United States
Securities and Exchange Commission

Form 10-K

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-32212

Endeavour International Corporation

1000 Main Street, Suite 3300, Houston, Texas 77002
(Address of principal executive offices)     (Zip code)

(713) 307-8700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Exchange Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ  Yes  o  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K . o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  þ  Yes  o  No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Common stock aggregate market value held by non-affiliates as of June 30, 2004: $150,576,000.

As of March 10, 2005, 74,035,162 shares of the issuer’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE :

Proxy statement of Endeavour International Corporation relating to the 2005 Annual Meeting of Stockholders expected to be held on June 2, 2005, which is incorporated by reference into Part III of this Form 10-K.

Table of Contents

(i)

Forward-Looking Statements

The information contained in this Annual Report on Form 10-K and in other public statements by the Company and Company officers or directors includes or may contain certain forward-looking statements. The words “may,” “will,” “expect,” “anticipate,” “believe,” “continue,” “estimate,” “project,” “intend,” and similar expressions used in this Report are intended to identify forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. You should not place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. You should also know that such statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions. Many of these risks and uncertainties are set forth under the caption “Risk Factors” in Item 1 of this report. Should any of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may differ materially from those included within the forward-looking statements.

Part I

Item 1. Business

Endeavour International Corporation is a Nevada corporation formed on January 13, 2000 (as Expression Graphics, Inc.) to market and sell graphics media products, such as symbols, logos, pictures, signs and business advertisements, over the Internet. In February, 2002, we experienced a change in management, began to implement a new business plan and changed our name to Continental Southern Resources, Inc. Beginning in 2002, we have been engaged in the business of acquiring, exploring for, and developing natural gas and oil properties. Since February 26, 2004, we have primarily focused on the acquisition, exploration and development of energy reserves in the North Sea.

Our principal executive offices are located at 1000 Main Street, Suite 3300, Houston, Texas 77002, and our telephone number is (713) 307-8700. Unless the context otherwise requires, references to the “Company”, “Endeavour”, “we”, “us” or “our” mean Endeavour International Corporation or any of our consolidated subsidiaries. If you are not familiar with the oil and gas terms used in this report, please refer to the explanations of such terms under the caption “Commonly Used Oil and Gas Terms” in Item 7 of this report.

We file reports with the Securities and Exchange Commission (the “Commission”). The public may read and copy any materials that we file with the Commission at the Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act on our internet website at www.endeavourcorp.com, as soon as reasonably practicable after we electronically file or furnish such material with or to the Commission.

During 2004, we significantly transformed the nature and scope of our business. While we have been engaged in oil and gas activities since 2002, our operations had previously been focused in Louisiana, Mississippi and Oklahoma. On February 26, 2004, we completed a series of transactions that provided:

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	•	a new management team;
	•	a new business strategy of exploration, exploitation and acquisition focused on the North Sea;
	•	the acquisition of NSNV, Inc. which possessed the seismic data and management team that were central to the Company’s new strategy; and
	•	a restructuring which resulted in the sale of all our interests in U.S. oil and gas properties.

The transformed company, renamed Endeavour International Corporation, emerged with a business strategy firmly focused on exploration, production and development in the North Sea. With this transformation, our plan is to take advantage of an industry transition that is occurring in the region similar to what occurred in the Gulf of Mexico in the 1980s. Some major integrated energy companies are in the process of restructuring their portfolios away from what is considered a more mature producing area. The restructuring of portfolios by larger energy companies in the Gulf of Mexico during the 1980s created financial and development opportunities for smaller, niche players with the technical capabilities to profitably exploit the available oil and gas reserves. We believe that a similar transition is now underway in the North Sea. At the same time, initiatives are being undertaken by governing authorities to renew the industry’s interest in the area through the offering of attractive fiscal and licensing terms. Through the application of seismic technology and innovative geologic and engineering concepts, we plan to take advantage of the potential of the North Sea.

Throughout 2004, we made significant strides in our goal to capitalize on opportunities in the North Sea. Simultaneous with the restructuring in February, we completed a private offering of common stock for net proceeds of $46 million. This offering financed the initial transactions in the transformation and provided capital for us to proceed with our business plan for the remainder of 2004. In July 2004, we participated in the 22nd Licensing Round in the United Kingdom, receiving nine production licenses that cover 18 blocks.

In September 2004, we were notified by the Ministry of Petroleum and Energy in Norway of our pre-qualification as a licensee on the Norwegian Continental Shelf. This process evaluates the competency of a company from a financial, technical and organizational perspective to participate in exploration and production activities on the Norwegian Continental Shelf. It also considers the company’s competency concerning issues related to health, safety and the environment. Our qualification makes us one of a limited number of active companies qualified as an operator or a licensee in Norway.

In November 2004, we purchased a 76.66% majority interest in OER oil AS (“OER”), a privately held Norwegian exploration and production company based in Oslo (the “OER Acquisition”). In January 2005, we purchased the remaining 23.34% interest in OER from twenty-four minority interest holders. With this acquisition, we hold working interests in the Brage and Njord fields operated by Norsk Hydro. Our current production from these net interests is approximately 1,900 BOEPD.

In December 2004, we were awarded a 7.5 percent ownership in two additional licenses in Norway as part of the 2004 Awards in Predefined Areas, a concession round held annually by the Norwegian Ministry of Petroleum and Energy in mature parts of the Norwegian Continental Shelf. The awarded areas cover approximately 600 square kilometers or 232 square miles, equivalent to 30 Gulf of Mexico blocks, near our Njord interests. The Company and its partners are currently conducting exploration and exploitation activities in the Njord field that are expected to extend the life of the field beyond 2013.

In January 2005, we entered into an agreement with PGS Exploration (UK) Ltd (“PGS”) to obtain data under PGS’s Holland MegaSurvey, including 3D seismic data, covering approximately 15,000 square kilometers in the Dutch North Sea. The Holland MegaSurvey product will bring together open file, brokered and PGS multi-client data into one format along with a series of regional maps.

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In January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012 in a private placement to qualified institutional buyers, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes, which may include future acquisitions of interests in oil and gas properties.

Business Strategy

Our strategy involves taking advantage of the shift of the major integrated energy companies away from the North Sea, the significant contraction of the independent sector, and the opportunities these changes create for new independent companies. We intend to leverage vertical alliances with companies that offer capabilities or technologies that will enhance our future exploratory and developmental efforts.

We have the right to use the 3D Mega Merge dataset, recently compiled by PGS, that covers approximately 79,200 square kilometers of the United Kingdom Continental Shelf and the Norwegian Continental Shelf. PGS overcame major technological challenges to bring together, for the first time, open-file, brokeraged and PGS multi-client 3D seismic data into one format. Also, included in the agreement is access to the North Sea Digital Atlas, a dataset consisting of a multitude of regional maps on key horizons, interpreted from 110,000 kilometers of 2D data tied to over 1,200 wells. In January 2005, we added PGS’s Holland MegaSurvey, including 3D seismic data, covering approximately 15,000 square kilometers in the Dutch North Sea.

We believe the use of the 3D Mega Merge, Holland MegaSurvey and the North Sea Digital Atlas, coupled with over 20 man-years of associated interpretation from PGS, will enable proprietary mapping for purposes of identifying development and exploration opportunities not yet exploited by the energy industry in the North Sea. From our perspective, this data gives us a period of competitive advantage over current operators and other niche independent exploration and production companies entering the North Sea. Our efforts to establish a leadership role in the area are supported by the analysis of key geophysical data using advanced technologies to better understand and manage risk and improve the probability of early, profitable results.

We believe that this combination of the most comprehensive seismic data available to the industry in this region with advanced geologic concepts will result in the discovery and/or exploitation of new energy resources in the North Sea.

United Kingdom Opportunity

The exploration and exploitation potential of the United Kingdom was our initial focus for establishing our business plan. The UK has led the way in regulatory and fiscal reform to encourage more entrants for exploration. Also, approximately two-thirds of our 3D Mega Merge covers the UK. Our success in the 22^nd Licensing Round is evidence of our long-term commitment to growth opportunities in the UK sector.

Norway Opportunity

The exploration potential of Norway is also of particular interest to us. Norway is immature from a historical drilling activity and well density perspective. While the UK has offered initiatives and incentives to encourage exploration and production activities, historic regulatory and fiscal policies in Norway have controlled the pace and scope of exploration activities and prevented drilling and development from all but the very largest of fields. The dynamics of world oil and gas supply and

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demand, global competition, and the increasing need to support the government’s policies have caused the Norwegian government to reconsider its current regulations and fiscal policies. As a result, Norway has begun to take proactive steps to promote more exploration and development and retain its position as a premier supplier of oil and, particularly, natural gas to the UK and Europe. The signing of a framework agreement with the UK to encourage, among other things, the construction of additional natural gas pipeline infrastructure between the two countries exemplifies Norway’s commitment to expanding its energy industry. We intend to position ourselves to capture the opportunities that these new policies may provide.

Netherlands Opportunity

Our business model was recently expanded to include evaluation of exploration and exploitation potential in the Netherlands through the acquisition of the Holland MegaSurvey. We will focus our efforts on new exploration opportunities in two play areas in the southern gas-prone region of the Dutch North Sea and an immature oil play in the northern part of the sector that could extend from our activities in the UK Central Graben area. Dutch regulatory and fiscal terms are comparable to those in the UK and the relatively low level of industry competition makes this sector a reasonable place for us to expand our search for high quality investment opportunities.

Acquisition Strategy

Our acquisition strategy will focus on asset management processes of other companies and corporate opportunities that are identified and prioritized by utilizing our extensive regional datasets. An overriding objective will be to gain a level of production and cash flow that will support a strong exploration effort and provide investment funding for exploitation opportunities we identify in acquired assets.

Through the use of the North Sea Digital Atlas, existing extensive regional and local maps and proprietary interpretation of the 3D Mega Merge and Holland MegaSurvey, we intend to identify specific targets for investment. These will primarily include:

	•	existing oil and gas producing properties,
	•	the acquisition of oil and gas producing properties,
	•	acquiring the rights to explore, evaluate and exploit “fallow blocks” and “fallow discoveries” in the all three sectors (“fallow” refers to blocks on which initial exploratory terms or follow-up appraisal requirements have expired), and
	•	the rights to leaseholds available in future licensing rounds in the UK, Norway and the Netherlands.

We intend to develop an asset portfolio balanced between exploration and exploitation, oil and gas, leverage and equity, with the ultimate objective of funding continued growth and building long-term value for our stockholders. Our value creation capabilities will rely heavily on the extensive industry contact base of our executive team and the development of innovative transaction models. The most desirable targets for investment are natural gas projects with long life production profiles and oil-producing assets that provide near-term cash flow, as well as upside from further drilling. Low risk exploration with significant option value in upside potential should provide expanded growth opportunities. We will also focus on acquiring regional “hub” assets with access to infrastructure in areas which hold the most promise for sustainable exploration activity. Corporate acquisitions with quality assets that are undervalued may also be pursued.

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Technical Strategy

Our technical strategy is founded on a philosophy that regional petroleum systems analyses improve competitive advantage, reduce exploration risk and optimize value creation. This strategy consists of understanding source rock maturation, hydrocarbon migration pathways, trap and seal integrity, and reservoir distribution to the fullest extent possible. This system has been successfully employed by our new management team in their past experiences to identify and commercialize reserves in basins worldwide.

Technical teams are initially focusing their efforts in the regions of the North Sea that offer large reserve potential, proven play concepts and undeveloped oil and gas resources. A number of opportunities may be available due to asset divestitures, relinquishment of fallow acreage (including unexploited discoveries) and introduction of UK promote licenses. We have assembled a London-based team of experienced technical and commercial professionals for the specific purpose of evaluating and developing opportunities in the region. With the OER Acquisition, we have a regional office in Oslo, Norway, focused on operations and business development. Senior management, experienced technical and commercial professionals and a small administrative staff located at corporate headquarters in Houston provide strategic direction and guidance and oversee administrative, legal and financial support. Information technology support is outsourced and the workstation environment is server- and or/high-end personal computer- based.

Executive Officers

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Competition

The petroleum and natural gas industry is highly competitive. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas properties as well as for the services of third party providers, such as drilling companies, upon which we rely. A substantial number of our competitors have longer operating histories in this region and substantially greater financial and personnel resources than we do. Many of these companies not only explore for, produce and market petroleum and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis. Such larger or vertically integrated competitors may be in a position to outbid us for particular prospect rights. These competitors may also be better able to withstand sustained periods of unsuccessful drilling. Larger competitors may be able to absorb the burden of any changes in laws and regulations more easily than we can, which would adversely affect our competitive position. In addition, most of our competitors have been operating for a much longer time and have demonstrated the ability to operate through industry cycles.

The petroleum and natural gas producers also compete with other suppliers of energy and fuel to industrial, commercial and individual customers. Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments and/or agencies thereof and other factors out of our control including, international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.

Regulation

The exploration, production and sale of oil and gas are extensively regulated by governmental bodies. Applicable legislation is under constant review for amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and consequently an increase in the cost of doing business and decrease in profitability. Numerous governmental departments and agencies are authorized to, and have, issued rules and regulations imposing additional burdens on the oil and gas industry that often are costly to comply with and carry substantial penalties for failure to comply. Production operations are affected by changing tax and other laws relating to the petroleum industry, by constantly changing administrative regulations and possible interruptions or termination by government authorities.

Oil and gas mineral rights may be held by individuals or corporations and by governments having jurisdiction over the area in which such mineral rights are located. As a general rule, parties holding such mineral rights grant licenses or leases to third parties to facilitate the exploration and development of these mineral rights. The terms of the leases and licenses are generally established to require timely

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development. Notwithstanding the ownership of mineral rights, the government of the jurisdiction in which mineral rights are located generally retains authority over the manner of development of those rights.

Regulatory authorities have established rules and regulations requiring permits for drilling operations, drilling bonds and reports concerning operations. The areas in which we operate have statutes and regulations governing various environmental and conservation matters, including the unitization or pooling of oil and gas properties and the establishment of maximum rates of production from oil and gas wells. Many authorities may also restrict production to the market demand for oil and gas. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from our properties.

Environmental

Our operations are also subject to a variety of constantly changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and regulations. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, such as oil and gas related products or for other reasons.

Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. These laws and regulations may substantially increase the cost of exploring for, developing, producing or processing oil and gas and may prevent or delay the commencement or continuation of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings, or competitive position. We believe that we are in substantial compliance with current applicable environmental laws and regulations. Nevertheless, changes in existing environmental laws and regulations or in the interpretations thereof could have a significant impact on us and the oil and gas industry in general.

Water discharge regulations and waste discharge permitting requirements have been adopted or are expected in the future to prohibit the discharge of produced water and sand and some other substances related to the oil and gas industry. Although the costs to comply with such mandates under applicable laws may be significant, the entire industry will experience similar costs, and we do not believe that these costs will have a material adverse impact on our financial condition and operations.

Operational Hazards and Insurance

Our operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other risks. These hazards can cause personal injury or death, damage or destruction of property and equipment, pollution or environmental damage and suspension of operation.

In the projects that we own a non-operating interest directly or own an equity interest in a limited partnership which owns a non-operating interest, either the operator for the project or we may maintain insurance of various types to cover our operations with policy limits and retention liability customary in

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the industry. In other cases, we may separately retain insurance coverages. We believe the coverage and types of insurance are currently adequate. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on our ownership interests and thereby financial condition and results of operations.

Employees

As of March 7, 2005, we have 40 full-time employees. We believe that we maintain good relationships with our employees, none of whom are covered by a collective bargaining agreement. We also utilize the services of various consultants who provide us, among other things, technical support and accounting services.

Risk Factors

The following material risk factors, among others, may affect our financial condition and results of operations.

We have had operating losses to date and do not expect to be profitable in the foreseeable future.

We have been operating at a loss each year since our inception, and we expect to continue to incur substantial losses for the foreseeable future. Net loss applicable to common stockholders for the years ended December 31, 2004, 2003 and 2002 was $23.8 million, $41.2 million and $4.8 million, respectively. We expect to incur substantial expenditures in connection with our oil and gas exploration activities. Further, we expect to continue to experience negative cash flow for the foreseeable future and cannot predict when, or if, we might become profitable.

If we are unable to generate additional financing, we will not be able to adequately fund our existing development and exploration projects, acquire additional oil and gas interests, or maintain our rights in such projects.

We may not have an adequate amount of financial resources to adequately fund our development and exploration projects on a long-term basis. In the past, we have relied on the sale of our debt and equity securities to fund the acquisition, exploration and development of our petroleum properties. To continue funding these projects and to have the ability to fund additional projects, we will need to raise additional capital. We cannot assure you that additional funding will be available to us for exploration and development of our projects or to fulfill our obligations under any agreements. We also cannot assure you that we will be able to generate sufficient operating cash flow or obtain adequate financing in the future or that the terms of any such financing will be favorable. Failure to generate such additional operating cash flow or obtain such additional financing could result in delay, postponement or cancellation of further exploration and development of our projects or the loss of our interest in such properties.

Acquiring interests in properties for oil and natural gas exploration is speculative in nature and may not ever result in operating revenues or profits.

We cannot assure you that we will discover oil and gas in commercial quantities in our current properties or properties we acquire in the future. Our success depends upon our ability to acquire working and revenue interests in properties upon which gas and oil reserves are ultimately discovered. We expect to

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ultimately derive the cash flow necessary to fund our operations from the oil and gas produced from our producing properties and/or the sale of our properties, but there is no assurance we will be able to do so.

In the event we are unable to identify additional gas and oil prospects in which we can acquire an interest at an affordable price, we may not be able to sustain our growth rate and ability to spread risk.

One element of our strategy is to continue to grow and spread risk through selected acquisitions of additional ownership interests in gas and oil prospects. If we are unable to execute this aspect of our strategy in a timely manner, we may not be able to manage our risks and our operations may be adversely affected. Some of the consequences could be:

	•	we may not be able to identify additional desirable gas and oil prospects and acquire leasehold or other ownership interests in such prospects at a desirable price;
	•	any of our completed, currently planned, or future acquisitions of ownership interests in gas and oil prospects may not include prospects that contain proven gas or oil reserves;
	•	we may not have the ability to develop prospects which contain proven gas or oil reserves to the point of commercial production;
	•	we may not have the financial ability to consummate additional acquisitions of ownership interests in gas and oil prospects or to develop the prospects which we acquire to the point of production; and
	•	we may not be able to consummate such additional acquisitions on terms favorable to us.

We may not be able to replace production with new reserves.

In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities. Our future natural gas and oil production is highly dependent upon our level of success in finding or acquiring additional reserves.

Our recent growth is due in large part to acquisitions of producing properties. The successful acquisition of producing properties requires an assessment of a number of factors, some of which are beyond our control. These factors include recoverable reserves, future oil and gas prices, operating costs, and potential environmental and other liabilities, and other factors. Such assessments are inexact and their accuracy is inherently uncertain. In connection with such assessments, we perform a review of the subject properties, which we believe is generally consistent with industry practices. However, such a review will not reveal all existing or potential problems. In addition, the review will not permit a buyer to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. We cannot assure you that we will be able to acquire properties at acceptable prices because the competition for producing oil and gas properties is intense and many of our competitors have financial and other resources that are substantially greater than those available to us.

Market fluctuations in the prices of oil and gas could adversely affect the price at which we can sell gas or oil discovered on our properties.

Market fluctuations in the prices of oil and gas can adversely affect the price that we can sell gas and oil discovered on our properties. In recent decades, there have been periods of both worldwide over-production and underproduction of hydrocarbons and periods of both increased and relaxed energy conservation efforts. These conditions have resulted in periods of excess supply of, and reduced demand

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for, crude oil on a worldwide basis and for natural gas on a domestic basis. These periods have historically been followed by periods of short supply of, and increased demand for, crude oil and, to a lesser extent, natural gas. The excess or short supply of natural gas and crude oil has placed pressures on prices and has resulted in dramatic price fluctuations, even during relatively short periods of seasonal market demand. We cannot predict with any degree of certainty future oil and natural gas prices. Changes in oil and natural gas prices significantly affect our revenues, operating results, profitability and the value of our oil and gas reserves. Lower prices may reduce the amount of oil and natural gas that we can produce economically. In an attempt to reduce our price risk, we periodically enter into hedging transactions with respect to a portion of our expected future production. We cannot assure you that such transactions will reduce the risk or minimize the effect of any decline in oil or natural gas prices.

Lower oil and gas prices may cause us to record ceiling test write-downs.

We use the full cost method of accounting for our oil and gas operations. Accordingly, we capitalize the cost to acquire, explore for and develop oil and gas properties. Under full cost accounting rules, the net capitalized costs of oil and gas properties (net of related deferred taxes), including estimated capitalized abandonment costs, may not exceed a “ceiling limit” which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% and excluding cash flows related to estimated abandonment costs, plus the lower of cost or fair value of unproved properties. If net capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a “ceiling test write-down.” This charge does not impact cash flow from operating activities, but does reduce net income. The risk that we will be required to write down the carrying value of oil and gas properties increases when oil and natural gas prices are low. In addition, write-downs may occur if we experience substantial downward adjustments to our estimated proved reserves. We cannot assure you that we will not experience ceiling test write-downs in the future.

The oil and gas exploration industry is extremely competitive, which may adversely affect our profitability.

The oil and gas industry is intensely competitive and we compete with other companies that have longer operating histories and greater financial and other resources than we do. Many of these companies not only explore for and produce crude oil and natural gas but also conduct refining operations and market petroleum and other products on a worldwide basis. These competitors can sustain longer periods of reduced prices of gas and oil and may also be in a better position to outbid us to purchase particular interests in oil and gas properties.

Our ability to produce sufficient quantities of oil and gas from our properties may be adversely affected by a number of factors outside of our control. If we are unable to produce oil and gas from our properties in commercial quantities, our operations will be severely affected.

Our business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells may be unproductive or that the wells, although productive, do not produce oil or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids, or other conditions may substantially delay or prevent completion of any well. This could result in a total loss of our investment in a particular property. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic if water or other deleterious substances are encountered, which impair or prevent the production of oil and gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. As with any petroleum property, we cannot assure you that oil and gas will be produced from the properties in which

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we have interests, nor can we assure the marketability of oil and gas which may be acquired or discovered. There are numerous factors beyond our control, including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, allowable production and environmental protection. We cannot predict how these factors will adversely affect our business.

We operate in foreign countries and are subject to political, economic and other uncertainties.

We currently have operations in the United Kingdom, Norway, the Netherlands and, through our subsidiary PHT Partners, L.P., the Kingdom of Thailand. We may expand international operations to other countries or regions in the future. International operations are subject to political, economic and other uncertainties, including:

	•	the risk of war, acts of terrorism, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, import, export and transportation regulations and tariffs;
	•	taxation policies, including royalty and tax increases and retroactive tax claims;
	•	exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over our international operations;
	•	laws and policies of the U.S. affecting foreign trade, taxation and investment; and
	•	the possibility of having to be subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States.

Foreign countries have occasionally asserted rights to land, including oil and gas properties, through border disputes. If a country claims superior rights to oil and gas leases or concessions granted to us by another country, our interests could be lost or decreased in value. Various regions of the world have a history of political and economic instability. This instability could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign–owned assets. This could adversely affect our interests.

If the operator of a prospect in which we participate does not maintain or fails to obtain adequate insurance, our interest in such prospect could be materially and adversely affected.

Oil and gas operations are subject to particular hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation.

We do not currently operate all of our oil and gas properties. In the projects in which we own a non-operating interest directly or own an equity interest in a limited partnership which in turn owns a non-operating interest, the operator for the prospect may maintain insurance of various types to cover our operations with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event that is not fully covered by insurance could result in the loss of our total investment in a particular prospect which could have a material adverse effect on our financial condition and results of operations.

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The cost of decommissioning is uncertain.

As a result of our business strategy, we expect to incur obligations to abandon and decommission certain structures in the North Sea. To date the industry has little experience of removing oil and gas structures in the North Sea. Fewer than 10% of the 400 structures have been removed and these were small steel structures and sub sea installations in the shallower waters of the Southern North Sea. In addition, certain groups have been established to study issues relating to decommissioning and abandonment and how the costs will be borne. Because the experience is limited, it is difficult to predict the costs of any future decommissions for which we might become obligated.

Our failure to comply with environmental regulations could result in significant fines and penalties and our cost of compliance with such regulations could result in large expenses, either of which could adversely affect our operations.

Our operations are subject to a variety of national, state, local, and international laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Significant fines and penalties may be imposed for the failure to comply with environmental laws and regulations. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances such as oil and gas related products.

Some environmental protection laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for acts which were in compliance with all applicable laws at the time the acts were performed. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. Therefore, we may incur significant environmental compliance costs in the future.

Our failure to comply with various levels of governmental regulations to which we are subject could result in significant fines and/or penalties and our cost of compliance with such regulations could result in large expenses, either of which would adversely affect our operations.

Oil and gas exploration, development and production are subject to various types of regulation by local, state and federal agencies. Regulations and laws affecting the oil and gas industry are comprehensive and under constant review for amendment and expansion. These regulations and laws carry substantial penalties for failure to comply. The regulatory burden on the oil and gas industry increases our cost of doing business and, consequently, adversely affects our profitability.

We are dependent on our executive officers and need to attract and retain additional qualified personnel.

Our future success depends in large part on the service of William L. Transier and John N. Seitz, both of whom have substantial experience in the oil and gas industry. If either were to resign it could have a material adverse effect on our business, operating results and financial condition. While we have employment agreements with each of Mr. Transier and Mr. Seitz, there can be no assurance that such agreements will be enforceable in all circumstances, that we will have the resources to enforce such agreements or that we will have the ability to retain their services due to resignation or otherwise. Further, we do not intend to maintain key-person life insurance on either Mr. Transier or Mr. Seitz. Our future success also depends upon our ability to attract, assimilate and retain highly qualified technical and

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other management personnel. There can be no assurance that we will continue to attract, assimilate and retain key personnel, and the failure to do so will have a material adverse effect on our business, operating results and financial condition.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.

We may in the future issue our previously authorized and unissued securities which will result in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 150,000,000 shares of common stock and 376,287 shares of preferred stock with such designations, preferences and rights as determined by our board of directors. At March 7, 2005, we have issued 74,035,162 shares of common stock, and outstanding options and warrants to purchase an additional 6,653,500 shares of our common stock. We also have additional shares available for grant under the Company’s recently adopted Incentive Plan, which was approved at our 2004 annual meeting of stockholders. Additional incentive plans for employees may be adopted in the future. Issuance of these shares of common stock may substantially dilute the ownership interests of our existing stockholders. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional shares of our stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes. This would further dilute the interests of our existing stockholders. In the first quarter of 2005, we issued $81.25 million of convertible senior notes that are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal amount of notes, subject to adjustment. Should the noteholders choose to convert their senior notes into common stock, this would further dilute the interests of our existing stockholders.

We do not intend to pay dividends in the foreseeable future.

We have never declared or paid a dividend on our common stock. We intend to retain earnings, if any, for use in the operation and expansion of our business and therefore do not anticipate declaring or paying any dividends in the foreseeable future.

The trading price of our common stock may be volatile.

The trading price of our shares has from time to time fluctuated significantly and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors, including the risk factors set forth herein, as well as our operating results, financial condition, announcements or drilling activities, general conditions in the oil and gas exploration and development industry, and other events or factors. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have an extremely negative effect on the market price of our common stock.

There is a limited market for our common stock.

Our common stock is trading on the American Stock Exchange. Historically, there has not been an active trading market for significant volumes of our common stock. We are not certain that an active trading market for significant volumes of our common stock will develop, or if such a market develops, that it will be sustained.

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If we are unable to fulfill commitments under any of our licenses, we will lose our interest in such license which will result in the loss of our entire investment in such license.

Our ability to retain licenses in which we obtain an interest will depend on our ability to fulfill the commitments made with respect to each license. We cannot assure you that we or the other participants in the projects will have the financial ability to fund these potential commitments.

Our operations are extremely dependent on other companies and other service providers over which we have no control.

While we employ exploration and development personnel, we may also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to assist in the exploration and analysis of our prospects to determine a method in which the prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil rigs and drilling equipment to drill and develop our prospects to production. Although we have developed relationships with a number of third party service providers, we cannot assure that we will be able to continue to rely on such persons. If any of these relationships with third party service providers are terminated or are unavailable on terms that are favorable to us, then we will not be able to execute our business plan.

Our debt level governing our debt could negatively impact our financial condition, results of operations and business prospects.

As of December 31, 2004, we had $4 million in outstanding indebtedness. In addition, we completed a private placement of $81.25 million of senior indentures in the first quarter of 2005. Our level of indebtedness could have important consequences on our operations, including:

	•	making it more difficult for us to satisfy our obligations under the indentures or other debt and increasing the risk that we may default on our debt obligations;
	•	requiring us to dedicate a substantial portion of our cash flow from operating activities to required payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities;
	•	limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other general business activities;
	•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•	decreasing our ability to successfully withstand a downturn in our business or the economy generally; and
	•	placing us at a competitive disadvantage against other less leveraged competitors.

We may be required to repay all or a portion of our debt on an accelerated basis in certain circumstances. If we fail to comply with the covenants and other restrictions in the agreements governing our debt, it could lead to an event of default and the acceleration of our repayment of outstanding debt. Our ability to comply with these covenants and other restrictions may be affected by events beyond our control, including prevailing economic and financial conditions.

We may not have sufficient funds to make such repayments. If we are unable to repay our debt out of cash on hand, we could attempt to refinance such debt, sell assets or repay such debt with the proceeds from an equity offering. We cannot assure you that we will be able to generate sufficient cash flow from operating activities to pay the interest on our debt or that future borrowings, equity financings or proceeds from the sale of assets will be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock, a refinancing of our debt or a sale of assets include

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financial market conditions and our market value and operating performance at the time of such offering or other financing. We cannot assure you that any such offering, refinancing or sale of assets can be successfully completed.

Item 2. Properties

United Kingdom

Endeavour currently anticipates serving as operator of five production licenses we hold located in the Central North Sea. These include licenses covering:

	•	Blocks 21/11c and 20/15b (100% equity);
	•	Block 21/20c (100% equity);
	•	Block 22/24e (60% equity);
	•	Block 30/23b (60% equity); and
	•	Blocks 31/26b and 39/1b (60% equity).

Other non-operated licenses in which we currently hold interests include licenses covering the following:

Southern Gas Basin:

	•	Blocks 42/10 and 42/15 (50% equity);
	•	Blocks 43/22, 43/23, 43/27b, 43/28 and 43/29 (25% equity);
	•	Blocks 44/21c and 44/25b (25% equity)

Central North Sea:

	•	Block 23/16e (47.5% equity); and
	•	Block 23/17b (47.5% equity).

These licenses cover more than a half million acres, approximately 2,160 square kilometers, or equivalent to more than 100 Gulf of Mexico blocks. Of the licenses, four licenses covering eight blocks were granted under traditional terms that require the company to fulfill a work program within four years from the date of award. The remaining five licenses covering 10 blocks are under “promote” terms that require the company to pay reduced license fees for a two-year period as exploratory evaluations are conducted. It is anticipated that the above percentages will be reduced in most of these blocks through farm-outs or bringing in partners prior to extensive work being carried out in the blocks.

Norway

As a result of our recent acquisition of OER, we have interests in three fields in the Norwegian sector of the North Sea:

	•	a 4.4% working interest in the Brage field (Norsk Hydro is the operator);
	•	a 2.5% working interest in the Njord field (Norsk Hydro is the operator); and
	•	a 49% working interest in the Agat (non-producing) field (RWE is the operator).

We also have a 7.5% ownership in two licenses awarded as part of the 2004 Awards in Predefined Areas. The awarded areas cover approximately 600 square kilometers or 232 square miles, equivalent to 30 Gulf of Mexico blocks, in area near the Njord field where we hold an interest. The Company and its partners are currently conducting exploration and exploitation activities in the Njord area that are expected to extend the life of the field beyond 2013.

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Thailand - Khorat Plateau

We have interests in the Kingdom of Thailand through our ownership interest in PHT Partners, L.P. (“PHT”), a limited partnership. We have a 93.77% limited partnership interest in PHT and a 100% interest in PHT Holding GP, LLC, which is the general partner of PHT and owns a 1% general partnership interest in PHT. Certain other parties hold interests in PHT entitling them to 20% and 15% respectively of the distributions from PHT after return of all capital contributions and expenditures. PHT has a 21.08% interest in APICO, LLC (“APICO”), which in turn has a 35% interest in the Phu Horm licenses in Thailand. During 2003, the Phu Horm 3 well was redrilled and the 45-day test of the well established that the well was capable of production in excess of 30,000 Mcf per day.

In May 2004, the Phu Horm Project was approved as a Production Area by the Thailand Department of Mineral Fuels. Drilling of two additional appraisal wells commenced during the second quarter of 2004. These wells have been completed successfully and tested gas and have expanded the known limits of the reservoir. Engineering, design and permitting for the gas production facilities for the project are continuing. First gas sales are expected to commence from the Phu Horm Project in 2006.

APICO also has a 100% interest in Onshore Exploration Block Nos. L15/43 and L27/43, covering an area of approximately 7,500 square kilometers.

Planned Exploration and Development Expenditures

We anticipate exploration and development expenditures in 2005 to be approximately $36.6 million. These anticipated expenditures include $14.1 million in the United Kingdom, $8.4 million in Norway, $4 million in Thailand, $1.2 million in the Netherlands, $1.9 million on other exploration expenditures and $7.0 million in capitalized employee costs and interest. We may increase or decrease our planned activities for 2005, depending upon drilling results, potential acquisition candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities.

Reserves

For 2004, our oil and gas reserves were estimated by the independent reserve engineers Gaffney, Cline & Associates Ltd. Our proved oil and gas reserves at December 31, 2004 and 2003 included the following:

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Drilling Statistics

A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of oil or gas. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. The following table shows the results of the oil and gas wells drilled and tested during 2004:

We do not own any drilling rigs, and all of our drilling activities are conducted by independent drilling contractors.

Productive Well Summary

At December 31, 2004, our productive wells including the following:

Undeveloped Acreage

The following table sets forth certain information regarding our developed and undeveloped acreage as of December 31, 2004 in the areas indicated.

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Item 3. Legal Proceedings

In March 2004, the GHK Company, LLC, GHK/Potato Hills Limited Partnership, and Brian F. Egolf (collectively “Plaintiffs”) commenced an action against Endeavour International Corporation (“Endeavour”), f/k/a Continental Southern Resources, Inc. (“CSOR”), as well as BWP Gas, L.L.C. and HBA Gas, Inc. in state court in Oklahoma City, Oklahoma. In the petition, Plaintiffs allege that in 2003, at a time when CSOR intended to acquire a majority of the membership interests in BWP, that BWP entered into an agreement to assign to Plaintiffs 2.5 million common shares of Endeavour stock upon compliance by Plaintiffs with certain contractual obligations including but not limited to completion and initial commercial production of the Mary #2-34 well, along with the presentation of a development plan and the commencement of the next exploration or development well in the Potato Hills Deep Prospect. Plaintiffs allege in their petition that BWP, HBA and Endeavour are alter egos of each other and jointly and severally liable to Plaintiffs for failing to deliver to Plaintiffs the Endeavour common stock. Plaintiffs seek delivery of the stock as well as a temporary restraining order, a primary and permanent injunction (i) enjoining all dilutions of Plaintiffs’ rights pertaining to Endeavour stock; (ii) enjoining Endeavour from all future stock issuances and transfers of assets not in the ordinary course of business and (iii) prohibiting the alienation or encumbrance of the Endeavour stock that is allegedly in HBA’s possession. On April 6, 2004, the defendants removed the action from the state court to the United States District Court for the Western District of Oklahoma. On October 21, 2004, the United States District Court granted a motion to remand to state court filed by the Plaintiffs and remanded the matter to the District Court of Oklahoma County, Oklahoma. While the outcome can not be predicted at this time, management believes it has good and valid defenses in this litigation and intends to litigate vigorously.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted for a vote of our stockholders during the fourth quarter of 2004.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock currently trades on the American Stock Exchange under the symbol “END”. Between February and June 2004, our common stock traded on the OTC Bulletin Board under the symbol “EVOR.” From February 27, 2002 to February 27, 2004, our common stock traded on the OTC Bulletin Board under the symbol “CSOR”. The following table sets forth the range of high and low prices per share of our common stock for each of the calendar quarters identified below as reported by the American Stock Exchange or the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

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Holders

As of March 1, 2005, the number of holders of record of our common stock was 344. We believe that there are a number of additional beneficial owners of our common stock who hold such shares in street name.

Dividends

We have not paid any cash dividends to date, and have no intention of declaring or paying any cash dividends on our common stock in the foreseeable future. Our Series B Preferred Stock is subject to a cumulative 8% dividend. Unless the full amount of the foregoing dividends is paid in full, we cannot declare or pay any dividend on our common stock. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain limitations imposed under Nevada corporate laws. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Item 6. Selected Financial Data

The following table sets forth some of our historical consolidated financial data. The following data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included elsewhere herein. The selected consolidated financial data provided below are not necessarily indicative of our future results of operations or financial performance.

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•

acquisition of NSNV in February 2004;

•

acquisition of OER in November 2004;

•

acquisition of BWP in May 2003;

•

disposition of BWP, Knox Miss and LSP in 2004; and

•

disposition of CSR-Waha in 2003.

(2)	Represents the period from January 13, 2000 (Inception) through December 31, 2000.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to the Company on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “RISK FACTORS” in Item 1 and elsewhere in this report. The following should be read in conjunction with the audited financial statements and the notes thereto included elsewhere herein.

Overview

As discussed previously, we significantly transformed the nature and scope of our business through various transactions during 2004. These transactions had significant impacts on our results of operations and financial conditions and include the NSNV and OER acquisitions, the Offering, the Restructuring and the sales of LSP and Knox Miss, as discussed below.

The NSNV Acquisition

On February 26, 2004, we acquired NSNV, Inc. (“NSNV”), through a merger with a newly created subsidiary of the Company, resulting in NSNV becoming a wholly-owned subsidiary of the Company (the “NSNV Acquisition”). The NSNV Acquisition was accounted for as a purchase of assets and not a business combination. Therefore, the consideration given was allocated to the fair value of the identifiable assets and liabilities acquired with the excess of $10.8 million expensed. Prior to the NSNV Acquisition, we had one employee and were focused on oil and gas operations in the United States. With

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the NSNV Acquisition, we gained a new management team, technical and financial staff and a new international focus in the North Sea.

The OER Acquisition

In November 2004, we purchased a 76.66% majority interest in OER oil AS (“OER”), a privately held Norwegian exploration and production company based in Oslo (the “OER Acquisition”). The purchase price of the OER Acquisition was NOK (Norwegian kroner) 172.5 million, approximately $27.6 million, plus $0.8 million in professional expenses for legal and accounting services. The OER Acquisition provided oil and gas sales of $3.7 million for 2004.

The Offering

In an offering of common stock (the “Offering”) that closed on February 26, 2004, we issued 25 million shares of common stock at $2.00 per share in a private placement. The estimated net proceeds of the Offering were $46 million after deduction of offering expenses. A portion of the net proceeds were used in the Restructuring for the purchase of 14.1 million shares of our common stock and 0.1 million shares of our Series B Preferred Stock for $5.3 million and for repayment of the principal amount of debentures in the amount of $1.5 million. The remainder is being used for general corporate purposes, including potential acquisitions.

The Restructuring

Simultaneous with the consummation of the NSNV Acquisition and the Offering, we restructured various financial and stockholder related items (the “Restructuring”). Specifically, we completed the following:

	•	repaid $1.5 million principal amount of our outstanding convertible notes and issued 0.4 million shares of our common stock in exchange for the remaining principal balance due under the Trident convertible debenture at a contractual conversion price of $1.60 per share;
	•	issued approximately one million shares of our common stock in exchange for the $1.55 million principal balance and accrued interest due under the Marcus convertible debenture at a contractual conversion price of $1.75 per share;
	•	issued 2.8 million shares of our common stock upon conversion of all of the outstanding Series C Preferred Stock, and accrued dividends, at a contractual conversion price of $1.70 per share;
	•	purchased 14.1 million shares of common stock and 103,500 shares of Series B Preferred Stock for $5.3 million in cash; and
	•	purchased all outstanding shares of Series A Preferred Stock and a portion of the Series B Preferred Stock in exchange for certain of our non-core assets, including:

	•	100% of our ownership interest in BWP Gas, LLC;
	•	864,560 shares of restricted common stock of BPK Resources, Inc.;
	•	400,000 shares of common stock of Trimedia Group, Inc.;
	•	notes receivable due with a combined principal of $0.8 million; and
	•	subscription receivables with a combined principal of $0.4 million.

The Sales of Knox Miss and LSP

After completing the Restructuring, we sold our entire limited partnership interest in Knox Miss. Partners, L.P., a Delaware limited partnership that owns a 50% interest in certain oil and gas leases located in Mississippi, as well as our related interest in Knox Miss., LLC, the 1% sole general partner of Knox Miss. Partners, L.P., for $5.0 million. The $5.0 million was payable $500,000 in cash and by the issuance of a

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$4.5 million short-term note that was paid during 2004. During the second quarter of 2004, we sold all of our equity interest in Louisiana Shelf Partners, L.P. (“LSP”) for $250,000 in cash and a $2 million contingent deferred payment that is payable from proceeds from production of drilling activities on the oil and gas leases held by LSP.

Results of Operations

Revenues

Revenues for 2004 consisted primarily of production of 92,982 BOE from assets acquired in the OER Acquisition. Revenues for 2003 and 2002 consisted of production from Oklahoma properties and our interest in CSR-Waha, respectively, both of which have been sold.

Operating and DD&A Expenses

Similar to revenues, operating expenses and DD&A expenses for 2004 are related to assets acquired in the OER Acquisition while 2003 and 2002 operating expenses relate to properties which have been sold.

Unproved property impairment expenses were $25.2 million during 2003 due to the impairment of Oklahoma properties and the unsuccessful drilling results in Louisiana.

Bad Debt Expense

Bad debt expense increased to $1.8 million in 2003 from $0.6 million in 2002. All of the bad debt expense for 2003 and 2002 was related to our investment in Touchstone Resources, Ltd. (“Touchstone”), a Canadian Exchange listed company and the parent company of Touchstone USA, Inc. As of December 31, 2003, we had recorded bad debt reserves for the full balance of our investment in Touchstone. As discussed in Note 8 to the Consolidated Financial Statements herein, in 2004, we received 1.2 million common shares of Touchstone Resources USA, Inc. (a public company trading on the OTC Bulletin Board) in exchange for the promissory notes from Touchstone. As the net book value of these notes was zero, we recorded a non-cash gain on the approximately $1.8 million (included in other income), the market value of the shares received on the date of the exchange.

General and Administrative Expenses

With our acquisitions that occurred in 2004, we have over 35 employees at December 31, 2004 versus a single employee for 2003 and 2002. Components of G&A expenses for these periods are as follows:

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Other (Income) and Expense

Other (income) expense increased to $7.3 million during the year ended December 31, 2004 as compared to $5.0 million for the corresponding period in 2003. The 2004 expense consisted of a $10.8 million expense for consideration given in excess of fair value of identifiable assets acquired in the NSNV Acquisition, interest expense of $0.3 million incurred primarily on outstanding convertible debt and a $0.2 million loss in on the sale of marketable securities as part of the Restructuring, partially offset by $0.4 million net gain in connection with our sales of assets, $1.8 million in income related to the gain on the exchange of shares from Touchstone, $1.4 million gain on the settlement of an oil commodity swap, $0.5 million in interest income and $0.3 million in foreign currency exchange losses. All of the convertible debt was sold or converted to common stock as part of the Restructuring.

Other (income) expense was $5.0 million during the fiscal year ended December 31, 2003 as compared to $2.7 million for the fiscal year ended December 31, 2002. The increase was primarily due to $1.7 million in losses on the sale of marketable securities.

Income Taxes

Our tax expense in 2004 of $0.7 million, including $0.5 million of foreign currency losses attributable to tax liability balances, relates to our Norwegian operations. In 2004, our Norwegian operations had income before taxes of $0.1 million as compared to a net loss before taxes of $22.7 million for the total company. During 2003 and 2002, we did not record any income tax benefits as there was no assurance that we could generate any taxable earnings, and therefore recorded valuation allowances on the full amount of deferred tax assets generated.

Liquidity and Capital Resources

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We have historically funded our operations and acquisitions through issuances of debt and equity securities. Some of the significant issuances of debt and equity, as well as the uses of the proceeds, in 2004, 2003 and 2002 are as follows:

	•	in November 2004, we purchased OER for $27.6 million in cash;
	•	in February 2004, we issued 25 million shares of common stock and 0.7 million warrants at an exercise price of $2.00 per share;
	•	in February 2004, we funded the purchase of NSNV through the issuance of 12.5 million shares of common stock;
	•	during 2004 and 2003, we issued 1.8 million shares of our common stock to RAM for $2.2 million;
	•	between May and July 2003, we issued 477,500 shares of Series C Convertible Preferred Stock for $10.00 per share;
	•	in May 2003, we funded the purchases of BWP through the issuance of 3.3 million shares of common stock and 1.7 million warrants at an exercise price of $2.00 per share expiring in three years;
	•	in April 2002, we borrowed $1.5 million from Trident through a 12% secured convertible promissory note; and
	•	in July 2003, we increased the principal amount of the promissory note to Trident to $2.1 million and extended the maturity date to July 31, 2004.

Subsequent Events

In January 2005, we purchased the remaining 23.34% minority interest, 1,299,772 shares, in OER for consideration of NOK 6.98 and 1.68 shares of our common stock per share of OER. The aggregate consideration paid was approximately US$ 1.4 million in cash and 2,183,617 shares of our common stock.

In January and February 2005, we issued $81.25 million aggregate principal amount of convertible senior notes due 2012 in a private placement to qualified institutional buyers, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The notes bear interest at a rate of 6.00% per annum and are convertible into shares of our common stock at an initial conversion rate of 199.2032 shares of common stock per $1,000 principal amount of notes, subject to adjustment, which is equal to an initial conversion price of approximately $5.02 per share.

The purpose of the notes issuance is to fund expenditures to explore for and develop oil and gas properties, working capital and general corporate purposes, which may include future acquisitions of interests in oil and gas properties.

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In January 2005, we entered into an oil commodity swap where we pay market Brent and receive a fixed price that ranges from $46.20 per barrel in the initial month to $40.00 per barrel at the end of the contract. The contract covers 600 barrels per day from February 2005 through December 2006. The contract requires us to provide $2 million in collateral, subject to possible adjustment.

Outlook

Anticipated Capital Expenditures

We anticipate exploration and development expenditures in 2005 to be $36.6 million. These expenditures include $14.1 million in the United Kingdom, $8.4 million in Norway, $4 million in Thailand, $1.2 million in the Netherlands, $1.9 million on other exploration expenditures and $7.0 million in capitalized employee costs and interest. We may increase or decrease our planned activities for 2005, depending upon drilling results, potential acquisition candidates, product prices, the availability of capital resources, and other factors affecting the economic viability of such activities.

Liquidity and Financial Resources

The $81.25 million of convertible senior notes issued in 2005 bear interest at 6% and are due in 2012. Combined with the existing debt from our newly acquired Norwegian subsidiary, we expect to incur approximately $5 million in interest expense during 2005. In addition, the debt from our newly acquired Norwegian subsidiary, with approximately $4 million outstanding at December 31, 2004, is payable in equal installments in July 2005 and January 2006.

Critical Accounting Policies and Estimates

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and have been presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These accounting principles require management to use estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and revenues and expenses during the reporting period. Management reviews its estimates, including those related to the determination of proved reserves, estimates of future dismantlement costs, income taxes and litigation. Actual results could differ from those estimates.

Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming year: (1) estimates of proved oil and gas reserves, (2) estimates as to the expected future cash flow from proved oil and gas properties, and (3) estimates of future dismantlement and restoration costs. In addition, alternatives may exist among various accounting methods. In such cases, the choice of accounting method may also have a significant impact on reported amounts. Our critical accounting policies are as follows:

Full Cost Accounting

Under the full cost method, all acquisition, exploration and development costs, including certain directly related employee costs and a portion of interest expense, incurred for the purpose of finding oil and gas are capitalized. These capitalized costs are accumulated in pools on a country–by–country basis. Capitalized costs include the cost of drilling and equipping productive wells, including the estimated costs of dismantling and abandoning these assets, dry hole costs, lease acquisition costs, seismic and other

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geological and geophysical costs, delay rentals and costs related to such activities. Employee costs associated with production and other operating activities and general corporate activities are expensed in the period incurred.

Where proved reserves are established, capitalized costs are limited on a country–by–country basis (the ceiling test). The ceiling test is calculated as the sum of the present value of future net cash flows related to estimated production of proved reserves, using end–of–the–current–period prices, discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, all net of expected income tax effects. Under the ceiling test, if the capitalized cost of the full cost pool exceeds the ceiling limitation, the excess is charged as an impairment expense.

In countries where the existence of proved reserves has not yet been determined, leasehold costs, seismic costs and other costs incurred during the exploration phase remain capitalized in unproved property cost centers until proved reserves have been established or until exploration activities cease. If exploration activities result in the establishment of a proved reserve base, amounts in the unproved property cost center are reclassified as proved properties and become subject to depreciation, depletion and amortization and the application of the ceiling test. If exploration efforts in a country are unsuccessful in establishing proved reserves, it may be determined that the value of exploratory costs incurred there have been permanently diminished in part or in whole. Therefore, based on the impairment evaluation and future exploration plans, the unproved property cost centers related to the area of interest could be impaired, and accumulated costs charged against earnings.

Capitalized Interest

We capitalize interest on expenditures for significant exploration and development projects while activities are in progress to bring the assets to their intended use. Capitalized interest is calculated by multiplying our weighted-average interest rate on debt by the amount of qualifying costs and is limited to gross interest expense. As costs are transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool.

Dismantlement, Restoration and Environmental Costs

Effective January 1, 2003, we recognize liabilities for asset retirement obligations associated with tangible long-lived assets, such as producing well sites, offshore production platforms, and natural gas processing plants, with a corresponding increase in the related long-lived asset. The asset retirement cost is depreciated along with the property and equipment in the full cost pool. The asset retirement obligation is recorded at fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement value. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded for both the asset retirement obligation and the asset retirement cost.

Revenue Recognition

We use the entitlements method to account for sales of gas production. We may receive more or less than our entitled share of production. Under the entitlements method, if we receive more than our entitled share of production, the imbalance is treated as a liability at the market price at the time the imbalance occurred. If we receive less than our entitled share, the imbalance is recorded as an asset at the lower of the current market price or the market price at the time the imbalance occurred. Oil revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectibility of the revenue is probable.

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Derivative Instruments and Hedging Activities

From time to time, we may utilize derivative financial instruments to hedge cash flows from operations or to hedge the fair value of financial instruments. We may use derivative financial instruments with respect to a portion of our oil and gas production to achieve a more predictable cash flow by reducing our exposure to price fluctuations. These transactions are likely to be swaps, collars or options and to be entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce our exposure to declines in the market prices of crude oil and natural gas that we produce and sell, and to manage cash flows in support of our annual capital expenditure budget.

Derivative instruments (including certain derivative instruments embedded in other contracts) are recorded at fair market value and included in the balance sheets as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at its inception. We document, at the inception of a hedge, the hedging relationship, the risk management objective and the strategy for undertaking the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and the method that will be used to assess effectiveness of derivative instruments that receive hedge accounting treatment.

Derivative instruments designated as cash flow hedges are reflected at fair value in our Consolidated Balance Sheets. Changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income until the forecasted transaction occurs. Hedge effectiveness is assessed at least quarterly based on total changes in the derivative’s fair value. Any ineffective portion of the derivative instrument’s change in fair value is recognized immediately in other (income) expense.

Income Taxes

We use the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

Stock-Based Compensation Arrangements

We account for stock–based compensation plans for employees and directors using the intrinsic value method. Under this method, we record no compensation expense for stock options granted when the exercise price of options granted is equal to or greater than the fair market value of our common stock on the date of grant. We apply the fair value method in accounting for stock-based grants to non-employees using the Black-Scholes Method.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which replaces

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SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. SFAS 123R is effective for periods beginning after June 15, 2005. The guidance also provides for classifying awards as either liabilities or equity, which impacts when and if the awards must be remeasured to fair value subsequent to the grant date. We plan to adopt SFAS 123R on July 1, 2005.

At the time of adoption, companies can select from three transition methods, two of which would allow for restatement of certain prior periods. Management anticipates selecting the transition method in which prior period financial statements would not be restated. The adoption of SFAS No. 123R is not expected to have a significant effect on our financial condition and will not affect our consolidated cash flows. The future impact on our consolidated results of operations of the adoption of SFAS 123R cannot be predicted as certain of our deferred compensation plans are treated as liabilities and are currently accounted for using the variable method of accounting. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share included in Note 2 to our consolidated financial statements herein.

Disclosures about Contractual Obligations and Commercial Commitments

The following table sets forth the Company’s obligations and commitments to make future payments under its lease agreements and other long-term obligations as of December 31, 2004:

Commonly Used Oil and Gas Terms

Below are explanations of some commonly used terms in the oil and gas business.

Basis risk – The risk associated with the sales point price for oil or gas production varying from the reference (or settlement) price for a particular hedging transaction.

Bbl – One stock tank barrel, or 42 U.S. gallons liquid volume, of crude oil or other liquid hydrocarbons.

BOE – Barrel of oil equivalent, determined using the ratio of one Bbl of crude oil or condensate to six Mcf of natural gas.

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BOPD – Barrels of oil per day.

BOEPD – Barrels of oil equivalent per day.

Completion — The installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Developed acreage — The number of acres that are allocated or assignable to producing wells or wells capable of production.

Development well – A well drilled within the proved area of an oil or natural gas field to the depth of a stratigraphic horizon known to be productive, including a well drilled to find and produce probable reserves.

Dry hole or well – A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Exploration or exploratory well – A well drilled to find and produce oil or natural gas reserves that is not a development well.

Farm-in or farm-out – An agreement whereunder the owner of a working interest in an oil and gas lease assigns the working interest or a portion thereof to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farm-in,” while the interest transferred by the assignor is a “farm-out.”

FPSO – A floating production, storage and off-loading vessel, commonly used overseas to produce oil locations where pipeline infrastructure may not exist.

Field – An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition.

Gas lift – The process of injecting natural gas into the wellbore to facilitate the flow of produced fluids from the reservoir to the production train.

Gross acres or gross wells – The total acres or wells in which we own a working interest.

In progress wells – Wells where drilling activity is ongoing, wells awaiting installation of permanent equipment and wells awaiting the drilling of additional delineation wells.

MBbls – One thousand barrels of crude oil or other liquid hydrocarbons.

MBOE – One thousand barrels of oil equivalent, determined using the ratio of one Bbl of crude oil or condensate to six Mcf of natural gas.

Mcf – One thousand cubic feet of natural gas.

MMcf – One million cubic feet of natural gas.

Net acres or net wells – The sum of the fractional working interests we own in gross acres or gross wells, as the case may be.

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Productive well – A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Prospect – A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

Proved developed producing reserves – Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and capable of production to market.

Proved developed reserves – Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods.

Proved developed nonproducing reserves – Proved developed reserves expected to be recovered from zones behind casing in existing wells.

Proved reserves – The estimated quantities of crude oil or natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved undeveloped reserves – Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

Reservoir – A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Undeveloped acreage – Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

Working interest – The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.

Workover – Operations on a producing well to restore or increase production.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

The international scope of our business operations exposes us to the risk of fluctuations in foreign currency markets. As a result, we are subject to foreign currency exchange rate risk due to effects that foreign exchange rate movements of those currencies have on our costs and on the cash flows that we receive from foreign operations. We operate a centralized currency management operation to take advantage of potential opportunities to naturally offset exposures against each other. To date, we have

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addressed our foreign currency exchange rate risks principally by maintaining our liquid assets in interest-bearing accounts in U.S. dollars, until payments in foreign currency are required, but we have not reduced this risk by hedging to date.

Commodity Price Risk

We produce and sell crude oil and natural gas. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable which has been volatile and unpredictable for several years. As a result, our financial results can be significantly impacted as these commodity prices fluctuate widely in response to changing market forces. We may engage in oil and gas hedging activities to realize commodity prices which we consider favorable.

Interest Rate Risk

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on cash and cash equivalents and the interest rate paid on borrowings under debt from our newly acquired Norwegian subsidiary. This debt, with approximately $4 million outstanding at December 31, 2004, bears interest at the 6-month Norwegian Inter-Bank Offering Rate (NIBOR) plus 1.4%, currently 3.43%, and is payable in equal installments in July 2005 and January 2006. We do not currently use interest rate derivative financial instruments to manage exposure to interest rate changes, but may do so in the future.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Endeavour International Corporation:

We have audited the accompanying consolidated balance sheet of Endeavour International Corporation and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Endeavour International Corporation and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Endeavour International Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 7, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

Houston, Texas
March 7, 2005

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Endeavour International Corporation
Houston, Texas

We have audited the accompanying consolidated balance sheet of Endeavour International Corporation (formerly, Continental Southern Resources, Inc.) as of December 31, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2003 and 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Endeavour International Corporation as of December 31, 2003, and the results of operations, changes in stockholders’ equity and its cash flows for the years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

In 2004 and as described in Note 2 of the financial statements, the Company changed its method of accounting for oil and gas operations from the successful efforts method originally used to the full cost method. In accordance with the guidance of Accounting Principles Board Opinion 20 Reporting a Change in Accounting Principle this change was retroactively applied to all periods presented in these financial statements.

L J SOLDINGER ASSOCIATES LLC

Deer Park, Illinois
March 16, 2004 (Except for Note 2,
as to which the date is June 15, 2004)

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Endeavour International Corporation
Consolidated Balance Sheets
(Amounts in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Balance Sheets
(Amounts in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Stockholders’ Equity

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Stockholders’ Equity

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Stockholders’ Equity

The accompanying notes are an integral part of these consolidated financial statements.

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Endeavour International Corporation
Consolidated Statements of Stockholders’ Equity
(Amounts in thousand)