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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 March 31, 2006
 or
 o
    
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number: 1-13463
 Endeavour International Corporation
  Nevada
    
    88-0448389(State or other jurisdiction of incorporation
or organization)
    
    (I.R.S. Employer Identification No.)
 1000 Main Street, Suite 3300, Houston, Texas 77002
  (713) 307-8700
  None
  þ o
  o þ o
 o þ




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##### 



Endeavour International Corporation
 Index
 Part I:Item 1: Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4: Controls and Procedures
    
    
    18Part II. Other InformationItem 1: Legal Proceedings
    
    
    18Item 6: Exhibits
    
    
    18Signatures
    
    
    19Certification of Co-CEO pursuant to Rule 13a-14a/15d-14aCertification of Co-CEO pursuant to Rule 13a-14a/15d-14aCertification of CFO pursuant to Rule 13a-14a/15d-14aCertification of CAO pursuant to Rule 13a-14a/15d-14aCertification of Co-CEO pursuant to Section 906Certification of Co-CEO pursuant to Section 906Certification of CFO pursuant to Section 906Certification of CAO pursuant to Section 906




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##### Table of Contents



Item 1: Financial Statements
 Endeavour International Corporation
 
 Condensed Consolidated Balance Sheets
   March 31, 2006
    
    
    December 31, 2005AssetsCurrent Assets:Cash and cash equivalents
    
    $
    56,357
    
    
    $
    76,127Accounts receivable
    
    
    4,613
    
    
    
    4,876Prepaid expenses and other current assets
    
    
    8,346
    
    
    
    8,070Total Current Assets
    
    
    69,316
    
    
    
    89,073Property and Equipment, Net
    
    
    66,647
    
    
    
    59,084Goodwill
    
    
    27,795
    
    
    
    27,795Other Assets
    
    
    8,718
    
    
    
    11,014Total Assets
    
    $
    172,476
    
    
    $
    186,966Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    8,367
    
    
    $
    18,194Accrued expenses and other
    
    
    9,892
    
    
    
    21,240Total Current Liabilities
    
    
    18,259
    
    
    
    39,434Long-Term Debt
    
    
    81,250
    
    
    
    81,250Deferred Taxes
    
    
    22,857
    
    
    
    19,185Other Liabilities
    
    
    7,093
    
    
    
    6,753Total Liabilities
    
    
    129,459
    
    
    
    146,622Commitments and ContingenciesStockholders Equity:Preferred stock (Liquidation preference: $2,497)
    
    
    
    
    
    
    Common stock; shares issued and outstanding 
79,036,750 at 2006 and 75,489,052 shares at 2005
    
    
    79
    
    
    
    75Additional paid-in capital
    
    
    155,527
    
    
    
    155,734Accumulated other comprehensive loss
    
    
    (4,201
    )
    
    
    (4,578
    )Deferred compensation
    
    
    
    
    
    
    (9,437
    )Accumulated deficit
    
    
    (108,388
    )
    
    
    (101,450
    )Total Stockholders Equity
    
    
    43,017
    
    
    
    40,344Total Liabilities and Stockholders Equity
    
    $
    172,476
    
    
    $
    186,966
  1




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Operations
 (Unaudited)
  Three Months Ended March 31,2006
    
    
    2005Revenues
    
    $
    8,476
    
    
    $
    7,703Cost of Operations:Operating expenses
    
    
    2,145
    
    
    
    2,416Depreciation, depletion and amortization
    
    
    2,296
    
    
    
    2,218Impairment of oil and gas properties
    
    
    849
    
    
    
    Equity loss from entities with oil and gas properties
    
    
    
    
    
    
    79General and administrative
    
    
    5,451
    
    
    
    4,152Total Expenses
    
    
    10,741
    
    
    
    8,865Loss From Operations
    
    
    (2,265
    )
    
    
    (1,162
    )Other (Income) Expense:Interest income
    
    
    (621
    )
    
    
    (318
    )Interest expense
    
    
    1,163
    
    
    
    783Other (income) expense
    
    
    249
    
    
    
    (422
    )Total Other Expense
    
    
    791
    
    
    
    43Loss Before Minority Interest
    
    
    (3,056
    )
    
    
    (1,205
    )Minority Interest
    
    
    
    
    
    
    (470
    )Loss Before Income Taxes
    
    
    (3,056
    )
    
    
    (1,675
    )Income Tax Expense
    
    
    3,843
    
    
    
    978Net Loss
    
    
    (6,899
    )
    
    
    (2,653
    )Preferred Stock Dividends
    
    
    39
    
    
    
    39Net Loss to Common Stockholders
    
    $
    (6,938
    )
    
    $
    (2,692
    )Basic and Diluted Loss per Common Share
    
    $
    (0.09
    )
    
    $
    (0.04
    )Weighted Average Number of Common Shares Outstanding -
Basic and Diluted
    
    
    78,334
    
    
    
    73,402
  2




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Cash Flows
 (Unaudited)
  Three Months Ended March 31,2006
    
    
    2005Cash Flows from Operating Activities:Net loss
    
    $
    (6,899
    )
    
    $
    (2,653
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    2,296
    
    
    
    2,218Impairment of oil and gas properties
    
    
    849
    
    
    
    Deferred tax expense (benefit)
    
    
    3,031
    
    
    
    (360
    )Amortization of non-cash compensation
    
    
    2,832
    
    
    
    1,964Fair market value adjustment of stock options
    
    
    
    
    
    
    (489
    )Other
    
    
    172
    
    
    
    798Changes in assets and liabilities:Decrease in receivables
    
    
    263
    
    
    
    1,268Increase in other current assets
    
    
    (909
    )
    
    
    (930
    )Increase (decrease) in accounts payable and
accrued expenses
    
    
    (15,058
    )
    
    
    1,655Net Cash Provided by (Used in) Operating Activities
    
    
    (13,423
    )
    
    
    3,471Cash Flows From Investing Activities:Capital expenditures
    
    
    (10,299
    )
    
    
    (4,656
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (1,437
    )Investment in Limited Partnership
    
    
    
    
    
    
    (223
    )(Increase) decrease in restricted cash
    
    
    2,873
    
    
    
    (2,011
    )Net Cash Used in Investing Activities
    
    
    (7,426
    )
    
    
    (8,327
    )Cash Flows From Financing Activities:Proceeds from borrowings
    
    
    
    
    
    
    81,250Proceeds from warrant and stock option exercises
    
    
    
    
    
    
    461Financing costs paid
    
    
    
    
    
    
    (3,608
    )Proceeds from common and preferred stock issued and issuable
    
    
    
    
    
    
    Other financing
    
    
    
    
    
    
    (24
    )Net Cash Provided by Financing Activities
    
    
    
    
    
    
    78,079Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (20,849
    )
    
    
    73,223Effect of Foreign Currency Changes on Cash
    
    
    1,079
    
    
    
    (1,186
    )Cash and Cash Equivalents, Beginning of Period
    
    
    76,127
    
    
    
    8,975Cash and Cash Equivalents, End of Period
    
    $
    56,357
    
    
    $
    81,012
  3




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Endeavour International Corporation
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 Note 1  Summary of Significant Accounting Policies
 General
  Basis of Presentation and Use of Estimates
   Loss Per Share
   4




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (Amounts in thousands)
    
    March 31,2006
    
    
    2005Options and stock-based compensation
    
    
    1,131
    
    
    
    1,026Warrants
    
    
    862
    
    
    
    1,286Convertible Debt
    
    
    16,185
    
    
    
    16,185Common shares potentially issuable
    
    
    18,178
    
    
    
    18,497
 Other-Than-Temporary Impairments of Debt and Equity Securities
  Adoption of Fair Value Accounting for Share-Based Payments
    5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 2  Share-Based Compensation Arrangements
  Stock Options
  2006Risk free rate
    
    
    4.3
    %Expected years until exercise
    
    
    4Expected stock volatility
    
    
    38
    %Dividend yield
    
    
    
 6




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Price per
    
    
    Life in
    
    
    Intrinsic(Amounts in thousands, except per share data)
    
    of Shares
    
    
    Share
    
    
    Years
    
    
    ValueBalance outstanding  December 31, 2005
    
    
    4,907
    
    
    $
    3.13Granted
    
    
    795
    
    
    
    3.51Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (83
    )
    
    
    2.44Balance outstanding  March 31, 2006
    
    
    5,619
    
    
    
    3.19
    
    
    
    3.4
    
    
    $
    2,030Currently exercisable  March 31, 2006
    
    
    2,518
    
    
    
    2.56
    
    
    
    2.6
    
    
    $
    1,474
    Restricted Stock
   7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 WeightedAverage GrantDate FairNumber of
    
    
    Value per(Amounts in thousands, except per share data)
    
    Shares
    
    
    ShareBalance outstanding  December 31, 2005
    
    
    4,412
    
    
    $
    3.99Granted
    
    
    1,902
    
    
    $
    3.51Vested
    
    
    (1,548
    )
    
    $
    3.83Forfeited
    
    
    (67
    )
    
    $
    3.30Balance outstanding  March 31, 2006
    
    
    4,699
    
    
    $
    3.85Total fair value of shares vesting during the period
    
    $
    4,504
 Pro Forma Disclosures
  (Amounts in thousands, except per share data)
    
    Three Months Ended March 31,2005Net loss to common stockholders, as reported
    
    $
    (2,692
    )Add:Stock-based compensation expense as reported
    
    
    596Less:Total stock-based compensation expense
determined under fair-value-based method
for all awards, net of tax
    
    
    (1,341
    )Pro forma net loss
    
    $
    (3,437
    )Loss per share:Basic  as reported
    
    $
    (0.04
    )Basic  pro forma
    
    $
    (0.05
    )
  8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 2005Risk free rate
    
    
    3.9
    %Expected years until exercise
    
    
    5.0Expected stock volatility
    
    
    48
    %Dividend yield
    
    
    
  Note 3
 Property and Equipment
  March 31,
    
    
    December 31,(Amounts in thousands)
    
    2006
    
    
    2005Oil and gas properties under the full cost method:Subject to amortization
    
    $
    52,738
    
    
    $
    50,424Not subject to amortization:Acquired in 2006
    
    
    8,315
    
    
    
    Acquired in 2005
    
    
    15,785
    
    
    
    15,785Acquired in 2004
    
    
    23,882
    
    
    
    24,339100,720
    
    
    
    90,548Other oil and gas assets
    
    
    4,875
    
    
    
    4,875Computers, furniture and fixtures
    
    
    1,550
    
    
    
    1,351Total property and equipment
    
    
    107,145
    
    
    
    96,774Accumulated depreciation, depletion and amortization
    
    
    (40,498
    )
    
    
    (37,690
    )Net property and equipment
    
    $
    66,647
    
    
    $
    59,084
  9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 4  Derivative Instruments
    Note 5  Supplemental Cash Flow Information
  Note 6  Comprehensive Loss
  10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (Amounts in thousands)
    
    Quarter Ended March 31,2006
    
    
    2005Net loss
    
    $
    (6,899
    )
    
    $
    (2,653
    )Unrealized loss on commodity derivative
instruments, net of tax of $0.6 million and
$1.2 million, respectively
    
    
    (933
    )
    
    
    (2,944
    )Unrealized gain (loss) on marketable securities
    
    
    360
    
    
    
    (12
    )Reclassification adjustment for loss realized
in net loss above
    
    
    950
    
    
    
    Net impact on comprehensive loss
    
    
    377
    
    
    
    (2,956
    )Comprehensive loss
    
    $
    (6,522
    )
    
    $
    (5,609
    )
 Note 7  Commitments and Contingencies
 General
  Legal Proceeding
  11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 8  Subsequent Events
  12




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Endeavour International Corporation
 Cautionary Statement for Forward-Looking Statements
  
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  General
  Results of Operations
  13




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Endeavour
International Corporation
  Quarter Ended March 31,2006
    
    
    2005Oil and condensate sales (Bbl)
    
    
    144,051
    
    
    
    161,900Oil and condensate price ($  per Bbl)
    
    $
    61.93
    
    
    $
    47.44Oil and condensate price, including the
impact of hedging activities ($  per
Bbl)
    
    $
    54.26
    
    
    $
    46.61Gas sales (Mcf)
    
    
    54,353
    
    
    
    40,812Gas price ($  per Mcf)
    
    $
    12.14
    
    
    $
    3.85
    14




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Endeavour
International Corporation
 Three Months Ended(Amounts in thousands)
    
    March 31,2006
    
    
    2005Compensation
    
    $
    3,209
    
    
    $
    2,528Consulting, legal and accounting fees
    
    
    1,111
    
    
    
    906Occupancy costs
    
    
    223
    
    
    
    286Other expenses
    
    
    609
    
    
    
    355Total gross cash G&A expenses
    
    
    5,152
    
    
    
    4,075Non-cash stock-based compensation
    
    
    3,051
    
    
    
    2,133Fair market value adjustment of stock options
    
    
    
    
    
    
    (489
    )Total gross non-cash G&A expenses
    
    
    3,051
    
    
    
    1,644Gross G&A expenses
    
    
    8,203
    
    
    
    5,719Less: capitalized G&A expenses
    
    
    (2,752
    )
    
    
    (1,567
    )Net G&A expenses
    
    $
    5,451
    
    
    $
    4,152
  Income Taxes
   Liquidity and Capital Resources
   15




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Endeavour
International Corporation
   Anticipated Capital Expenditures
     16




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Endeavour
International Corporation
  Disclosures About Contractual Obligations and Commercial Commitments
  
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Foreign Exchange Risk
  Commodity Price Risk
   Interest Rate Risk
  17




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Endeavour
International Corporation
 
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls over Financial Reporting
  
 Part II. Other Information
 
 Item 1: Legal Proceedings
  
 Item 6: Exhibits
  31.1 *
    
    Certification of William L. Transier, Co-Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2 *
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.3 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.4 *
    
    Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
 18




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Endeavour
International Corporation
 32.1 *
    
    Certification of William L. Transier, Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.4 *
    
    Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 
 Signatures
  Endeavour International Corporation
 Date: May 5, 2006
    
    /s/ Lance Gilliland

Lance Gilliland
    
    /s/ Robert L. Thompson

Robert L. ThompsonExecutive Vice President
    
    Vice President and Chiefand Chief Financial Officer
    
    Accounting Officer(Principal Financial Officer)
    
    (Principal Accounting Officer)
 19




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Index to Exhibits
 31.1 *
    
    Certification of William L. Transier, Co-Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2 *
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.3 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.4 *
    
    Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
 32.1 *
    
    Certification of William L. Transier, Co-Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3 *
    
    Certification of Lance Gilliland, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.4 *
    
    Certification of Robert L. Thompson, Chief Accounting Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 20