##### 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,
2009
 or
 o
    
    Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the transition period from
 to
 Commission file number: 1-32212
 Endeavour International Corporation
  Nevada
    
    88-0448389(State or other jurisdiction of
incorporation
    
    (I.R.S. Employer Identification
No.)or organization)
 1001
Fannin Street, Suite 1600, Houston, Texas 77002
 (713) 307-8700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
o
 o þ




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##### 



Endeavour International Corporation
 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
    
    
    19Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4: Controls and Procedures
    
    
    31Part II. Other InformationItem 1A: Risk Factors
    
    
    32Item 4: Submission of Matters to a Vote of Security Holders
    
    
    32Item 6: Exhibits
    
    
    32Signatures
    
    
    33EX-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 gas wells or acreage is determined by
multiplying gross wells or acreage by our working interest therein.




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##### Table of Contents



Part I: Financial Information
 
 Item 1: Financial Statements
 Endeavour International Corporation
 
 Condensed Consolidated Balance Sheets
   June 30, 2009
    
    December 31, 2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    101,602
    
    
    $
    31,421Restricted cash
    
    
    2,147
    
    
    
    20,739Accounts receivable
    
    
    19,214
    
    
    
    22,325Prepaid expenses and other current assets
    
    
    22,634
    
    
    
    42,194Current assets of discontinued operations
    
    
    
    
    
    
    16,726Total Current Assets
    
    
    145,597
    
    
    
    133,405Property and Equipment, Net
    
    
    227,341
    
    
    
    232,346Goodwill
    
    
    213,949
    
    
    
    213,949Other Assets
    
    
    6,274
    
    
    
    9,165Long Term Assets of Discontinued Operations
    
    
    
    
    
    
    148,605Total Assets
    
    $
    593,161
    
    
    $
    737,470
 1




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##### Table of Contents



Endeavour International Corporation
Condensed Consolidated Balance Sheets
 June 30, 2009
    
    December 31, 2008Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    20,508
    
    
    $
    38,630Current maturities of debt
    
    
    
    
    
    
    13,000Accrued expenses and other
    
    
    33,301
    
    
    
    36,642Current liabilities of discontinued operations
    
    
    
    
    
    
    22,231Total Current Liabilities
    
    
    53,809
    
    
    
    110,503Long-Term Debt
    
    
    167,510
    
    
    
    214,855Deferred Taxes
    
    
    66,869
    
    
    
    67,299Other Liabilities
    
    
    71,884
    
    
    
    55,791Long-term Liabilities of Discontinued Operations
    
    
    
    
    
    
    46,051Total Liabilities
    
    
    360,072
    
    
    
    494,499Commitments and ContingenciesSeries C Convertible Preferred Stock (Liquidation preference: $125,000)
    
    
    125,000
    
    
    
    125,000Stockholders Equity:Series B preferred stock (Liquidation preference: $3,036)
    
    
    
    
    
    
    Common stock; shares issued and outstanding  130,875 and 128,572 shares
at 2009 and 2008, respectively
    
    
    131
    
    
    
    129Additional paid-in capital
    
    
    246,395
    
    
    
    244,471Treasury stock, at cost (457 and 327 shares at 2009 and 2008, respectively)
    
    
    (536
    )
    
    
    (450
    )Accumulated other comprehensive loss
    
    
    (580
    )
    
    
    (1,266
    )Accumulated deficit
    
    
    (137,321
    )
    
    
    (124,913
    )Total Stockholders Equity
    
    
    108,089
    
    
    
    117,971Total Liabilities and Stockholders Equity
    
    $
    593,161
    
    
    $
    737,470
  2




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##### Table of Contents



Endeavour International Corporation
 
 Condensed Consolidated Statement of Operations
   For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Revenues
    
    $
    18,082
    
    
    $
    55,343
    
    
    $
    34,420
    
    
    $
    101,151Cost of Operations:Operating expenses
    
    
    4,397
    
    
    
    9,180
    
    
    
    10,580
    
    
    
    16,527Depreciation, depletion and amortization
    
    
    7,858
    
    
    
    19,503
    
    
    
    19,182
    
    
    
    38,391Impairment of oil and gas properties
    
    
    1,244
    
    
    
    
    
    
    
    30,645
    
    
    
    General and administrative
    
    
    4,115
    
    
    
    3,845
    
    
    
    7,950
    
    
    
    7,553Total Expenses
    
    
    17,614
    
    
    
    32,528
    
    
    
    68,357
    
    
    
    62,471Income (Loss) From Operations
    
    
    468
    
    
    
    22,815
    
    
    
    (33,937
    )
    
    
    38,680Other Income (Expense):Derivatives:Realized gains (losses)
    
    
    9,114
    
    
    
    (14,494
    )
    
    
    21,050
    
    
    
    (17,644
    )Unrealized losses
    
    
    (32,722
    )
    
    
    (130,686
    )
    
    
    (34,095
    )
    
    
    (160,328
    )Interest expense
    
    
    (4,224
    )
    
    
    (5,478
    )
    
    
    (8,135
    )
    
    
    (13,794
    )Interest income and other
    
    
    (7,992
    )
    
    
    (122
    )
    
    
    (8,333
    )
    
    
    (31
    )Total Other Expense
    
    
    (35,824
    )
    
    
    (150,780
    )
    
    
    (29,513
    )
    
    
    (191,797
    )Loss Before Income Taxes
    
    
    (35,356
    )
    
    
    (127,965
    )
    
    
    (63,450
    )
    
    
    (153,117
    )Income Tax Expense (Benefit)
    
    
    916
    
    
    
    (58,304
    )
    
    
    (10,036
    )
    
    
    (66,931
    )Loss from Continuing Operations
    
    
    (36,272
    )
    
    
    (69,661
    )
    
    
    (53,414
    )
    
    
    (86,186
    )Discontinued Operations, net of taxIncome (loss) from operations
    
    
    (1,052
    )
    
    
    5,637
    
    
    
    (774
    )
    
    
    5,370Gain on sale
    
    
    47,144
    
    
    
    
    
    
    
    47,144
    
    
    
    Income from Discontinued Operations
    
    
    46,092
    
    
    
    5,637
    
    
    
    46,370
    
    
    
    5,370Net Income (Loss)
    
    
    9,820
    
    
    
    (64,024
    )
    
    
    (7,044
    )
    
    
    (80,816
    )Preferred Stock Dividends
    
    
    2,696
    
    
    
    2,709
    
    
    
    5,365
    
    
    
    5,404Net Income (Loss) to Common Stockholders
    
    $
    7,124
    
    
    $
    (66,733
    )
    
    $
    (12,409
    )
    
    $
    (86,220
    )Basic and Diluted Income (Loss) per Common Share:Continuing operations
    
    $
    (0.31
    )
    
    $
    (0.56
    )
    
    $
    (0.46
    )
    
    $
    (0.72
    )Discontinued operations
    
    
    0.36
    
    
    
    0.04
    
    
    
    0.36
    
    
    
    0.04Total
    
    $
    0.05
    
    
    $
    (0.52
    )
    
    $
    (0.10
    )
    
    $
    (0.68
    )Weighted Average Number of Common Shares
Outstanding:Basic and Diluted
    
    
    129,741
    
    
    
    127,626
    
    
    
    129,521
    
    
    
    127,581
  3




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Endeavour International Corporation
 
 Condensed Consolidated Statement of Cash Flows
   For the Six MonthsEnded June 30,2009
    
    
    2008Cash Flows from Operating Activities:Net loss
    
    $
    (7,044
    )
    
    $
    (80,816
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    23,863
    
    
    
    45,123Impairment of oil and gas properties
    
    
    30,645
    
    
    
    Deferred tax benefit
    
    
    (3,596
    )
    
    
    (58,277
    )Unrealized loss on derivatives
    
    
    34,095
    
    
    
    160,328Gain on sale of Norwegian operations
    
    
    (47,144
    )
    
    
    Other
    
    
    11,536
    
    
    
    8,568Changes in operating assets and liabilities:(Increase) decrease in receivables
    
    
    2,687
    
    
    
    (2,824
    )(Increase) decrease in other current assets
    
    
    6,062
    
    
    
    (4,907
    )Increase (decrease) in liabilities
    
    
    (8,905
    )
    
    
    4,759Net Cash Provided by Operating Activities
    
    
    42,199
    
    
    
    71,954Cash Flows From Investing Activities:Capital expenditures
    
    
    (67,337
    )
    
    
    (32,168
    )Proceeds from sales, net of cash
    
    
    139,797
    
    
    
    Decrease in restricted cash
    
    
    18,592
    
    
    
    Net Cash Provided by (Used in) Investing Activities
    
    
    91,052
    
    
    
    (32,168
    )Cash Flows From Financing Activities:Repayments of borrowings
    
    
    (64,458
    )
    
    
    (105,000
    )Borrowings under debt agreements
    
    
    
    
    
    
    88,000Dividends paid
    
    
    (5,313
    )
    
    
    (5,313
    )Financing costs paid
    
    
    
    
    
    
    (4,282
    )Other financing
    
    
    (34
    )
    
    
    (252
    )Net Cash Used in Financing Activities
    
    
    (69,805
    )
    
    
    (26,847
    )Net Increase in Cash and Cash Equivalents
    
    
    63,446
    
    
    
    12,939Cash and Cash Equivalents, Beginning of Period
    
    
    38,156
    
    
    
    16,440Cash and Cash Equivalents, End of Period
    
    $
    101,602
    
    
    $
    29,379Cash and Cash Equivalents, End of Period:Continuing operations
    
    $
    101,602
    
    
    $
    16,552Discontinued operations
    
    
    
    
    
    
    12,827Total
    
    $
    101,602
    
    
    $
    29,379
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Endeavour International Corporation
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 Note 1  General
  Basis of Presentation and Use of Estimates
   
    
    proved oil and gas reserves,
    
    expected future cash flow from proved oil and gas properties,
    
    future dismantlement and restoration costs,
    
    fair values used in purchase accounting; and
    
    fair value of derivative instruments.
 Income (Loss) Per Share
  5




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   (Amounts in thousands)
    
    June 30,2009
    
    
    2008Warrants, options and stock-based compensation
    
    
    990
    
    
    
    1,253Convertible debt
    
    
    36,139
    
    
    
    34,000Convertible preferred stock
    
    
    50,000
    
    
    
    50,000Common shares potentially issuable
    
    
    87,129
    
    
    
    85,253
 New Accounting Developments
  
    
    Business combinations Guidance related to the measurement of identifiable assets
acquired, liabilities assumed and disclosure of information related to business
combinations and their effect.
    
    Noncontrolling interests Guidance for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as a component of consolidated
equity. Similarly, the new standard requires consolidated net income and comprehensive
income to be reported at amounts that include the amounts attributable to both the parent
and the noncontrolling interests.
    
    Expanded disclosures of derivatives Expanded and detailed financial statement
disclosures for derivatives and hedged financial instruments. This standard applies to all
derivatives and non-derivative instruments designated and qualifying as hedges, including
bifurcated derivative instruments and related hedged items.
    
    Convertible debt Guidance for convertible debt that may be settled in part or in whole
in cash upon conversion requiring issuers of this form of debt to account for its debt and
equity components separately. The new guidance also expands the definition of mandatorily
redeemable convertible preferred shares that should be classified as liabilities.
    
    Share-based payments Guidance for instruments that are granted in share-based payment
transactions to treat unvested share-based payment awards with non-forfeitable rights to
dividend or dividend equivalents as a separate class of securities in calculating earnings
per share (EPS). The impact of the adoption of this standard our weighted
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 average shares
outstanding and EPS were not material, therefore, we have not restated prior periods.
 
    
    Fair Value Framework for measuring fair value and expanded disclosures about fair
value measurements. New fair value measurements are not required; rather, the
provisions apply when fair value measurements are performed under other accounting
pronouncements.
  
    
    Subsequent Events Standards of accounting for and disclosure of events that occur
after the balance sheet date but before the financial statements are issued.
 Subsequent Events
  Note 2  Discontinued Operations
   7




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (Amounts in thousands)
    
    June 30, 2009
    
    December 31, 2008Current Assets:Cash
    
    $
    
    
    
    $
    6,735Accounts receivable
    
    
    
    
    
    
    4,559Prepaid expenses and other
    
    
    
    
    
    
    5,432
    
    
    
    16,726Long-term Assets:Property, plant and equipment, net
    
    
    
    
    
    
    80,611Goodwill
    
    
    
    
    
    
    67,994
    
    
    
    148,605Current Liabilities:Accounts payable
    
    
    
    
    
    
    (3,717
    )Accrued expenses and other
    
    
    
    
    
    
    (18,514
    )
    
    
    
    (22,231
    )Long-term Liabilities:Deferred tax liability
    
    
    
    
    
    
    (36,828
    )Asset retirement obligation
    
    
    
    
    
    
    (9,223
    )
    
    
    
    (46,051
    )Net Assets and Liabilities
    
    $
    
    
    
    $
    97,049
 For the Three Months
    
    For the Six Months(Amounts in thousands)
    
    Ended June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Sales
    
    $
    4,180
    
    
    $
    30,999
    
    
    $
    17,550
    
    
    $
    46,445Income before Taxes
    
    $
    1,811
    
    
    $
    21,077
    
    
    $
    4,656
    
    
    $
    29,907Income Tax Expense
    
    
    (2,863
    )
    
    
    (15,440
    )
    
    
    (5,430
    )
    
    
    (24,537
    )Income (Loss) from Operations
    
    
    (1,052
    )
    
    
    5,637
    
    
    
    (774
    )
    
    
    5,370Gain on Sale
    
    
    47,144
    
    
    
    
    
    
    
    47,144Net Income from Discontinued Operations
    
    $
    46,092
    
    
    $
    5,637
    
    
    $
    46,370
    
    
    $
    5,370
 Note 3  Stock-Based Compensation Arrangements
  8




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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   For the Three Months
    
    For the Six Months(Amounts in thousands)
    
    Ended June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008G&A expense
    
    $
    388
    
    
    $
    308
    
    
    $
    724
    
    
    $
    604Capitalized G&A
    
    
    187
    
    
    
    176
    
    
    
    389
    
    
    
    540Total non-cash stock-based compensation
    
    $
    575
    
    
    $
    484
    
    
    $
    1,113
    
    
    $
    1,144
 Stock Options
   For the Six Months Ended June 30,2009
    
    
    2008Risk-free rate
    
    
    1.3
    %
    
    
    3.2
    %Expected years until exercise
    
    
    4.3
    
    
    
    4.25Expected stock volatility
    
    
    56
    %
    
    
    46.0
    %Dividend yield
    
    
    
    
    
    
    
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Weighted
    
    WeightedNumber of
    
    Average
    
    AverageShares
    
    Exercise
    
    Contractual
    
    AggregateUnderlying
    
    Price per
    
    Life in
    
    Intrinsic(Amounts in thousands, except per share data)
    
    Options
    
    Share
    
    Years
    
    ValueBalance outstanding  January 1, 2009
    
    
    4,807
    
    
    $
    2.35Granted
    
    
    1,170
    
    
    
    0.54Exercised
    
    
    (84
    )
    
    
    0.77Forfeited
    
    
    (5
    )
    
    
    3.43Expired
    
    
    (907
    )
    
    
    2.06Balance outstanding  June 30, 2009
    
    
    4,981
    
    
    $
    1.99
    
    
    
    6.4
    
    
    $
    1,166Currently exercisable  June 30, 2009
    
    
    2,245
    
    
    $
    3.07
    
    
    
    3.7
    
    
    $
    71
  Restricted Stock
   10




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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  January 1, 2009
    
    
    3,966
    
    
    $
    1.88Granted
    
    
    1,554
    
    
    
    0.62Vested
    
    
    (2,119
    )
    
    
    2.20Forfeited
    
    
    (46
    )
    
    
    1.77Balance outstanding  June 30, 2009
    
    
    3,355
    
    
    $
    1.04Total grant date fair value of shares vesting
during the period
    
    $
    4,691
 Note 4  Property and Equipment
  December 31,June 30, 2009
    
    2008Oil and gas properties under the full cost method:Subject to amortization
    
    $
    230,513
    
    
    $
    239,024Not subject to amortization:Acquired in 2009
    
    
    31,850
    
    
    
    Acquired in 2008
    
    
    33,946
    
    
    
    37,288Acquired in 2007
    
    
    11,172
    
    
    
    14,746Acquired prior to 2007
    
    
    77,606
    
    
    
    82,522385,087
    
    
    
    373,580Other oil and gas assets
    
    
    4,875
    
    
    
    4,873Computers, furniture and fixtures
    
    
    3,584
    
    
    
    3,238Total property and equipment
    
    
    393,546
    
    
    
    381,691Accumulated depreciation, depletion and amortization
    
    
    (166,205
    )
    
    
    (149,345
    )Net property and equipment
    
    $
    227,341
    
    
    $
    232,346
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Note 5  Debt Obligations
  June 30,
    
    December 31,(Amounts in thousands)
    
    2009
    
    2008Senior notes, 6% fixed rate, due 2012
    
    $
    81,250
    
    
    $
    81,250Senior bank facility, variable rate, due 2011
    
    
    48,542
    
    
    
    113,000Convertible bonds, due 2014
    
    
    47,091
    
    
    
    44,496176,883
    
    
    
    238,746Less: debt discount
    
    
    (9,373
    )
    
    
    (10,891
    )Less: current maturities
    
    
    
    
    
    
    (13,000
    )Long-term debt
    
    $
    167,510
    
    
    $
    214,855Standby letters of credit outstanding for
abandonment liabilities
    
    $
    33,924
    
    
    $
    30,115
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Note 6  Asset Retirement Obligations
  Six Months Ended June 30,2009
    
    2008Carrying amount of asset retirement obligations
as of beginning of period
    
    $
    38,776
    
    
    $
    30,790Accretion expense
    
    
    2,044
    
    
    
    1,454Impact of foreign currency exchange rate changes
    
    
    4,998
    
    
    
    101Payment of asset retirement obligation
    
    
    (3,959
    )
    
    
    Sale of assets
    
    
    (248
    )
    
    
    Carrying amount of asset retirement obligations
as of end of period
    
    $
    41,611
    
    
    $
    32,345
 Note 7  Fair Value Measurements
  Level 1:
    
    Fair value is based on actively-quoted market prices, if available.Level 2:
    
    In the absence of actively-quoted market prices, we seek price information from external sources, including broker
quotes and industry publications. Substantially all of these inputs are observable in the marketplace during the
entire term of the instrument, can be derived from observable data, or supported by observable levels at which
transactions are executed in the marketplace.
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Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 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
    
    Total FairLevel 1
    
    Level 2
    
     Level 3
    
    ValueOil and gas derivative contracts:Oil and gas swaps
    
    $
    
    
    
    $
    (5,161
    )
    
    $
    
    
    
    $
    (5,161
    )Oil and gas collars
    
    
    
    
    
    
    5,975
    
    
    
    3,468
    
    
    
    9,443Interest rate swaps
    
    
    
    
    
    
    (793
    )
    
    
    
    
    
    
    (793
    )Embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (22,040
    )
    
    
    (22,040
    )Total derivative liabilities
    
    $
    
    
    
    $
    21
    
    
    $
    (18,572
    )
    
    $
    (18,551
    )
   Six Months Ended June 30,2009Balance 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
derivative assets and liabilities still held at
June 30, 2009
    
    $
    (5,618
    )
 14




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Asset Retirement Obligations 
 Goodwill 
 Note 8  Derivative Instruments
   June 30,
    
    December 31,2009
    
    2008Derivatives not designated as hedges:Oil and gas commodity derivatives:Assets:Prepaid expenses and other current assets
    
    $
    14,042
    
    
    $
    31,649Other assets  long-term
    
    
    
    
    
    
    1,702Liabilities:Other liabilities  short-term
    
    
    (1,528
    )
    
    
    Other liabilities  long-term
    
    
    (8,232
    )
    
    
    (2,375
    )$
    4,282
    
    
    $
    30,976
 15




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 June 30,
    
    December 31,2009
    
    2008Embedded derivatives related to debt instrumentLiabilities:Other liabilities  long-term
    
    
    (22,040
    )
    
    
    (14,640
    )Derivatives designated as cash flow hedge:Interest rate swapLiabilities:Accrued expenses and other
    
    
    (793
    )
    
    
    (1,334
    )
   Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Derivatives not designated as hedges:Oil and gas commodity derivativesRealized gains (losses) on
derivative instruments
    
    
    9,114
    
    
    
    (14,494
    )
    
    
    21,050
    
    
    
    (17,644
    )Unrealized gains (losses)
on derivative instruments
    
    
    (27,092
    )
    
    
    (121,876
    )
    
    
    (26,695
    )
    
    
    (152,188
    )(17,978
    )
    
    
    (136,370
    )
    
    
    (5,645
    )
    
    
    (169,832
    )Embedded derivatives related to
debt instrumentUnrealized gains (losses)
on derivative instruments
    
    
    (5,630
    )
    
    
    (8,810
    )
    
    
    (7,400
    )
    
    
    (8,140
    )
  Three Months Ended
    
    Six Months EndedJune 30,
    

June 30,Location ofReclassificationinto Income
    
    2009
    
    2008
    
    2009
    
    2008Interest rate swap(Gain) loss
recognized in
other
comprehensive
income, net of tax
    
    
    
    
    
    $
    (207
    )
    
    $
    460
    
    
    $
    (71
    )
    
    $
    (506
    )(Gain) loss
reclassified
from accumulated
other
comprehensive
income into
income
    
    Interest expense
    
    
    (376
    )
    
    
    (211
    )
    
    
    (757
    )
    
    
    (319
    )
 16




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
     Note 9  Supplemental Cash Flow Information
  (Amounts in thousands)
    
    For the Six Months Ended June 30,2009
    
    2008Interest paid
    
    $
    3,753
    
    
    $
    10,525Income taxes paid
    
    $
    3,654
    
    
    $
    6,028
    17




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##### Table of Contents



Endeavour International Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 10  Comprehensive Loss
  For the Three Months
    
    For the Six Months Ended(Amounts in thousands)
    
    Ended June 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Net income (loss)
    
    $
    9,820
    
    
    $
    (64,024
    )
    
    $
    (7,044
    )
    
    $
    (80,816
    )Unrealized (gain) loss on
interest rate swap
derivative instrument, net
of tax
    
    
    (207
    )
    
    
    460
    
    
    
    (71
    )
    
    
    (506
    )Unrealized loss on
marketable securities, net
of tax
    
    
    
    
    
    
    1,226
    
    
    
    
    
    
    
    1,226Reclassification
adjustment for (income)
loss realized in net loss
above
    
    
    376
    
    
    
    211
    
    
    
    757
    
    
    
    319Net impact on
comprehensive income
(loss)
    
    
    169
    
    
    
    1,897
    
    
    
    686
    
    
    
    1,039Comprehensive income (loss)
    
    $
    9,651
    
    
    $
    (62,127
    )
    
    $
    (6,358
    )
    
    $
    (79,777
    )
 Note 11  Commitments and Contingencies
 Rig Commitment
  Participation Agreement
  Contingencies
  18




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##### Table of Contents



Endeavour
International Corporation
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
     19




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##### Table of Contents



Endeavour International Corporation
  Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Sales volume(1):Oil and condensate sales (Mbbls):United Kingdom
    
    
    234
    
    
    
    332
    
    
    
    412
    
    
    
    598United States
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Continuing operations
    
    
    234
    
    
    
    332
    
    
    
    413
    
    
    
    598Discontinued operations  Norway
    
    
    87
    
    
    
    246
    
    
    
    310
    
    
    
    342Total
    
    
    321
    
    
    
    578
    
    
    
    723
    
    
    
    940Gas sales (MMcf):United Kingdom
    
    
    1,071
    
    
    
    1,644
    
    
    
    2,148
    
    
    
    3,679United States
    
    
    60
    
    
    
    
    
    
    
    111
    
    
    
    Continuing operations
    
    
    1,131
    
    
    
    1,644
    
    
    
    2,259
    
    
    
    3,679Discontinued operations  Norway
    
    
    153
    
    
    
    467
    
    
    
    686
    
    
    
    1,065Total
    
    
    1,284
    
    
    
    2,111
    
    
    
    2,945
    
    
    
    4,744Oil equivalent sales (MBOE):United Kingdom
    
    
    413
    
    
    
    606
    
    
    
    770
    
    
    
    1,211United States
    
    
    10
    
    
    
    
    
    
    
    20
    
    
    
    Continuing operations
    
    
    423
    
    
    
    606
    
    
    
    790
    
    
    
    1,211Discontinued operations  Norway
    
    
    112
    
    
    
    324
    
    
    
    424
    
    
    
    520Total
    
    
    535
    
    
    
    930
    
    
    
    1,214
    
    
    
    1,731Total BOE per day
    
    
    5,877
    
    
    
    10,222
    
    
    
    6,710
    
    
    
    9,509
 20




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##### Table of Contents



Endeavour International Corporation
 Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Physical production volume (BOE per day):United Kingdom
    
    
    3,995
    
    
    
    6,123
    
    
    
    4,132
    
    
    
    6,678United States
    
    
    41
    
    
    
    
    
    
    
    65
    
    
    
    Continuing Operations
    
    
    4,036
    
    
    
    6,123
    
    
    
    4,197
    
    
    
    6,678Discontinued operations  Norway
    
    
    1,324
    
    
    
    2,791
    
    
    
    2,332
    
    
    
    2,843Total
    
    
    5,360
    
    
    
    8,914
    
    
    
    6,529
    
    
    
    9,521Realized Prices(2):Oil and condensate price ($  per Bbl):Before commodity derivatives
    
    $
    50.83
    
    
    $
    105.45
    
    
    $
    45.74
    
    
    $
    99.44Effect of commodity derivatives
    
    
    18.88
    
    
    
    (20.57
    )
    
    
    22.00
    
    
    
    (19.42
    )Realized prices including
commodity derivatives
    
    $
    69.71
    
    
    $
    84.88
    
    
    $
    67.74
    
    
    $
    80.02Gas price ($  per Mcf):Before commodity derivatives
    
    $
    4.64
    
    
    $
    12.01
    
    
    $
    6.41
    
    
    $
    11.41Effect of commodity derivatives
    
    
    2.38
    
    
    
    (1.23
    )
    
    
    1.74
    
    
    
    0.13Realized prices including
commodity derivatives
    
    $
    7.02
    
    
    $
    10.78
    
    
    $
    8.15
    
    
    $
    11.54Equivalent oil price ($  per BOE):Before commodity derivatives
    
    $
    41.62
    
    
    $
    92.82
    
    
    $
    42.79
    
    
    $
    85.29Effect of commodity derivatives
    
    
    17.04
    
    
    
    (15.58
    )
    
    
    17.34
    
    
    
    (10.20
    )Realized prices including
commodity derivatives
    
    $
    58.66
    
    
    $
    77.24
    
    
    $
    60.13
    
    
    $
    75.09
 
 (1)
    
    We record oil revenues on 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.   21




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Endeavour International Corporation
    Expenses
    22




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##### Table of Contents



Endeavour International Corporation
 For the Three Months
    
    For the Six Months(Amounts in thousands)
    
    Ended June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Compensation
    
    $
    3,378
    
    
    $
    2,860
    
    
    $
    6,789
    
    
    $
    6,195Consulting, legal and accounting fees
    
    
    1,091
    
    
    
    948
    
    
    
    1,992
    
    
    
    1,867Occupancy costs
    
    
    272
    
    
    
    306
    
    
    
    496
    
    
    
    621Other expenses
    
    
    536
    
    
    
    1,093
    
    
    
    977
    
    
    
    2,043Total gross cash G&A expenses
    
    
    5,277
    
    
    
    5,207
    
    
    
    10,254
    
    
    
    10,726Non-cash stock-based compensation
    
    
    575
    
    
    
    484
    
    
    
    1,113
    
    
    
    849Gross G&A expenses
    
    
    5,852
    
    
    
    5,691
    
    
    
    11,367
    
    
    
    11,575Less: capitalized G&A expenses
    
    
    (1,737
    )
    
    
    (1,846
    )
    
    
    (3,417
    )
    
    
    (4,022
    )Net G&A expenses
    
    $
    4,115
    
    
    $
    3,845
    
    
    $
    7,950
    
    
    $
    7,553
  23




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##### Table of Contents



Endeavour International Corporation
 Income Taxes
  (Amounts in thousands)
    
    UK
    
    U.S.
    
    Other
    
    TotalSix Months Ended June 30, 2009Net loss before taxes from
continuing operations
    
    $
    (46,620
    )
    
    $
    (3,780
    )
    
    $
    (13,050
    )
    
    $
    (63,450
    )Current tax benefit
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    (408
    )Deferred tax benefit
    
    
    (18,637
    )
    
    
    
    
    
    
    
    
    
    
    (18,637
    )Foreign currency losses on
deferred tax liabilities
    
    
    9,009
    
    
    
    
    
    
    
    
    
    
    
    9,009Total tax benefit
    
    
    (10,036
    )
    
    
    
    
    
    
    
    
    
    
    (10,036
    )Net loss from continuing operations
    
    $
    (36,584
    )
    
    $
    (3,780
    )
    
    $
    (13,050
    )
    
    $
    (53,414
    )Six Months Ended June 30, 2008Net loss before taxes from
continuing operations
    
    $
    (136,434
    )
    
    $
    (3,140
    )
    
    $
    (13,543
    )
    
    $
    (153,117
    )Current tax expense
    
    
    1,867
    
    
    
    
    
    
    
    
    
    
    
    1,867Deferred tax benefit
    
    
    (68,958
    )
    
    
    
    
    
    
    
    
    
    
    (68,958
    )Foreign currency losses on
deferred tax liabilities
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    160Total tax benefit
    
    
    (66,931
    )
    
    
    
    
    
    
    
    
    
    
    (66,931
    )Net loss from continuing operations
    
    $
    (69,503
    )
    
    $
    (3,140
    )
    
    $
    (13,543
    )
    
    $
    (86,186
    )
    24




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##### Table of Contents



Endeavour International Corporation
 Reconciliation of Non-GAAP Measures
     25




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##### Table of Contents



Endeavour International Corporation
 
    
    our cash expenditures, or future requirements, for capital expenditures or contractual
commitments;
    
    changes in, or cash requirements for, our working capital needs;
    
    unrealized gains (losses) on derivatives;
    
    non-cash foreign currency gains (losses);
    
    our interest expense, or the cash requirements necessary to service interest and
principal payments on our debts;
    
    our preferred stock dividend requirements; and
    
    depreciation, depletion and amortization.
   For the Three Months
    
    For the Six Months(Amounts in thousands)
    
    Ended June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Net income (loss)
    
    $
    9,820
    
    
    $
    (64,024
    )
    
    $
    (7,044
    )
    
    $
    (80,816
    )Depreciation, depletion and amortization
    
    
    7,804
    
    
    
    23,720
    
    
    
    23,863
    
    
    
    45,123Impairment of oil and gas properties
    
    
    1,244
    
    
    
    
    
    
    
    30,645
    
    
    
    Deferred tax benefit
    
    
    4,827
    
    
    
    (55,133
    )
    
    
    (3,596
    )
    
    
    (58,277
    )Gain/Loss on asset sales
    
    
    (47,144
    )
    
    
    
    
    
    
    (47,144
    )
    
    
    Unrealized loss on derivative instruments
    
    
    32,722
    
    
    
    130,686
    
    
    
    34,095
    
    
    
    160,328Other
    
    
    9,690
    
    
    
    3,366
    
    
    
    11,535
    
    
    
    8,568Discretionary Cash Flow(1)
    
    $
    18,963
    
    
    $
    38,615
    
    
    $
    42,354
    
    
    $
    74,926Net income (loss) to common shareholders
    
    $
    7,124
    
    
    $
    (66,733
    )
    
    $
    (12,409
    )
    
    $
    (86,220
    )Impairment of oil and gas properties (net of tax)(2)
    
    
    1,244
    
    
    
    
    
    
    
    15,945
    
    
    
    Unrealized losses on derivatives (net of tax)(3)
    
    
    19,176
    
    
    
    69,748
    
    
    
    20,747
    
    
    
    84,234Currency impact on deferred taxes
    
    
    10,955
    
    
    
    81
    
    
    
    10,250
    
    
    
    2,722Net Income (Loss), as Adjusted
    
    $
    38,499
    
    
    $
    3,096
    
    
    $
    34,533
    
    
    $
    736
 26




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##### Table of Contents



Endeavour International Corporation
 For the Three Months
    
    For the Six Months(Amounts in thousands)
    
    Ended June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Net income (loss) to common shareholders
    
    $
    7,124
    
    
    $
    (66,733
    )
    
    $
    (12,409
    )
    
    $
    (86,220
    )Unrealized losses on derivatives
    
    
    32,722
    
    
    
    130,686
    
    
    
    34,095
    
    
    
    160,328Net interest expense
    
    
    4,186
    
    
    
    5,183
    
    
    
    8,071
    
    
    
    13,139Depreciation, depletion and amortization
    
    
    7,858
    
    
    
    19,503
    
    
    
    19,182
    
    
    
    38,391Impairment of oil and gas properties
    
    
    1,244
    
    
    
    
    
    
    
    30,645
    
    
    
    Income tax expense (benefit)
    
    
    916
    
    
    
    (58,304
    )
    
    
    (10,036
    )
    
    
    (66,931
    )(Income) loss from discontinued operations
    
    
    (46,092
    )
    
    
    (5,637
    )
    
    
    (46,370
    )
    
    
    (5,370
    )Preferred stock dividends
    
    
    2,696
    
    
    
    2,709
    
    
    
    5,365
    
    
    
    5,405Adjusted EBITDA
    
    $
    10,654
    
    
    $
    27,407
    
    
    $
    28,543
    
    
    $
    58,742
 
 (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 $14,701 for the six months ended June 30, 2009.(3)
    
    Net of tax benefits of $13,546, $60,938, $13,348 and $76,094, respectively. Liquidity and Capital Resources
  (Amounts in thousands)
    
    For the Six Months Ended June 30,2009
    
    2008Net cash provided by Operating Activities
    
    $
    42,199
    
    
    $
    71,954Net cash provided by (used in) Investing Activities
    
    $
    91,052
    
    
    $
    (32,168
    )Net cash used in Financing Activities
    
    $
    (69,805
    )
    
    $
    (26,847
    )
     27




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##### Table of Contents



Endeavour International Corporation
 Drilling Program
  
    
    Value creation, such as net present value per BOE and internal return rate of return;
    
    Lead time from initial acquisition to first production;
    
    Ownership interest, risks and rewards, for example lower interests in high risk
projects;
    
    Financial impact, for example finding costs per BOE and timing of capital commitments;
    
    Growth opportunities, i.e. a successful well unlocks a play and supplies a string of
future drill locations;
    
    Gas versus oil; and
    
    UK and US.
       Rig Commitments
  28




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##### Table of Contents



Endeavour International Corporation
 2009 Outlook
  Estimated Average Production (A)Daily Production (BOE per day)
    
    
    4,000
    
    
    to
    
    
    5,000Differentials (B)Oil ($/Bbl)
    
    $
    (5.50
    )
    
    to
    
    $
    (6.50
    )Gas ($/Mcf)
    
    $
    (0.10
    )
    
    to
    
    $
    (0.20
    )Gas Percentage of Total
    
    
    50
    %
    
    to
    
    
    55
    %Lease Operating Expense ($  per barrel)
    
    $
    9.50
    
    
    to
    
    $
    12.00
 
 (A)
    
    Actual results may differ materially from these estimates.(B)
    
    For purposes of the estimates, assumptions of price differentials are based on
location, quality and other factors, excluding the effects of derivative financial
instruments. Gas price differentials are stated as premiums (discounts) from National
Balancing Point pricing, and oil price differentials are stated as premiums (discounts)
from Dated Brent pricing.  Disclosures About Contractual Obligations and Commercial Commitments
  Cautionary Statement for Forward-Looking Statements
  29




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##### Table of Contents



Endeavour International Corporation
  
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
 Foreign Exchange Risk
  Commodity Price Risk
  30




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##### Table of Contents



Endeavour International Corporation
  2009
    
    2010
    
    2011
    
    TotalOil:Fixed Price Swaps (Mbbl)
    
    
    159
    
    
    
    573
    
    
    
    487
    
    
    
    1,220Weighted Average Price ($/Barrel)
    
    $
    69.08
    
    
    $
    68.39
    
    
    $
    66.01
    
    
    $
    67.53Costless Collar (Mbbl)
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Weighted Average Ceiling Price ($/Barrel)
    
    $
    121.88
    
    
    $
    
    
    
    $
    
    
    
    $
    121.88Weighted Average Floor Price ($/Barrel)
    
    $
    100.00
    
    
    $
    
    
    
    $
    
    
    
    $
    100.00Gas:(1)Fixed Price Swap (MMcf)
    
    
    694
    
    
    
    1,032
    
    
    
    627
    
    
    
    2,353Weighted Average Price ($/Mcf)
    
    $
    8.63
    
    
    $
    8.82
    
    
    $
    8.45
    
    
    $
    8.67Costless Collar (MMcf)
    
    
    706
    
    
    
    
    
    
    
    
    
    
    
    706Weighted Average Ceiling Price ($/Mcf)
    
    $
    14.93
    
    
    
    
    
    
    
    
    
    
    $
    14.93Weighted Average Floor Price ($/Mcf)
    
    $
    10.50
    
    
    
    
    
    
    
    
    
    
    $
    10.50
 
 (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, 2009 was $1.65 to £1.00. Interest Rate Risk
   
 Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   31




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##### Table of Contents



Endeavour International Corporation
   Changes in Internal Control over Financial Reporting
  
 Part II. Other Information
 
 Item 1A: Risk Factors
 Risk Factors
 
 Item 4: Submission of Matters to a Vote of Security Holders
  Votes were cast as follows:(1)
    
    Election of two Class II Directors*:
 BrokerNon-For
    
    Withheld
    
    VotesElection as a Director of
the Company of:John Seitz
    
    
    120,478,406
    
    
    
    1,318,002
    
    
    
    Nancy Quinn
    
    
    114,070,533
    
    
    
    7,725,875
    
    
    
    
 
 *
    
    Those directors whose term of office continued were as follows: John B. Connally, Leiv
L. Nergaard, Charles Hue-Williams, William L. Transier and Thomas D. Clark, Jr. (2)
    
    Ratification of the appointment of KPMG LLP as the independent registered
public accounting firm for 2009:
 32




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##### Table of Contents



Endeavour International Corporation
 
 For
    
    Withheld
    
    Abstained121,341,082
    
    244,263
    
    211,062
 
 Item 6: Exhibits
  3.1(a)
    
    Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of
our Quarterly Report on Form 10-Q (Commission File No. 001-32212) for the quarter ended June
30, 2004.)3.1(b)
    
    Certificate of Amendment dated June 1, 2006 (Incorporated by reference to Exhibit 4.2 of our
Registration Statement on Form S-3 (Commission File No. 333-139304) filed on December 13,
2006.)3.2
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 to our Current Report
on Form 8-K (Commission File No. 001-32212) filed on November 6, 2006.)31.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1 *
    
    Certification of William L. Transier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of J. Michael Kirksey, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 Signatures
  Endeavour International Corporation
 Date: August 5, 2009
    
    /s/ J. Michael Kirksey

J. Michael Kirksey
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
    
    
    
    /s/ Robert L. Thompson

Robert L. Thompson
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
 33