##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended March 31, 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(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



Index
 Part I: Financial InformationItem 1: Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    20Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4: Controls and Procedures
    
    
    34Part II. Other InformationItem 1A: Risk Factors
    
    
    35Item 6: Exhibits
    
    
    35Signatures
    
    
    37EX-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
 March 31,
    
    December 31,2010
    
    2009AssetsCurrent Assets:Cash and cash equivalents
    
    $
    31,923
    
    
    $
    27,287Restricted cash
    
    
    19
    
    
    
    2,879Accounts receivable
    
    
    10,744
    
    
    
    14,800Prepaid expenses and other current assets
    
    
    11,863
    
    
    
    10,118Total Current Assets
    
    
    54,549
    
    
    
    55,084Property and Equipment, Net
    
    
    305,913
    
    
    
    266,587Goodwill
    
    
    211,886
    
    
    
    211,886Other Assets
    
    
    5,725
    
    
    
    5,322Total Assets
    
    $
    578,073
    
    
    $
    538,879
  1




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Endeavour International Corporation
Condensed Consolidated Balance Sheets
 March 31,
    
    December 31,2010
    
    2009Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    26,045
    
    
    $
    12,401Current maturities of debt
    
    
    79,942
    
    
    
    Accrued expenses and other
    
    
    18,180
    
    
    
    17,798Total Current Liabilities
    
    
    124,167
    
    
    
    30,199Long-Term Debt
    
    
    170,964
    
    
    
    223,385Deferred Taxes
    
    
    83,033
    
    
    
    80,692Other Liabilities
    
    
    75,295
    
    
    
    85,412Total Liabilities
    
    
    453,459
    
    
    
    419,688Commitments and ContingenciesSeries C Convertible Preferred StockFace value (liquidation preference)
    
    
    46,625
    
    
    
    50,000Net non-cash premiums under fair value accounting on redemption
    
    
    8,447
    
    
    
    9,058Total Series C Convertible Preferred Stock
    
    
    55,072
    
    
    
    59,058Stockholders Equity:Series B preferred stock  Liquidation preference: $3,154Common stock; shares issued and outstanding  161,256
and 131,618 shares at 2010 and 2009, respectively
    
    
    161
    
    
    
    132Additional paid-in capital
    
    
    272,864
    
    
    
    247,707Treasury stock, at cost - 498 and 498 shares at 2010
and 2009, respectively
    
    
    (587
    )
    
    
    (587
    )Accumulated deficit
    
    
    (202,896
    )
    
    
    (187,119
    )Total Stockholders Equity
    
    
    69,542
    
    
    
    60,133Total Liabilities and Stockholders Equity
    
    $
    578,073
    
    
    $
    538,879
  2




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Endeavour International Corporation
Condensed Consolidated Statement of Operations
 Three Months EndedMarch 31,2010
    
    2009Revenues
    
    $
    13,721
    
    
    $
    16,338Cost of Operations:Operating expenses
    
    
    2,821
    
    
    
    6,182Depreciation, depletion and amortization
    
    
    5,681
    
    
    
    11,324Impairment of oil and gas properties
    
    
    7,692
    
    
    
    29,402General and administrative
    
    
    4,431
    
    
    
    3,835Total Expenses
    
    
    20,625
    
    
    
    50,743Loss From Operations
    
    
    (6,904
    )
    
    
    (34,405
    )Other Income (Expense):Derivatives:Realized gains
    
    
    232
    
    
    
    11,936Unrealized losses
    
    
    (1,072
    )
    
    
    (1,373
    )Interest expense
    
    
    (5,636
    )
    
    
    (3,911
    )Interest income and other
    
    
    3,024
    
    
    
    (341
    )Total Other Income (Expense)
    
    
    (3,452
    )
    
    
    6,311Loss Before Income Taxes
    
    
    (10,356
    )
    
    
    (28,094
    )Income Tax Expense (Benefit)
    
    
    4,834
    
    
    
    (10,952
    )Loss from Continuing Operations
    
    
    (15,190
    )
    
    
    (17,142
    )Income from Discontinued Operations
    
    
    
    
    
    
    279Net Loss
    
    
    (15,190
    )
    
    
    (16,863
    )Preferred Stock Dividends
    
    
    589
    
    
    
    2,669Net Loss to Common Stockholders
    
    $
    (15,779
    )
    
    $
    (19,532
    )Basic and Diluted Net Loss per Common Share:Continuing operations
    
    $
    (0.11
    )
    
    $
    (0.15
    )Discontinued operations
    
    
    
    
    
    
    Total
    
    $
    (0.11
    )
    
    $
    (0.15
    )Weighted Average Number of Common Shares Outstanding:Basic and Diluted
    
    
    149,546
    
    
    
    129,291
  3




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Endeavour International Corporation
Condensed Consolidated Statement of Cash Flows
 Three Months Ended March 31,2010
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (15,190
    )
    
    $
    (16,863
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    5,681
    
    
    
    16,059Impairment of oil and gas properties
    
    
    7,692
    
    
    
    29,402Deferred tax expense (benefit)
    
    
    3,477
    
    
    
    (8,423
    )Unrealized losses on derivatives
    
    
    1,072
    
    
    
    1,373Amortization of non-cash compensation
    
    
    1,153
    
    
    
    657Amortization of loan costs and discount
    
    
    1,528
    
    
    
    1,201Non-cash interest expense
    
    
    1,683
    
    
    
    1,279Other
    
    
    (3,023
    )
    
    
    (1,293
    )Changes in operating assets and liabilities:Decrease in receivables
    
    
    4,056
    
    
    
    4,504(Increase) decrease in other current assets
    
    
    (2,166
    )
    
    
    4,707Increase in liabilities
    
    
    3,451
    
    
    
    7,136Net Cash Provided by Operating Activities
    
    
    9,414
    
    
    
    39,739Cash Flows From Investing Activities:Capital expenditures
    
    
    (21,768
    )
    
    
    (29,431
    )Acquisitions
    
    
    (29,407
    )
    
    
    (1,153
    )(Increase) decrease in restricted cash
    
    
    2,859
    
    
    
    (11,814
    )Net Cash Used in Investing Activities
    
    
    (48,316
    )
    
    
    (42,398
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    
    
    
    
    (10,678
    )Borrowings under debt agreements
    
    
    25,000
    
    
    
    Proceeds from issuance of common stock
    
    
    20,011
    
    
    
    Dividends paid
    
    
    (550
    )
    
    
    (2,656
    )Other financing
    
    
    (923
    )
    
    
    (50
    )Net Cash Provided by (Used in) Financing Activities
    
    
    43,538
    
    
    
    (13,384
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    4,636
    
    
    
    (16,043
    )Cash and Cash Equivalents, Beginning of Period
    
    
    27,287
    
    
    
    38,156Cash and Cash Equivalents, End of Period
    
    $
    31,923
    
    
    $
    22,113Cash and Cash Equivalents, End of Period:Continuing operations
    
    $
    31,923
    
    
    $
    12,599Discontinued operations
    
    
    
    
    
    
    9,514Total
    
    $
    31,923
    
    
    $
    22,113
  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.
 Loss Per Share
  5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   March 31,2010
    
    
    2009Warrants, options and
stock-based compensation
    
    
    674
    
    
    
    282Convertible debt
    
    
    37,910
    
    
    
    35,581Convertible preferred stock
    
    
    37,300
    
    
    
    50,00075,884
    
    
    
    85,863
 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.
 Note 2  Discontinued Operations
   6




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Sales
    
    $
    
    
    
    $
    13,370Income before Taxes
    
    $
    
    
    
    $
    2,846Income Tax Expense
    
    
    
    
    
    
    (2,567
    )Income from Operations
    
    
    
    
    
    
    279Net Income from Discontinued Operations
    
    $
    
    
    
    $
    279
 Note 3  Stock-Based Compensation Arrangements
   Three Months EndedMarch 31,2010
    
    
    2009G & A Expenses
    
    $
    883
    
    
    $
    146Capitalized G & A
    
    
    270
    
    
    
    392Total non-cash stock-based
compensation
    
    $
    1,153
    
    
    $
    538
 Stock Options
  7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   For the Three Months Ended March 31,2010
    
    
    2009Risk-free rate
    
    
    
    
    
    
    1.3
    %Expected years until exercise
    
    
    
    
    
    
    4.5Expected stock volatility
    
    
    
    
    
    
    56
    %Dividend yield
    
    
    
    
    
    
    
  Weighted
    
    
    WeightedNumber of
    
    
    Average
    
    
    AverageShares
    
    
    Exercise
    
    
    Contractual
    
    
    Aggregateunderlying
    
    
    Price per
    
    
    Life in
    
    
    IntrinsicOptions
    
    
    Share
    
    
    Years
    
    
    ValueBalance outstanding January 1, 2010
    
    
    4,212
    
    
    $
    1.87Exercised
    
    
    (3
    )
    
    
    0.54Forfeited
    
    
    (20
    )
    
    
    1.56Expired
    
    
    (540
    )
    
    
    4.17Balance outstanding   March 31, 2010
    
    
    3,649
    
    
    $
    1.53
    
    
    
    6.9
    
    
    $
    936Currently exercisable  March 31, 2010
    
    
    2,405
    
    
    $
    1.83
    
    
    
    6.3
    
    
    $
    405
 Restricted Stock
   8




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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
    
    
    3,499
    
    
    
    1.07Vested
    
    
    (1,779
    )
    
    
    1.09Forfeited
    
    
    (21
    )
    
    
    0.89Balance outstanding  March 31, 2010
    
    
    5,119
    
    
    $
    1.02Total grant date fair value of shares vesting during the period
    
    $
    1,935
 Note 4  Property and Equipment
  March 31,
    
    
    December 31,2010
    
    
    2009Oil and gas properties under the full cost method:Subject to amortization
    
    $
    292,103
    
    
    $
    275,278Not subject to amortization:Acquired in 2010
    
    
    49,905
    
    
    
    Acquired in 2009
    
    
    44,702
    
    
    
    51,797Acquired in 2008
    
    
    26,872
    
    
    
    32,970Acquired prior to 2008
    
    
    59,888
    
    
    
    69,786473,470
    
    
    
    429,831Computers, furniture and fixtures
    
    
    3,655
    
    
    
    3,560Total property and equipment
    
    
    477,125
    
    
    
    433,391Accumulated depreciation, depletion and amortization
    
    
    (171,212
    )
    
    
    (166,804
    )Net property and equipment
    
    $
    305,913
    
    
    $
    266,587
  9




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     Note 5  Debt Obligations
  10




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 March 31,
    
    December 31,2010
    
    2009Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011 (1)
    
    
    49,942
    
    
    
    49,942Convertible bonds, 11.5%, due 2014
    
    
    51,271
    
    
    
    49,838Subordinated notes, 12.0%, due 2014
    
    
    50,373
    
    
    
    50,122Junior facility, variable rate, due 2011
    
    
    25,000
    
    
    
    257,836
    
    
    
    231,152Less: debt discount
    
    
    (6,930
    )
    
    
    (7,767
    )Less: current maturities
    
    
    (79,942
    )
    
    
    Long-term debt
    
    $
    170,964
    
    
    $
    223,385Standby letters of credit outstanding for
abandonment liabilities
    
    $
    31,312
    
    
    $
    33,388
 
 (1)
    
    Subsequent to March 31, 2010, we repaid $8.5 million of our senior bank facility.  Junior Facility
   11




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Senior bank facility
    2011 Debt Maturities
  12




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 6  Asset Retirement Obligations
  Three Months EndedMarch 31,2010
    
    2009Carrying amount of asset retirement obligations as of beginning of
period
    
    $
    47,362
    
    
    $
    38,776Accretion expense
    
    
    1,134
    
    
    
    965Impact of foreign currency exchange rate changes
    
    
    (3,062
    )
    
    
    (744
    )Payment of asset retirement obligation
    
    
    (483
    )
    
    
    (97
    )Reduction in asset retirement obligation
    
    
    (1,812
    )
    
    
    43,139
    
    
    
    38,900Less: ARO Liability  Current
    
    
    (5,000
    )
    
    
    Carrying amount of asset retirement obligations as of end of period
    
    $
    38,139
    
    
    $
    38,900
 Note 7  Equity Transactions
 Series C Convertible Preferred Stock
   Common Stock Issuance
  13




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  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 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.
  14




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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 ValueThree Months Ended March 31, 2010Oil and gas derivative contracts:Oil and gas swaps
    
    $
    
    
    
    $
    (12,610
    )
    
    $
    
    
    
    $
    (12,610
    )Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (30,120
    )
    
    
    (30,120
    )Total derivative liabilities
    
    $
    
    
    
    $
    (12,610
    )
    
    $
    (30,120
    )
    
    $
    (42,730
    )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
    )
   15




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three months ended March 31, 2010Balance at beginning of period
    
    $
    (28,843
    )Total gains or losses (realized/unrealized)Included in earnings
    
    
    (1,277
    )Balance at end of period
    
    $
    (30,120
    )Changes in unrealized gains (losses) relating to derivatives assets and liabilities still held at
March 31, 2010
    
    $
    (1,277
    )Three months ended March 31, 2009Balance at beginning of period
    
    $
    (12,057
    )Total gains or losses (realized/unrealized)Included in earnings
    
    
    (299
    )Balance at end of period
    
    $
    (12,356
    )Changes in unrealized gains (losses) relating to derivatives assets and liabilities still held at
March 31, 2009
    
    $
    528
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Goodwill 
 Note 9  Derivative Instruments
  16




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   March 31,
    
    December 31,2010
    
    2009Derivatives not designated as hedges:Oil and gas commodity derivatives:Assets:Prepaid expenses and other current assets
    
    $
    2,469
    
    
    $
    2,890Other assets  long term
    
    
    626
    
    
    
    318Liabilities:Accrued expenses and other
    
    
    (8,668
    )
    
    
    (6,817
    )Other liabilities  long-term
    
    
    (7,037
    )
    
    
    (9,207
    )$
    (12,610
    )
    
    $
    (12,816
    )Embedded derivatives related to debt and equity instruments:Liabilities:Other liabilities  long-term
    
    
    (30,120
    )
    
    
    (28,843
    )
   Three Months EndedMarch 31,2010
    
    2009Derivatives not designated as hedges:Oil and gas commodity derivativesRealized gains
    
    $
    232
    
    
    $
    11,936Unrealized gains
    
    
    205
    
    
    
    397437
    
    
    
    12,333Embedded derivatives related to debt
and equity instrumentsUnrealized losses
    
    $
    (1,277
    )
    
    $
    (1,770
    )
  17




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 First QuarterMarch 31,Location ofReclassificationinto Income
    
    2010
    
    2009Interest rate swap(Gain) loss recognized in other
comprehensive income, net of tax
    
    
    
    
    
    $
    
    
    
    $
    136(Gain) loss reclassified from
accumulated other comprehensive
income into income
    
    Interest expense
    
    
    
    
    
    
    309
    Note 10  Supplemental Cash Flow Information
  Three Months Ended March 31,2010
    
    2009Interest paid
    
    $
    4,119
    
    
    $
    2,438Income taxes paid
    
    $
    217
    
    
    $
    3,654
  18




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
    Note 11  Comprehensive Loss
  Three Months EndedMarch 31,2010
    
    2009Net loss
    
    $
    (15,190
    )
    
    $
    (16,863
    )Unrealized (gain) loss on interest rate swap derivative instrument, net of tax
    
    
    
    
    
    
    136Reclassification adjustment for (gain) loss realized in net loss above
    
    
    
    
    
    
    381Net impact on comprehensive income (loss)
    
    
    
    
    
    
    517Comprehensive loss
    
    $
    (15,190
    )
    
    $
    (16,346
    )
 Note 12  Commitments and Contingencies
  19




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Endeavour International Corporation
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  
    
    In the second quarter of 2009, we sold our Norwegian operations for cash consideration
of $150 million, providing the financial flexibility and strength to continue our U.K.
development program and accelerate our expanding U.S. initiative.
    
    In the fourth quarter of 2009, we entered into a joint venture relationship with Cohort
Energy Company (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
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 January 2010, we acquired 50 percent of Cohorts interests in certain acreage in
North Louisiana/East Texas and Western Pennsylvania, primarily in the Haynesville and
Marcellus gas shale plays, for $15 million cash. We also acquired 50 percent of Hillwood
Energy Alabama LPs (Hillwood) position in Hillwoods unproven, but highly prospective
new multi-target gas shale play in Alabama with an initial net investment of approximately
$8.0 million.
    
    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 will be used to partially fund our 2010 capital budget.
 20




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##### Table of Contents



Endeavour International Corporation
 
    
    On March 15, 2010, we announced that our board of directors had approved a review
of strategic alternatives for our North Sea assets. In an effort to unlock the value of
our underlying North Sea assets, we will study a full range of options, including:
 
    
    Continuing to execute our current operations plan;
    
    Entering into a joint venture to accelerate activities in the North Sea; and
    
    Selling specific assets or the entire North Sea business.
 
    
    During 2010, we plan to utilize our existing U.K. oil and gas assets, as well as our
growing U.S. reserve base, as a basis for refinancing and expanding our credit facilities.
We are currently in discussions with several parties concerning this process.
   Results of Operations
  21




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Endeavour International Corporation
    22




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##### Table of Contents



Endeavour International Corporation
 Three Months EndedMarch 31,2010
    
    2009Sales volume (1)Oil and condensate sales (Mbbls):United Kingdom
    
    
    113
    
    
    
    178United States
    
    
    1
    
    
    
    1Continuing operations
    
    
    114
    
    
    
    179Discontinued operations  Norway
    
    
    
    
    
    
    224Total
    
    
    114
    
    
    
    403Gas sales (MMcf):United Kingdom
    
    
    766
    
    
    
    1,078United States
    
    
    280
    
    
    
    51Continuing operations
    
    
    1,046
    
    
    
    1,129Discontinued operations  Norway
    
    
    
    
    
    
    533Total
    
    
    1,046
    
    
    
    1,662Oil equivalent sales (MBOE)United Kingdom
    
    
    241
    
    
    
    358United States
    
    
    48
    
    
    
    9Continuing operations
    
    
    289
    
    
    
    367Discontinued operations  Norway
    
    
    
    
    
    
    313Total
    
    
    289
    
    
    
    680Total BOE per day
    
    
    3,209
    
    
    
    7,551Physical production volume (BOE per day):United Kingdom
    
    
    3,118
    
    
    
    4,315United States
    
    
    578
    
    
    
    90Continuing operations
    
    
    3,696
    
    
    
    4,405Discontinued operations  Norway
    
    
    
    
    
    
    3,365Total
    
    
    3,696
    
    
    
    7,770Realized Prices (2)Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    70.24
    
    
    $
    41.68Effect of commodity derivatives
    
    
    (7.50
    )
    
    
    24.50Realized prices including commodity derivatives
    
    $
    62.74
    
    
    $
    66.18Gas price ($  per Mcf):Before commodity derivatives
    
    $
    5.43
    
    
    $
    7.78Effect of commodity derivatives
    
    
    1.25
    
    
    
    1.25Realized prices including commodity derivatives
    
    $
    6.68
    
    
    $
    9.03Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    47.51
    
    
    $
    43.71Effect of commodity derivatives
    
    
    1.55
    
    
    
    17.56Realized prices including commodity derivatives
    
    $
    49.06
    
    
    $
    61.27
 23




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Endeavour International Corporation
 
 (1)
    
    We record oil revenues using the sales method, i.e. when delivery has
occurred. Actual production may differ based on the timing of tanker liftings. We use the
entitlements method to account for sales of gas production.(2)
    
    The average sales prices reflect both our continuing and discontinued
operations and include gains and losses for derivative contracts we utilize to manage price
risk related to our future cash flows.      24




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##### Table of Contents



Endeavour International Corporation
 Expenses
    Three Months EndedMarch 31,2010
    
    2009Compensation
    
    $
    4,243
    
    
    $
    3,411Consulting, legal and accounting fees
    
    
    1,527
    
    
    
    901Occupancy costs
    
    
    249
    
    
    
    224Other expenses
    
    
    173
    
    
    
    441Total gross cash G&A expenses
    
    
    6,192
    
    
    
    4,977Non-cash stock-based compensation
    
    
    1,153
    
    
    
    538Gross G&A expenses
    
    
    7,345
    
    
    
    5,515Less: capitalized G & A expenses
    
    
    (2,914
    )
    
    
    (1,680
    )Net G&A expenses
    
    $
    4,431
    
    
    $
    3,835
  Income Taxes
  25




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Endeavour International Corporation
 UK
    
    U.S.
    
    Other
    
    TotalThree Months Ended March 31, 2010Net income (loss) before taxes
from continuing operations
    
    $
    4,127
    
    
    $
    (11,842
    )
    
    $
    (2,641
    )
    
    $
    (10,356
    )Current tax expense (benefit)
    
    
    1,356
    
    
    
    
    
    
    
    
    
    
    
    1,356Deferred tax expense (benefit)
    
    
    3,536
    
    
    
    
    
    
    
    
    
    
    
    3,536Foreign currency losses on
deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    (58
    )Income tax expense (benefit)
    
    
    4,892
    
    
    
    
    
    
    
    (58
    )
    
    
    4,834Net loss from continuing operations
    
    $
    (765
    )
    
    $
    (11,842
    )
    
    $
    (2,583
    )
    
    $
    (15,190
    )Three Months Ended March 31, 2009Net loss before taxes from
continuing operations
    
    $
    (22,610
    )
    
    $
    (3,404
    )
    
    $
    (2,080
    )
    
    $
    (28,094
    )Current tax expense (benefit)
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    594Deferred tax expense (benefit)
    
    
    (9,600
    )
    
    
    
    
    
    
    
    
    
    
    (9,600
    )Foreign currency losses on
deferred tax liabilities
    
    
    (1,946
    )
    
    
    
    
    
    
    
    
    
    
    (1,946
    )Income tax expense (benefit)
    
    
    (10,952
    )
    
    
    
    
    
    
    
    
    
    
    (10,952
    )Net loss from continuing operations
    
    $
    (11,658
    )
    
    $
    (3,404
    )
    
    $
    (2,080
    )
    
    $
    (17,142
    )
   Reconciliation of Non-GAAP Measures
   26




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Endeavour International Corporation
    
    
    our cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
    
    changes in, or cash requirements for, our working capital needs;
    
    unrealized gains (losses) on derivatives;
    
    non-cash foreign currency gains (losses);
    
    our interest expense, or the cash requirements necessary to service interest and
principal payments on our debts;
    
    our preferred stock dividend requirements; and
    
    depreciation, depletion and amortization.
  27




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Endeavour International Corporation
  Three Months EndedMarch 31,2010
    
    2009Net loss
    
    $
    (15,190
    )
    
    $
    (16,863
    )Depreciation, depletion and amortization
    
    
    5,681
    
    
    
    16,059Impairment of oil and gas properties
    
    
    7,692
    
    
    
    29,402Deferred tax expense (benefit)
    
    
    3,477
    
    
    
    (8,423
    )Unrealized (gain) loss on derivatives
    
    
    1,072
    
    
    
    1,373Other
    
    
    1,341
    
    
    
    1,844Discretionary Cash Flow (1)
    
    $
    4,073
    
    
    $
    23,392Net loss to common shareholders
    
    $
    (15,779
    )
    
    $
    (19,532
    )Impairment of oil and gas properties (net of tax) (2)
    
    
    7,692
    
    
    
    14,745Unrealized (gain) loss on derivatives (net of tax) (3)
    
    
    1,174
    
    
    
    1,571Currency impact on deferred taxes
    
    
    (59
    )
    
    
    (705
    )Net Income (Loss) as Adjusted
    
    $
    (6,972
    )
    
    $
    (3,921
    )Net loss to common shareholders
    
    $
    (15,779
    )
    
    $
    (19,532
    )Unrealized (gain) loss on derivatives
    
    
    1,072
    
    
    
    1,373Net interest expense
    
    
    5,633
    
    
    
    3,820Depreciation, depletion and amortization
    
    
    5,681
    
    
    
    16,059Impairment of oil and gas properties
    
    
    7,692
    
    
    
    29,402Income tax expense (benefit)
    
    
    4,834
    
    
    
    (8,385
    )Preferred stock dividends
    
    
    589
    
    
    
    2,669Adjusted EBITDA
    
    $
    9,722
    
    
    $
    25,406
 
 (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 none and $(14,657), respectively.(3)
    
    Net of tax expense of $102 and $198, respectively. 28




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Endeavour International Corporation
 Liquidity and Capital Resources
  Three Months Ended March 31,2010
    
    2009Net cash provided by operating activities
    
    $
    9,414
    
    
    $
    39,739Net cash used in investing activities
    
    $
    (48,316
    )
    
    $
    (42,398
    )Net cash provided by (used in) financing activities
    
    $
    43,538
    
    
    $
    (13,384
    )
      29




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##### Table of Contents



Endeavour International Corporation
  Capital Program
  
    
    Value creation, such as net present value per BOE and internal rate of return;
    
    Lead time from initial acquisition to first production;
    
    Ownership interest, risks and rewards, for example lower interests in high risk
projects;
    
    Financial impact, for example finding costs per BOE and timing of capital commitments;
    
    Growth opportunities, i.e. a successful well unlocks a play and supplies a string of
future drill locations;
    
    Gas versus oil; and
    
    U.K. and U.S.
    30




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Endeavour International Corporation
  2010 Activity
    United States Acquisitions
    31




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Endeavour International Corporation
   2010 Outlook
  Estimated Average Production (A)Daily Production (BOE per day)
    
    
    4,500
    
    
    to
    
    
    6,000Differentials (B)Oil ($/Bbl)
    
    $
    (5.00
    )
    
    to
    
    $
    (6.00
    )Gas ($Mcf)
    
    $
    (0.50
    )
    
    to
    
    $
    (0.60
    )Gas percentage of Total
    
    
    55
    %
    
    to
    
    
    60
    %Lease Operating Expense ($  per barrel)
    
    $
    8.00
    
    
    to
    
    $
    10.00
 
 (A)
    
    Actual results may differ materially from these estimates.(B)
    
    For purposes of the estimates, assumptions of price differentials are based on
location, quality and other factors, excluding the effects of derivative financial
instruments. Gas price differentials are stated as premiums (discounts) from Henry Hub
pricing, and oil price differentials are stated as premiums (discounts) from West Texas
Intermediate pricing. Disclosures About Contractual Obligations and Commercial Commitments
  Cautionary Statement for Forward-Looking Statements
  32




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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;
    
    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
   2010
    
    2011
    
    TotalOil:Fixed Price Swaps (Mbbl)
    
    
    430
    
    
    
    487
    
    
    
    917Weighted Average Price ($/Barrel)
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    67.13Gas: (1)Fixed Price Swaps (MMcf)
    
    
    774
    
    
    
    627
    
    
    
    1,401Weighted Average Price ($/Mcf)
    
    $
    7.38
    
    
    $
    7.79
    
    
    $
    7.56
 33




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##### Table of Contents



Endeavour International Corporation
 (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 March 31, 2010 was 1.52 to £1.00.
 Foreign Exchange Risk
  Interest Rate Risk
  
 Item 4:
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    34




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Endeavour International Corporation
 Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1A:
    
    Risk Factors
 Risk Factors
 
 Item 6:
    
    Exhibits
  2.1**
    
    Purchase and Sale and Participation Agreement by and between Endeavour and Hillwood Energy
Alabama LP. Schedules and Exhibits are omitted pursuant to Section 601(b)(2) of Regulation
S-K. Endeavour agrees to furnish supplementally a copy of any omitted Schedule to the SEC upon
request. (Incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K
(Commission File No. 001-32212) filed on January 19, 2010).2.2**
    
    Purchase and Sale Agreement between Endeavour and Cohort Energy Company. Schedules and
Exhibits are omitted pursuant to Section 601(b)(2) of Regulation S-K. Endeavour agrees to
furnish supplementally a copy of any omitted Schedule to the SEC upon request. (Incorporated
by reference to Exhibit 2.1 of our Current Report on Form 8-K (Commission File No. 001-32212)
filed on January 19, 2010).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.)
 35




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##### Table of Contents



Endeavour International Corporation
 3.1(b)
    
    Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our
Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13,
2006.)3.2(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
    
    Change in Control and Termination Benefits Agreement dated January 11, 2010, by and between
Endeavour International Corporation and James Joseph Emme (Incorporated by reference to
Exhibit 10.7 of our Annual Report on Form 10-K for the year ended December 31, 2009
(Commission File No. 001-32212)).10.2
    
    Amendment No. 1 to Subscription and Registration Rights Agreement, dated January 29, 2010, by
and among Endeavour International Corporation and the Investors party thereto
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Commission
File No. 001-32212) filed on February 1, 2010).10.3**
    
    Final Participation Agreement between Endeavour and Cohort Energy Company (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K (Commission File No. 001-32212)
filed on January 19, 2010).10.4
    
    Waiver and consent to $225,000,000 Secured Revolving Loan and Letter of Credit Facility
Agreement, dated as of February 5, 2010 (Incorporated by reference to Exhibit 10.13(c) of our
Annual Report on Form 10-K for the year ended December 31, 2009 (Commission File No.
001-32212)).10.5
    
    Amendment to Junior Facility Agreement dated February 5, 2010 by and among Endeavour
International Holding B.V., as borrower, Endeavour International Corporation and certain of
its affiliates party thereto, as guarantors, BNP Paribas and Bank of Scotland Plc, as the
mandated lead arrangers and original lenders, and BNP Paribas, as agent and security trustee
(Incorporated by reference to Exhibit 10.15(b) of our Annual Report on Form 10-K for the year
ended December 31, 2009 (Commission File No. 001-32212)).10.6
    
    Amendment to Note Agreement dated November 17, 2009 by and among Endeavour International
Corporation and the holders of its Series C Preferred Stock, dated March 10, 2010
(Incorporated by reference to Exhibit 10.26(b) of our Annual Report on Form 10-K for the year
ended December 31, 2009 (Commission File No. 001-32212)).10.7
    
    Common Stock Purchase Agreement, dated as of February 4, 2010, by and between Endeavour
International Corporation and the purchasers named therein (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on
February 5, 2010).10.8
    
    Registration Rights Agreement, dated as of February 4, 2010, by and between Endeavour
International Corporation and the purchasers named therein (Incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K (Commission File No. 001-32212) filed on
February 5, 2010).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.
 36




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##### Table of Contents



Endeavour International Corporation
 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.
 
 Signatures
  Endeavour International Corporation
 Date: May 6, 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 AccountingOfficer)
 37