
    
    Acquired in 2009
    
    
    44,201
    
    
    
    51,797Acquired in 2008
    
    
    25,817
    
    
    
    32,970Acquired prior to 2008
    
    
    61,928
    
    
    
    69,786506,174
    
    
    
    429,831Computers, furniture and fixtures
    
    
    3,802
    
    
    
    3,560Total property and equipment
    
    
    509,976
    
    
    
    433,391Accumulated depreciation, depletion and amortization
    
    
    (177,874
    )
    
    
    (166,804
    )Net property and equipment
    
    $
    332,102
    
    
    $
    266,587
    9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     Note 5  Debt Obligations
  June 30,
    
    
    December 31,2010
    
    
    2009Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011
    
    
    40,625
    
    
    
    49,942Convertible bonds, 11.5%, due 2014
    
    
    52,745
    
    
    
    49,838Subordinated notes, 12.0%, due 2014
    
    
    50,625
    
    
    
    50,122Junior facility, variable rate, due 2011
    
    
    25,000
    
    
    
    250,245
    
    
    
    231,152Less: debt discount
    
    
    (6,068
    )
    
    
    (7,767
    )Less: current maturities
    
    
    (75,625
    )
    
    
    Long-term debt
    
    $
    168,552
    
    
    $
    223,385Standby letters of credit outstanding for abandonment liabilities
    
    $
    30,822
    
    
    $
    33,388
  10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  
    
    changed the minimum current assets to current liabilities ratio for June 30, 2010 from
1.1:1 to 0.6:1;
 
    
    changed the maximum consolidated net debt to earnings before interest, taxes,
depreciation and amortization ratio for June 30, 2010 from 3.0:1 to 4.5:1; and
 
    
    included a new Event of Default if the Senior or Junior Bank Facility is not repaid and canceled
by September 30, 2010.
  Junior Facility
   Senior bank facility
   11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Proposed New Credit Facility
  Note 6  Asset Retirement Obligations
  Six Months EndedJune 30,2010
    
    2009Carrying amount of asset retirement obligations as of beginning of
period
    
    $
    47,362
    
    
    $
    38,776Accretion expense (included in DD&A expense)
    
    
    2,245
    
    
    
    2,044Impact of foreign currency exchange rate changes
    
    
    (3,640
    )
    
    
    4,998Payment of asset retirement obligation
    
    
    (567
    )
    
    
    (3,959
    )Reduction in asset retirement obligation
    
    
    (1,812
    )
    
    
    Sale of assets
    
    
    
    
    
    
    (248
    )Carrying amount of asset retirement obligations as of end of period
    
    
    43,588
    
    
    
    41,611Less: Current portion
    
    
    (4,849
    )
    
    
    Long-term asset retirement obligation
    
    $
    38,739
    
    
    $
    41,611
 12




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 7  Equity Transactions
 Series C Convertible Preferred Stock
   Common Stock Issuance
  Note 8  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
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  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.
  Quoted Market Prices
    
    Significant Other
    
    Significantin Active Markets -
    
    Observable Inputs -
    
    Unobservable Inputs
    
    TotalLevel 1
    
    Level 2
    
    Level - 3
    
    Fair ValueSix Months Ended June 30, 2010
Oil and gas derivative contracts:Oil and gas swaps
    
    $
    
    
    
    $
    (8,057
    )
    
    $
    
    
    
    $
    (8,057
    )Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (28,565
    )
    
    
    (28,565
    )Total derivative liabilities
    
    $
    
    
    
    $
    (8,057
    )
    
    $
    (28,565
    )
    
    $
    (36,622
    )Twelve Months Ended December 31, 2009Oil and gas derivative contracts:Oil and gas swaps
    
    $
    
    
    
    $
    (12,816
    )
    
    $
    
    
    
    $
    (12,816
    )Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (28,843
    )
    
    
    (28,843
    )Total derivative liabilities
    
    $
    
    
    
    $
    (12,816
    )
    
    $
    (28,843
    )
    
    $
    (41,659
    )
   14




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Six months ended June 30, 2010:Balance at beginning of period
    
    $
    (28,843
    )Total gains or losses (realized/unrealized)
Included in earnings
    
    
    278Balance at end of period
    
    $
    (28,565
    )Changes in unrealized gains (losses) relating to derivatives assets and liabilities still held at 

June 30, 2010
    
    $
    278Six months ended June 30, 2009:Balance at beginning of period
    
    $
    (12,057
    )Total gains or losses (realized/unrealized) 
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, 2009
    
    $
    (5,618
    )
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Goodwill 
 Note 9  Derivative Instruments
  15




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    June 30,
    
    December 31,2010
    
    2009Derivatives not designated as hedges:Oil and gas commodity derivatives:Assets:Prepaid expenses and other current assets
    
    $
    397
    
    
    $
    2,890Other assets  long term
    
    
    
    
    
    
    318Liabilities:Accrued expenses and other
    
    
    (4,926
    )
    
    
    (6,817
    )Other liabilities  long-term
    
    
    (3,528
    )
    
    
    (9,207
    )$
    (8,057
    )
    
    $
    (12,816
    )Embedded derivatives related to debt and equity instruments:Liabilities:Other liabilities  long-term
    
    
    (28,565
    )
    
    
    (28,843
    )
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives not designated as hedges:Oil and gas commodity derivativesRealized gains (losses)
    
    $
    (1,332
    )
    
    $
    9,114
    
    
    $
    (1,100
    )
    
    $
    21,050Unrealized gains (losses)
    
    
    4,553
    
    
    
    (27,092
    )
    
    
    4,758
    
    
    
    (26,695
    )3,221
    
    
    
    (17,978
    )
    
    
    3,658
    
    
    
    (5,645
    )Embedded derivatives related to debt
and equity instrumentsUnrealized gains (losses)
    
    $
    1,555
    
    
    $
    (5,630
    )
    
    $
    278
    
    
    $
    (7,400
    )
  16




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Location ofReclassificationinto Income
    
    2010
    
    2009
    
    2010
    
    2009Interest rate swapGain recognized in other comprehensive

income, net of tax
    
    
    
    
    
    $
    
    
    
    $
    (207
    )
    
    $
    
    
    
    $
    (71
    )Gain reclassified from accumulated 

other comprehensive income
 into income
    
    Interest 
expense
    
    
    
    
    
    
    (376
    )
    
    
    
    
    
    
    (757
    )
    Note 10  Supplemental Cash Flow Information
  Six Months Ended June 30,2010
    
    2009Interest paid
    
    $
    6,007
    
    
    $
    3,753Income taxes paid (refunded)
    
    $
    (10
    )
    
    $
    3,654
  17




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    Note 11  Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    

    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    605
    
    
    $
    9,820
    
    
    $
    (14,585
    )
    
    $
    (7,044
    )Unrealized gain on interest rate swap
derivative instrument, net of tax
    
    
    
    
    
    
    (207
    )
    
    
    
    
    
    
    (71
    )Reclassification adjustment for gain
realized in net income (loss) above
    
    
    
    
    
    
    376
    
    
    
    
    
    
    
    757Net impact on comprehensive income (loss)
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    686Comprehensive income (loss)
    
    $
    605
    
    
    $
    9,651
    
    
    $
    (14,585
    )
    
    $
    (6,358
    )
 Note 12  Stock-Based Compensation Arrangements
  18




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    

    Six Months EndedJune 30,
    

    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009G & A Expenses
    
    $
    739
    
    
    $
    471
    
    
    $
    1,759
    
    
    $
    939Capitalized G & A
    
    
    230
    
    
    
    187
    
    
    
    500
    
    
    
    389Total non-cash stock-based compensation
    
    $
    969
    
    
    $
    658
    
    
    $
    2,259
    
    
    $
    1,328
  Stock Options
  Weighted
    
    
    WeightedNumber of
    
    
    Average
    
    
    AverageShares
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateUnderlying
    
    
    Price per
    
    
    Life in
    
    
    IntrinsicOptions
    
    
    Share
    
    
    Years
    
    
    ValueBalance outstanding January 1, 2010
    
    
    4,212
    
    
    $
    1.87Exercised
    
    
    (11
    )
    
    
    0.83Forfeited
    
    
    (64
    )
    
    
    1.98Expired
    
    
    (540
    )
    
    
    4.17Balance outstanding   June 30, 2010
    
    
    3,597
    
    
    $
    1.53
    
    
    
    6.7
    
    
    $
    622Currently exercisable  June 30, 2010
    
    
    2,411
    
    
    $
    1.83
    
    
    
    6.0
    
    
    $
    265
 Restricted Stock
  19




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 WeightedAverage GrantDate FairNumber of
    
    
    Value perShares
    
    
    ShareBalance outstanding  January 1, 2010
    
    
    3,420
    
    
    $
    1.00Granted
    
    
    4,522
    
    
    
    1.10Vested
    
    
    (2,130
    )
    
    
    1.15Forfeited
    
    
    (41
    )
    
    
    0.91Balance outstanding  June 30, 2010
    
    
    5,771
    
    
    $
    1.02Total grant date fair value of shares vesting during the period
    
    $
    2,441
 Note 13  Commitments and Contingencies
  20




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Endeavour International Corporation
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
  
    
    During the second quarter of 2010, we have reached agreement to test the West Rochelle
prospect that lies west of our Rochelle gas development area. Subject to final board
approvals, this West Rochelle well is scheduled to begin drilling in August 2010.
    
    On March 15, 2010, we announced that our board of directors had approved a review of
strategic alternatives for our North Sea assets.
    
    In February 2010, we sold 23.5 million shares of common stock in a private placement for
aggregate net proceeds of $20.5 million. We also entered into a $25 million junior lending
facility, with a maturity date of February 5, 2011. The net proceeds from the private
placement and the junior facility have been used to partially fund our 2010 capital budget.
    
    In January 2010, we acquired 50 percent of Cohort Energy Companys (Cohort) interests in certain acreage in
North Louisiana/East Texas and Western Pennsylvania, primarily in the Haynesville and
Marcellus gas shale plays, for $15 million in cash. As part of this acquisition, we also
acquired additional acreage in the Marcellus gas shale play area for approximately $7.5
million during the second quarter of 2010. We also acquired 50 percent of Hillwood Energy
Alabama LPs (Hillwood) position in Hillwoods exploratory gas shale play in Alabama with
an initial net investment of approximately $8.0 million.
    
    In the fourth quarter of 2009, we entered into a
participation agreement with Cohort,
 a subsidiary of J-W Operating Company, an established U.S. gas
shale operator, providing us with acreage positions and production in the Haynesville and
Marcellus gas shales.
    
    In the fourth quarter of 2009, we redeemed 60 percent of the outstanding shares of our
Series C Preferred Stock, for face value of $75 million, and amended the terms of the
 21




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##### Table of Contents



Endeavour International Corporation
 remaining shares of Series C Preferred Stock. The redemption price consisted of a $25
million cash payment and the issuance of $50 million Subordinated Notes.
    
    In the second quarter of 2009, we sold our Norwegian operations for cash consideration
of $150 million, providing us with financial flexibility and strength to continue our U.K.
development program and accelerate our expanding U.S. initiative.
  Results of Operations
   22




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Endeavour International Corporation
    23




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##### Table of Contents



Endeavour International Corporation
 Three Months Ended
    
    
    Six Months EndedJune 30,
    

    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Sales volume (1)Oil and condensate sales (Mbbls):United Kingdom
    
    
    188
    
    
    
    234
    
    
    
    301
    
    
    
    412United States
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    1Continuing operations
    
    
    189
    
    
    
    234
    
    
    
    304
    
    
    
    413Discontinued operations  Norway
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    310Total
    
    
    189
    
    
    
    321
    
    
    
    304
    
    
    
    723Gas sales (MMcf):United Kingdom
    
    
    979
    
    
    
    1,071
    
    
    
    1,745
    
    
    
    2,148United States
    
    
    441
    
    
    
    60
    
    
    
    721
    
    
    
    111Continuing operations
    
    
    1,420
    
    
    
    1,131
    
    
    
    2,466
    
    
    
    2,259Discontinued operations  Norway
    
    
    
    
    
    
    153
    
    
    
    
    
    
    
    686Total
    
    
    1,420
    
    
    
    1,284
    
    
    
    2,466
    
    
    
    2,945Oil equivalent sales (MBOE)United Kingdom
    
    
    351
    
    
    
    413
    
    
    
    592
    
    
    
    770United States
    
    
    75
    
    
    
    10
    
    
    
    123
    
    
    
    20Continuing operations
    
    
    426
    
    
    
    423
    
    
    
    715
    
    
    
    790Discontinued operations  Norway
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    424Total
    
    
    426
    
    
    
    535
    
    
    
    715
    
    
    
    1,214Total BOE per day
    
    
    4,684
    
    
    
    5,877
    
    
    
    3,951
    
    
    
    6,710Physical production volume (BOE per day) (2):United Kingdom
    
    
    3,279
    
    
    
    3,995
    
    
    
    3,199
    
    
    
    4,132United States
    
    
    824
    
    
    
    109
    
    
    
    680
    
    
    
    106Continuing operations
    
    
    4,103
    
    
    
    4,104
    
    
    
    3,879
    
    
    
    4,238Discontinued operations  Norway
    
    
    
    
    
    
    1,324
    
    
    
    
    
    
    
    2,332Total
    
    
    4,103
    
    
    
    5,428
    
    
    
    3,879
    
    
    
    6,570Realized Prices (3)Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    76.80
    
    
    $
    50.83
    
    
    $
    74.33
    
    
    $
    45.74Effect of commodity derivatives
    
    
    (8.50
    )
    
    
    18.88
    
    
    
    (8.83
    )
    
    
    22.00Realized prices including commodity derivatives
    
    $
    68.30
    
    
    $
    69.71
    
    
    $
    65.50
    
    
    $
    67.74Gas price ($  per Mcf):Before commodity derivatives
    
    $
    4.91
    
    
    $
    4.64
    
    
    $
    5.13
    
    
    $
    6.41Effect of commodity derivatives
    
    
    0.20
    
    
    
    2.38
    
    
    
    0.64
    
    
    
    1.74Realized prices including commodity derivatives
    
    $
    5.11
    
    
    $
    7.02
    
    
    $
    5.77
    
    
    $
    8.15Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    50.51
    
    
    $
    41.62
    
    
    $
    49.30
    
    
    $
    42.79Effect of commodity derivatives
    
    
    (3.12
    )
    
    
    17.04
    
    
    
    (1.54
    )
    
    
    17.34Realized prices including commodity derivatives
    
    $
    47.39
    
    
    $
    58.66
    
    
    $
    47.76
    
    
    $
    60.13
 24




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Endeavour International Corporation
 (1)
    
    We record oil revenues using the sales method, i.e. when delivery has
occurred. We use the entitlements method to account for sales of gas production.(2)
    
    Physical production may differ from sales volumes based on the timing
of tanker liftings for our international oil sales.(3)
    
    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.      25




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Endeavour International Corporation
 Expenses
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Compensation
    
    $
    4,166
    
    
    $
    3,378
    
    
    $
    8,409
    
    
    $
    6,789Consulting, legal and accounting fees
    
    
    1,548
    
    
    
    1,091
    
    
    
    3,075
    
    
    
    1,992Occupancy costs
    
    
    273
    
    
    
    272
    
    
    
    522
    
    
    
    496Other expenses
    
    
    1,081
    
    
    
    536
    
    
    
    1,254
    
    
    
    977Total gross cash G&A expenses
    
    
    7,068
    
    
    
    5,277
    
    
    
    13,260
    
    
    
    10,254Non-cash stock-based compensation
    
    
    845
    
    
    
    575
    
    
    
    1,998
    
    
    
    1,113Gross G&A expenses
    
    
    7,913
    
    
    
    5,852
    
    
    
    15,258
    
    
    
    11,367Less: capitalized G & A expenses
    
    
    (3,708
    )
    
    
    (1,737
    )
    
    
    (6,622
    )
    
    
    (3,417
    )Net G&A expenses
    
    $
    4,205
    
    
    $
    4,115
    
    
    $
    8,636
    
    
    $
    7,950
  26




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Endeavour International Corporation
  Income Taxes
  UK
    
    
    U.S.
    
    
    Other
    
    
    TotalSix Months Ended June 30, 2010Net income (loss) before taxes from
continuing operations
    
    $
    13,654
    
    
    $
    (18,370
    )
    
    $
    48
    
    
    $
    (4,668
    )Current tax expense
    
    
    1,472
    
    
    
    
    
    
    
    
    
    
    
    1,472Deferred tax expense
    
    
    8,591
    
    
    
    
    
    
    
    
    
    
    
    8,591Foreign currency losses on deferred tax
liabilities
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )Income tax expense (benefit)
    
    
    10,063
    
    
    
    
    
    
    
    (146
    )
    
    
    9,917Net income (loss) from continuing operations
    
    $
    3,591
    
    
    $
    (18,370
    )
    
    $
    194
    
    
    $
    (14,585
    )Six Months Ended June 30, 2009Net loss before taxes from continuing
operations
    
    $
    (46,620
    )
    
    $
    (9,384
    )
    
    $
    (7,446
    )
    
    $
    (63,450
    )Current tax benefit
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    (408
    )Deferred tax benefit
    
    
    (18,637
    )
    
    
    
    
    
    
    
    
    
    
    (18,637
    )Foreign currency losses on deferred tax
liabilities
    
    
    9,009
    
    
    
    
    
    
    
    
    
    
    
    9,009Income tax expense (benefit)
    
    
    (10,036
    )
    
    
    
    
    
    
    
    
    
    
    (10,036
    )Net loss from continuing operations
    
    $
    (36,584
    )
    
    $
    (9,384
    )
    
    $
    (7,446
    )
    
    $
    (53,414
    )
   Reconciliation of Non-GAAP Measures
  27




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Endeavour International Corporation
    28




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Endeavour International Corporation
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    605
    
    
    $
    9,820
    
    
    $
    (14,585
    )
    
    $
    (7,044
    )Depreciation, depletion and amortization
    
    
    7,912
    
    
    
    7,804
    
    
    
    13,593
    
    
    
    23,863Impairment of oil and gas properties
    
    
    
    
    
    
    1,244
    
    
    
    7,692
    
    
    
    30,645Deferred tax expense (benefit)
    
    
    4,967
    
    
    
    4,827
    
    
    
    8,445
    
    
    
    (3,596
    )Gain on asset sales
    
    
    
    
    
    
    (47,144
    )
    
    
    
    
    
    
    (47,144
    )Unrealized (gain) loss on derivatives
    
    
    (6,108
    )
    
    
    32,722
    
    
    
    (5,036
    )
    
    
    34,095Other
    
    
    3,815
    
    
    
    9,690
    
    
    
    5,155
    
    
    
    11,536Discretionary Cash Flow (1)
    
    $
    11,191
    
    
    $
    18,963
    
    
    $
    15,264
    
    
    $
    42,355Net income (loss) to common shareholders
    
    $
    58
    
    
    $
    7,124
    
    
    $
    (15,721
    )
    
    $
    (12,409
    )Impairment of oil and gas properties (net of
tax) (2)
    
    
    
    
    
    
    1,244
    
    
    
    7,692
    
    
    
    15,988Unrealized (gain) loss on derivatives (net of
tax) (3)
    
    
    (3,832
    )
    
    
    19,176
    
    
    
    (2,657
    )
    
    
    20,748Currency impact on deferred taxes
    
    
    (87
    )
    
    
    10,955
    
    
    
    (146
    )
    
    
    10,250Net Income (Loss) as Adjusted
    
    $
    (3,861
    )
    
    $
    38,499
    
    
    $
    (10,832
    )
    
    $
    34,577Net income (loss)
    
    $
    605
    
    
    $
    9,820
    
    
    $
    (14,585
    )
    
    $
    (7,044
    )Unrealized (gain) loss on derivatives
    
    
    (6,108
    )
    
    
    32,722
    
    
    
    (5,036
    )
    
    
    34,095Net interest expense
    
    
    5,605
    
    
    
    4,163
    
    
    
    11,237
    
    
    
    7,983Depreciation, depletion and amortization
    
    
    7,912
    
    
    
    7,804
    
    
    
    13,593
    
    
    
    23,863Impairment of oil and gas properties
    
    
    
    
    
    
    1,244
    
    
    
    7,692
    
    
    
    30,645Income tax expense (benefit)
    
    
    5,084
    
    
    
    3,779
    
    
    
    9,917
    
    
    
    (4,606
    )Gain on asset sales
    
    
    
    
    
    
    (47,144
    )
    
    
    
    
    
    
    (47,144
    )Adjusted EBITDA
    
    $
    13,098
    
    
    $
    12,388
    
    
    $
    22,818
    
    
    $
    37,792
 (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 $(14,657) for the six months ended June 30, 2009.(3)
    
    Net of tax (benefits) expense of $(2,277), $13,546, $(2,379) and $13,348,
respectively. Liquidity and Capital Resources
  29




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Endeavour International Corporation
 Six Months Ended June 30,2010
    
    
    2009Net cash provided by operating activities
    
    $
    24,453
    
    
    $
    42,199Net cash provided by (used in) investing activities
    
    $
    (71,561
    )
    
    $
    91,052Net cash provided by (used in) financing activities
    
    $
    33,414
    
    
    $
    (69,805
    )
      30




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##### Table of Contents



Endeavour International Corporation
 Capital Program
  2010 Activity
  United Kingdom Activity
      31




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##### Table of Contents



Endeavour International Corporation
 th
  United States Drilling
   United States Acquisitions and Participation Agreements
    Disclosures About Contractual Obligations and Commercial Commitments
  32




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##### Table of Contents



Endeavour International Corporation
 Cautionary Statement for Forward-Looking Statements
  
    
    our future financial position;
    
    our business strategy;
    
    budgets;
    
    projected costs, savings and plans;
    
    objectives of management for future operations;
    
    legal strategies; and
    
    legal proceedings.
  
    
    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;
    
    business strategy and the availability of acquisition opportunities; and
    
    factors not known to us at this time.
 33




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Endeavour International Corporation
 
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
   2010
    
    
    2011
    
    
    TotalOil:Fixed Price Swaps (Mbbl)
    
    
    227
    
    
    
    487
    
    
    
    714Weighted Average Price ($/Barrel)
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    66.77Gas: (1)Fixed Price Swaps (MMcf)
    
    
    516
    
    
    
    627
    
    
    
    1,143Weighted Average Price ($/Mcf)
    
    $
    7.55
    
    
    $
    7.68
    
    
    $
    7.62
 
 (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, 2010 was $1.50 to £1.00. Foreign Exchange Risk
  34




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##### Table of Contents



Endeavour International Corporation
 Interest Rate Risk
   
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1A: Risk Factors
 Risk Factors
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##### Table of Contents



Endeavour International Corporation
  
 Item 5: Other Information
  
    
    change the minimum current assets to current liabilities ratio for June 30, 2010 from
1.1:1 to 0.6:1;
    
    change the maximum consolidated net debt to earnings before interest, taxes,
depreciation and amortization ratio for June 30, 2010 from 3.0:1 to 4.5:1; and
    
    include a new Event of Default if the Senior or Junior Bank Facility is not repaid and canceled by
September 30, 2010.
  
 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).3.1
    (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).3.2
    (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).10.1
    *
    Amendment to $225,000,000 Secured Revolving Loan and Letter of Credit Facility Agreement.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.
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##### Table of Contents



Endeavour International Corporation
 
 Signatures
  Endeavour International Corporation
 Date: August 9, 2010
    
    /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)
 37