##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-33571
 DOUBLE EAGLE PETROLEUM CO.
  MARYLAND
    
    83-0214692(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 1675 Broadway, Suite 2200, Denver, Colorado 80202
 303-794-8445
 None
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding as of October 15, 2010Common stock, $.10 par value
    
    11,141,281




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##### 



Page #PART I. Financial Information:Item 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2010
and December 31, 2009 (Unaudited)
    
    
    2Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2010 and 2009 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2010 and 2009 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II. Other Information:Item 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 6. Exhibits
    
    
    27Signatures
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32
   1




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands of dollars except share and per share data)
  September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,683
    
    
    $
    5,682Cash held in escrow
    
    
    614
    
    
    
    611Accounts receivable
    
    
    6,283
    
    
    
    6,772Assets from price risk management
    
    
    9,726
    
    
    
    Other current assets
    
    
    3,825
    
    
    
    3,982Total current assets
    
    
    24,131
    
    
    
    17,047Oil and gas properties and equipment, successful efforts method:Developed properties
    
    
    181,919
    
    
    
    165,279Wells in progress
    
    
    5,631
    
    
    
    7,544Gas transportation pipeline
    
    
    5,465
    
    
    
    5,465Undeveloped properties
    
    
    3,216
    
    
    
    2,502Corporate and other assets
    
    
    1,928
    
    
    
    1,914198,159
    
    
    
    182,704Less accumulated depreciation, depletion and amortization
    
    
    (67,424
    )
    
    
    (53,682
    )Net properties and equipment
    
    
    130,735
    
    
    
    129,022Assets from price risk management
    
    
    2,114
    
    
    
    3,566Other assets
    
    
    112
    
    
    
    859TOTAL ASSETS
    
    $
    157,092
    
    
    $
    150,494LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,963
    
    
    $
    6,177Accrued expenses
    
    
    3,068
    
    
    
    6,918Liabilities from price risk management
    
    
    
    
    
    
    4,739Accrued production taxes
    
    
    3,985
    
    
    
    2,439Capital lease obligations, current portion
    
    
    542
    
    
    
    533Other current liabilities
    
    
    308
    
    
    
    308Total current liabilities
    
    
    11,866
    
    
    
    21,114Credit facility
    
    
    34,000
    
    
    
    34,000Asset retirement obligation
    
    
    5,795
    
    
    
    4,807Liabilities from price risk management
    
    
    
    
    
    
    430Deferred tax liability
    
    
    11,084
    
    
    
    4,620Capital lease obligations, long-term portion
    
    
    137
    
    
    
    545Other long-term liabilities
    
    
    51
    
    
    
    282Total liabilities
    
    
    62,933
    
    
    
    65,798Preferred stock, $0.10 par value; 10,000,000 shares authorized;

1,610,000 shares issued and outstanding as of
September 30, 2010 and December 31, 2009
    
    
    37,972
    
    
    
    37,972Stockholders equity:Common stock, $0.10 par value; 50,000,000 shares authorized; 

11,128,936 and 11,090,725 shares issued and outstanding as of
September 30, 2010 and December 31, 2009, respectively
    
    
    1,113
    
    
    
    1,109Additional paid-in capital
    
    
    44,366
    
    
    
    43,640Retained earnings
    
    
    4,953
    
    
    
    (342
    )Accumulated other comprehensive income
    
    
    5,755
    
    
    
    2,317Total stockholders equity
    
    
    56,187
    
    
    
    46,724TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS EQUITY
    
    $
    157,092
    
    
    $
    150,494
   2




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DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands of dollars except share and per share data)
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenuesOil and gas sales
    
    $
    7,601
    
    
    $
    9,669
    
    
    $
    26,258
    
    
    $
    30,661Transportation revenue
    
    
    1,349
    
    
    
    1,489
    
    
    
    4,238
    
    
    
    4,659Price risk management activities
    
    
    3,263
    
    
    
    (378
    )
    
    
    11,188
    
    
    
    (3,670
    )Proceeds from Madden Deep settlement
    
    
    3,841
    
    
    
    
    
    
    
    3,841
    
    
    
    Other income, net
    
    
    108
    
    
    
    86
    
    
    
    465
    
    
    
    296Total revenues
    
    
    16,162
    
    
    
    10,866
    
    
    
    45,990
    
    
    
    31,946Costs and expensesProduction costs
    
    
    2,828
    
    
    
    1,934
    
    
    
    7,167
    
    
    
    5,535Production taxes
    
    
    1,180
    
    
    
    879
    
    
    
    3,489
    
    
    
    2,521Exploration expenses including dry hole costs
    
    
    56
    
    
    
    38
    
    
    
    122
    
    
    
    93Pipeline operating costs
    
    
    987
    
    
    
    1,032
    
    
    
    3,106
    
    
    
    2,686General and administrative
    
    
    1,540
    
    
    
    1,579
    
    
    
    4,465
    
    
    
    4,680Impairment and abandonment of equipment
and properties
    
    
    
    
    
    
    82
    
    
    
    80
    
    
    
    82Depreciation, depletion and amortization
    
    
    4,701
    
    
    
    4,681
    
    
    
    13,771
    
    
    
    13,778Total costs and expenses
    
    
    11,292
    
    
    
    10,225
    
    
    
    32,200
    
    
    
    29,375Income from operations
    
    
    4,870
    
    
    
    641
    
    
    
    13,790
    
    
    
    2,571Interest expense, net
    
    
    (422
    )
    
    
    (265
    )
    
    
    (1,172
    )
    
    
    (909
    )Income before income taxes
    
    
    4,448
    
    
    
    376
    
    
    
    12,618
    
    
    
    1,662Benefit (provision) for deferred income taxes
    
    
    (1,586
    )
    
    
    40
    
    
    
    (4,531
    )
    
    
    (481
    )NET INCOME
    
    $
    2,862
    
    
    $
    416
    
    
    $
    8,087
    
    
    $
    1,181Preferred stock dividends
    
    
    930
    
    
    
    930
    
    
    
    2,792
    
    
    
    2,792Net income (loss) attributable to common stock
    
    $
    1,932
    
    
    $
    (514
    )
    
    $
    5,295
    
    
    $
    (1,611
    )Net income (loss) per common share:Basic
    
    $
    0.17
    
    
    $
    (0.05
    )
    
    $
    0.48
    
    
    $
    (0.17
    )Diluted
    
    $
    0.17
    
    
    $
    (0.05
    )
    
    $
    0.48
    
    
    $
    (0.17
    )Weighted average shares outstanding:Basic
    
    
    11,128,802
    
    
    
    10,315,270
    
    
    
    11,117,060
    
    
    
    9,587,711Diluted
    
    
    11,128,802
    
    
    
    10,315,270
    
    
    
    11,117,060
    
    
    
    9,587,711
   3




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DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands of dollars)
  Nine months ended September 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    8,087
    
    
    $
    1,181Adjustments to reconcile net income to net cash from
operating activities:Depreciation, depletion, amortization and accretion
of asset retirement obligation
    
    
    13,862
    
    
    
    13,855Abandonment of non-producing properties
    
    
    80
    
    
    
    82Provision for deferred taxes
    
    
    4,489
    
    
    
    481Employee share-based compensation expense
    
    
    578
    
    
    
    945Directors fees paid in stock
    
    
    148
    
    
    
    126Non-cash gain on transfer of ARO to third party
    
    
    (164
    )
    
    
    Change in fair value of derivative contracts
    
    
    (8,030
    )
    
    
    7,018Revenue from carried interest
    
    
    (1,727
    )
    
    
    (1,351
    )Gain on sale of producing property
    
    
    (213
    )
    
    
    (211
    )Changes in current assets and liabilities:Decrease (Increase) in deposit held in escrow
    
    
    (3
    )
    
    
    (5
    )Decrease (Increase) in accounts receivable
    
    
    1,218
    
    
    
    15,219Decrease (Increase) in other current assets
    
    
    (392
    )
    
    
    (131
    )Increase (Decrease) in accounts payable
    
    
    (1,233
    )
    
    
    (15,356
    )Increase (Decrease) in accrued expenses
    
    
    3,583
    
    
    
    (3,205
    )Increase in accrued production taxes
    
    
    968
    
    
    
    826NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    21,251
    
    
    
    19,474Cash flows from investing activities:Sale of producing property and equipment
    
    
    7
    
    
    
    Additions of producing properties and equipment, net
    
    
    (11,466
    )
    
    
    (29,640
    )Additions of corporate and non-producing properties
    
    
    (843
    )
    
    
    (140
    )Net cash received from Petrosearch acquisition
    
    
    
    
    
    
    7,733Payment of Petrosearch transaction costs
    
    
    
    
    
    
    (513
    )Acquisition of third-party assets
    
    
    (7,761
    )
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (20,063
    )
    
    
    (22,560
    )Cash flows from financing activities:Principal payments on capital lease obligations
    
    
    (399
    )
    
    
    (391
    )Issuance of stock under Company stock plans
    
    
    7
    
    
    
    6Tax withholdings related to net share settlement of
restricted stock awards
    
    
    (3
    )
    
    
    (23
    )Preferred stock dividends
    
    
    (2,792
    )
    
    
    (2,792
    )Net borrowings (repayments) on credit facility
    
    
    
    
    
    
    9,361NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    (3,187
    )
    
    
    6,161Change in cash and cash equivalents
    
    
    (1,999
    )
    
    
    3,075Cash and cash equivalents at beginning of period
    
    
    5,682
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    3,683
    
    
    $
    3,075Supplemental disclosure of cash and non-cash transactions:Cash paid for interest
    
    $
    1,302
    
    
    $
    1,761Cash paid for income taxes
    
    
    41
    
    
    
    Interest capitalized
    
    
    124
    
    
    
    903Adjustment to joint interest partners well costs
associated with unitization of Catalina
    
    
    
    
    
    
    1,162Additions to developed properties included in current liabilities
    
    
    733
    
    
    
    4,962Share-based compensation expense
    
    
    726
    
    
    
    1,071Issuance of common stock in connection with the acquisition of Petrosearch
    
    
    
    
    
    
    7,260Fair value of asset received in connection with the acquisition of Petrosearch
    
    
    
    
    
    
    9,151Fair value of liabilities assumed in connection with the acquisition of Petrosearch
    
    
    
    
    
    
    1,018
   4




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DOUBLE EAGLE PETROLEUM CO.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts in thousands of dollars except share and per share data)
 1.
    
    Summary of Significant Accounting Policies
 Basis of presentation
     Principles of consolidation
  Recently adopted accounting pronouncements
  2.
    
    Earnings Per Share
   5




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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    2,862
    
    
    $
    416
    
    
    $
    8,087
    
    
    $
    1,181Preferred stock dividends
    
    
    930
    
    
    
    930
    
    
    
    2,792
    
    
    
    2,792Income (loss) attributable to common stock
    
    $
    1,932
    
    
    $
    (514
    )
    
    $
    5,295
    
    
    $
    (1,611
    )Weighted average shares:Weighted average shares  basic
    
    
    11,128,802
    
    
    
    10,315,270
    
    
    
    11,117,060
    
    
    
    9,587,711Dilution effect of stock options
outstanding at the end of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares  diluted
    
    
    11,128,802
    
    
    
    10,315,270
    
    
    
    11,117,060
    
    
    
    9,587,711Net income (loss) per common share:Basic
    
    $
    0.17
    
    
    $
    (0.05
    )
    
    $
    0.48
    
    
    $
    (0.17
    )Diluted
    
    $
    0.17
    
    
    $
    (0.05
    )
    
    $
    0.48
    
    
    $
    (0.17
    )
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Anti-dilutive shares
    
    
    76,873
    
    
    
    107,800
    
    
    
    79,897
    
    
    
    103,771
 3.
    
    Derivative Instruments
     Cash flow hedges
   6




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##### Table of Contents



Mark to market derivative instruments
   Natural gas forward purchase contracts:
    
    2010
    
    
    2011Volume (MMcf)
    
    
    2,024
    
    
    
    5,650
  Derivatives designated as hedginginstruments under ASC 815
    
    Balance Sheet Location
    
    Fair ValueAssetsCommodity derivatives
    
    Assets from price risk management  current
    
    $
    7,020Assets from price risk management  long term
    
    
    1,959Total
    
    
    
    $
    8,979
 Derivatives not designated ashedging instruments under ASC 815
    
    Balance Sheet Location
    
    
    Fair ValueAssetsCommodity derivatives
    
    Assets from price risk management  current
    
    $
    2,706Assets from price risk management  long term
    
    
    155Total
    
    
    
    
    
    $
    2,861
  7




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Amount of Gain (Loss) Recognized in OCI 1 on Derivatives forThree Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Commodity contracts
    
    $
    2,599
    
    
    $
    (826
    )
    
    $
    5,413
    
    
    $
    1,335
 Amount of Gain Reclassified from Accumulated OCILocation of Gain Reclassified
    
    into Incomefrom Accumulated OCI 1
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,into Income (effective portion)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Oil and gas sales
    
    $
    
    
    
    $
    3,754
    
    
    $
    
    
    
    $
    13,164
 Three and Nine MonthsEnded September 30,2010
    
    
    2009Location of Gain Recognized in Income (Ineffective) Portion
and Amount Excluded from Effectiveness Testing
    
    
    N/A
    
    
    
    N/A
 1
    
    Other comprehensive income (OCI).   Amount of Gain (Loss) Recognized in Income on DerivativesLocation of Gain/Loss Recognized
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,in Income on Derivatives
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Price risk management
activities
    
    $
    3,263
    
    
    $
    (378
    )
    
    $
    11,188
    
    
    $
    (3,670
    )
  4.
    
    Fair Value Accounting
  
    
    Level 1  Quoted prices (unadjusted) for identical assets or liabilities in active
markets.
    
    Level 2  Quoted prices for similar assets or liabilities in active markets; quoted
prices for identical or similar
assets or liabilities in markets that are not active; and model-derived valuations
whose inputs or significant value drivers are observable.
    
    Level 3  Unobservable inputs that reflect the Companys own assumptions.
  8




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Cash and cash equivalents
  Derivative instruments
    Credit facility
  Asset retirement obligations
   Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssetsDerivative instruments Commodity forward contracts
    
    $
    
    
    
    $
    11,840
    
    
    $
    
    
    
    $
    11,840Total assets at fair value
    
    $
    
    
    
    $
    11,840
    
    
    $
    
    
    
    $
    11,840
  Concentration of credit risk
   9




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5.
    
    Impairment of Long-Lived Assets
  6.
    
    Compensation Plans
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions:
    
    Shares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at January 1, 2010
    
    
    647,897
    
    
    $
    15.06
    
    
    
    4.7Granted
    
    
    92,880
    
    
    $
    4.53Exercised
    
    
    Cancelled/expired
    
    
    (156,450
    )
    
    $
    15.63Outstanding at September 30, 2010
    
    
    584,327
    
    
    $
    13.23
    
    
    
    4.4
    
    
    $
    Exercisable at September 30, 2010
    
    
    321,638
    
    
    $
    14.71
    
    
    
    3.3
    
    
    $
    
   10




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##### Table of Contents



Weighted-AverageGrant DateStock Awards:
    
    Shares
    
    
    Fair ValueOutstanding at January 1, 2010
    
    
    87,448
    
    
    $
    12.38Granted
    
    
    79,714
    
    
    $
    4.26Vested
    
    
    (38,449
    )
    
    $
    4.77Forfeited/returned
    
    
    (17,241
    )
    
    $
    14.78Nonvested at September 30, 2010
    
    
    111,472
    
    
    $
    8.83
  7.
    
    Income Taxes
   8.
    
    Credit Facility
     11




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##### Table of Contents



9.
    
    Acquisition of Atlantic Rim Assets
  Post Acquisition WorkingUnit
    
    Working Interest Acquired
    
    
    Interest Percentage (1)Catalina
    
    
    3.08
    %
    
    
    72.40
    %Sun Dog
    
    
    12.60
    %
    
    
    21.54
    %Doty Mountain
    
    
    1.15
    %
    
    
    18.00
    %
 (1)
    
    The Companys working interest in the Unit will continue to change as additional wells
are drilled and acreage is added to the Units participating area.   10.
    
    Acquisition of Petrosearch
  11.
    
    Series A Cumulative Preferred Stock
    Redemption Date on or Before
    
    Redemption PriceJune 30, 2011
    
    $
    25.25June 30, 2012 or thereafter
    
    $
    25.00
   12




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12.
    
    Comprehensive Income (Loss)
  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) attributable to
common stock
    
    $
    1,932
    
    
    $
    (514
    )
    
    $
    5,295
    
    
    $
    (1,611
    )Change in derivative instrument fair value, net of tax expense1
    
    
    1,675
    
    
    
    (826
    )
    
    
    3,438
    
    
    
    1,335Reclassification to earnings
    
    
    
    
    
    
    (3,754
    )
    
    
    
    
    
    
    (13,164
    )Comprehensive income (loss)
    
    $
    3,607
    
    
    $
    (5,094
    )
    
    $
    8,733
    
    
    $
    (13,440
    )
 (1)
    
    The change in derivative instrument fair value is net of tax totaling $924 and $0 for
the three months ended September 30, 2010 and 2009, respectively. The change in derivative
instrument fair value is net of tax totaling $1,975 and $0 for the nine months ended September
30, 2010 and 2009, respectively.  September 30,
    
    
    December 31,2010
    
    
    2009Net change in derivative instrument fair value, net of tax expense of $3,224 and $1,249
    
    $
    5,755
    
    
    $
    2,317Total accumulated other comprehensive income, net
    
    $
    5,755
    
    
    $
    2,317
 13.
    
    Cash Held in Escrow
  14.
    
    Contingencies
 Legal proceedings
     13




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  FORWARD-LOOKING STATEMENTS
 This Quarterly Report on Form 10-Q includes forward-looking statements as defined by the
Securities and Exchange Commission, or SEC. We make these forward-looking statements in reliance
on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, included in this Form 10-Q that address
activities, events or developments that we expect, believe or anticipate will or may occur in the
future are forward-looking statements. These forward-looking statements are based on assumptions
which we believe are reasonable based on current expectations and projections about future events
and industry conditions and trends affecting our business. However, whether actual results and
developments will conform to our expectations and predictions is subject to a number of risks and
uncertainties that, among other things, could cause actual results to differ materially from those
contained in the forward-looking statements, including without limitation the Risk Factors set
forth in our Annual Report on Form 10-K for the year ended December 31, 2009.
 We also may make material acquisitions or divestitures or enter into financing transactions. None
of these events can be predicted with certainty and the possibility of their occurring is not taken
into consideration in the forward-looking statements.
 New factors that could cause actual results to differ materially from those described in
forward-looking statements emerge from time to time, and it is not possible for us to predict all
such factors, or the extent to which any such factor or combination of factors may cause actual
results to differ from those contained in any forward-looking statement. We assume no obligation to
update publicly any such forward-looking statements, whether as a result of new information, future
events, or otherwise.
 Business Overview and Strategy
    14




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##### Table of Contents




    
    Acquisition of Atlantic Rim AssetsWe signed an asset purchase agreement on July 20, 2010, with a third party to purchase
certain assets in the Atlantic Rim. We acquired 3.08% in the Catalina Unit bringing
our current ownership to 72.40%; 12.60% in the Sun Dog Unit bringing our current
ownership to 21.54%; and 1.15% in the Doty Mountain Unit bringing our current ownership
to 18.00%. The effective date of the transaction was January 1, 2010. The total cost
of the asset purchase transaction was $8,417 subject to closing adjustments. The total
cash paid by us, subject to post closing adjustments, was $7,761, net of revenue,
expense and capital costs incurred from the effective date through the closing date.
    
    Average Daily ProductionDuring the three months ended September 30, 2010, our total average daily net
production increased 2% to 25,441 Mcfe as compared to average daily net production of
25,052 Mcfe during the three months ended September 30, 2009. Total average daily net
production decreased 2% to 25,017 Mcfe in the first nine months of 2010, as compared to
25,533 Mcfe in same 2009 period. The changes in production by major operating area are
discussed below.Atlantic Rim.During the three months ended September 30, 2010, average daily
net production at the Atlantic Rim increased 7% to 18,802 Mcfe as compared to 17,585
Mcfe during the three months ended September 30, 2009. Average daily net production
at our Catalina Unit decreased 9% to 13,978 Mcfe, as compared to 15,391 Mcfe during the
same prior-year period. The decrease is primarily the result of the continuation of
our well-enhancement program, which began in the third quarter of 2009. This program
requires individual wells to be off-line for short periods of time while the well is
worked-over. In addition, the normal production decline for wells within this field
added to the decrease. Average daily production, net to our interest, at the Sun Dog
and Doty Mountain Units increased 120% to 4,824 Mcfe, as compared to average daily net
production of 2,194 Mcfe during the three months ended September 30, 2009. The
increase was primarily the result of the compression capacity added at the Doty
Mountain Unit in the first quarter of 2010 and the well stimulations that have been
performed on wells within the Sun Dog Unit, coupled with the Companys purchase of
additional working interest in the Sun Dog and Doty Mountain Units in the third quarter
of 2010. The Companys working interest in the Sun Dog Unit increased to 21.54% from
8.89% prior to the acquisition, and the Doty Mountain Unit increased to 18.00% from
16.50% prior to the acquisition.Average daily net production at the Atlantic Rim decreased 1% to 18,211 Mcfe in the
nine months ended September 30, 2010, as compared to 18,368 Mcfe during the same
prior-year period. During the nine months ended September 30, 2010, average daily net
production at our Catalina Unit decreased 10% to 14,697 Mcfe, as compared to 16,415
Mcfe during the same prior-year period. As discussed above, the primary decrease in
production at the Atlantic Rim is due to the continuation of our well enhancement
program, as well as what management understands to be the normal production decline for
wells within the field. In addition, the Catalina field experienced several power
outages during the second quarter of 2010 and the Southern Star pipeline was shut down
for maintenance for several days in April 2010, both of which temporarily halted
production. For the nine months ended September 30, 2010, average daily net production
at the Sun Dog and Doty Mountain units increased 80% to 3,514 Mcfe, as compared to
1,953 Mcfe in the nine months ended September 30, 2009. The increase was primarily the
result of the additional compression capacity at the Doty Mountain Unit and the well
stimulations that were performed on wells in the Sun Dog Unit, as well as the Companys
acquisition of additional working interest in the Sun Dog and Doty Mountain Units in
the third quarter of 2010, as discussed above.Pinedale Anticline. Average daily net production at the Pinedale Anticline
decreased 1% to 5,338 Mcfe for the three months ended September 30, 2010, as compared
to 5,384 Mcfe in the same 2009 period. The production at the Mesa Unit includes
production from 12 new wells; however, management believes that the overall production
decline at the Mesa Units is related to the operator managing the production flow from
the field due to the low gas prices in the Rocky Mountain region.
  15




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##### Table of Contents



During the nine months ended September 30, 2010, average daily net production at the
Pinedale Anticline decreased 8% to 5,137 Mcfe, as compared to 5,559 Mcfe in the nine
months ended September 30, 2009.Madden Deep Unit. During the three and nine months ended September 30, 2010,
our average daily net production at the Madden Deep Unit was 513 Mcfe and 709 Mcfe,
respectively, as compared to 597 Mcfe and 500 Mcfe in the three and nine months ended
September 30, 2009, respectively. The decrease in the three months ended September 30,
2010, as compared to the same prior year period, was due to lost production time that
resulted from a fire at the Lost Cabin gas plant during the period. The increase in
the nine month period ended September 30, 2010, was due primarily to a one-time gas
balancing adjustment that occurred in the second quarter of 2010, which was partially
offset by the gas plant fire.
    
    Oil and Gas SalesDuring the three months ended September 30, 2010, net oil and gas sales decreased 21%
to $7,601, as compared to $9,669 during the same 2009 period. The change in oil and
gas sales was primarily driven by our lower realized gas price during the period. Our
average realized gas price for the three months ended September 30, 2010 decreased 10%,
to $3.86 from $4.27 for the three months ended September 30, 2009. Although the
average CIG index price was approximately 23% higher during the three months ended
September 30, 2010 as compared to the same prior year period, our realized gas price
was lower in 2010 due to the strength of the hedges we had in place in 2009. During
the three months ended September 30, 2009, our derivative instrument settlements
totaled $4,177, of which $3,754 was classified as oil and gas sales on the consolidated
statements of operations. In comparison, in 2010, our derivative instrument
settlements totaled $1,715, but were classified as price risk management activities on
the consolidated statements of operations due to the accounting treatment of these
instruments.For the nine months ended September 30, 2010, oil and gas sales decreased 14% to
$26,258, as compared to the same prior year period. The decrease was due both to the
lower production volumes discussed above, as well as a decrease in our average realized
gas price. Our average realized gas price for the nine months ended September 30, 2010
decreased 13%, to $4.18 from $4.83 during the nine months ended September 30, 2009.
Although the average Colorado Interstate Gas (CIG) index price was approximately 43%
higher for the nine months ended September 30, 2010, our realized gas price was lower
in 2010 due to the strength of the hedges we had in place in the 2009 period. During
the nine months ended September 30, 2009, our derivative instrument settlements totaled
$16,513, of which $13,164 was classified as oil and gas sales on the consolidated
statement of operations. In comparison, in 2010, our derivative instrument settlements
totaled $3,158 during the first nine months of 2010, but all were classified as price
risk management activities on the consolidated statement of operations due to the
accounting treatment of these instruments.
    
    Litigation SettlementDuring the three months ended September 30, 2010, the Company reached a settlement with
many of the defendants in the lawsuit brought by the Company to recover either monetary
damages or our respective share of the natural gas produced from the Madden Deep Unit
over at least the period February 1, 2002 through June 30, 2007. Prior to the
settlement, we had not recognized any amount of sales proceeds for the period February
1, 2002 through October 30, 2006. For the period from November 1, 2006 through June
30, 2007, we had recognized the sales and had recorded a related account receivable of
$292, net of allowance for uncollectible amounts. As such, we recorded $3,841 of
proceeds from Madden Deep settlement on the consolidated statements of operations for
the three and nine months ended September 30, 2010.
 OVERVIEW OF FINANCIAL CONDITION AND LIQUIDITY
 Liquidity and Capital Resources
   16




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Financial Position SummaryCash and cash equivalents
    
    $
    3,683
    
    
    $
    5,682Working capital
    
    $
    12,265
    
    
    $
    (4,067
    )Balance outstanding on credit facility
    
    $
    34,000
    
    
    $
    34,000Stockholders equity and preferred stock
    
    $
    94,159
    
    
    $
    84,696RatiosDebt to total capital ratio
    
    
    26.5
    %
    
    
    28.6
    %Total debt to equity ratio
    
    
    60.5
    %
    
    
    72.8
    %
  Cash flow activities
  Nine Months Ended September 30,2010
    
    
    2009Cash provided by (used in):Operating Activities
    
    $
    21,251
    
    
    $
    19,474Investing Activities
    
    
    (20,063
    )
    
    
    (22,560
    )Financing Activities
    
    
    (3,187
    )
    
    
    6,161Net change in cash
    
    $
    (1,999
    )
    
    $
    3,075
     17




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##### Table of Contents



Off-Balance Sheet Arrangements
   Credit Facility
      Capital Requirements
   18




---



##### Table of Contents



Contractual Obligations
  One year
    
    
    2 - 3
    
    
    4 - 5
    
    
    More thanTotal
    
    
    or less
    
    
    Years
    
    
    Years
    
    
    5 YearsCredit facility (a)
    
    $
    34,000
    
    
    $
    
    
    
    $
    34,000
    
    
    $
    
    
    
    $
    Interest on credit facility (b)
    
    
    3,625
    
    
    
    1,551
    
    
    
    2,074
    
    
    
    
    
    
    
    Capital leases
    
    
    940
    
    
    
    752
    
    
    
    188
    
    
    
    
    
    
    
    Operating leases
    
    
    7,168
    
    
    
    2,194
    
    
    
    4,721
    
    
    
    253
    
    
    
    Total contractual cash
commitments
    
    $
    45,733
    
    
    $
    4,497
    
    
    $
    40,983
    
    
    $
    253
    
    
    $
    
 (a)
    
    The amount listed reflects the balance outstanding as of September 30, 2010. Any
balance outstanding on our Credit Facility is due on January 31, 2013.(b)
    
    Assumes the interest rate on our Credit Facility is consistent with that of September
30, 2010. RESULTS OF OPERATIONS
 Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009
 Oil and gas sales volume and price comparisons
 Three Months Ended September 30,
    
    
    Percent
    
    
    Percent2010
    
    
    2009
    
    
    Volume
    
    
    PriceProduct:
    
    Volume
    
    
    Average Price
    
    
    Volume
    
    
    Average Price
    
    
    Change
    
    
    ChangeGas (Mcf)
    
    
    2,300,050
    
    
    $
    3.86
    
    
    
    2,261,180
    
    
    $
    4.27
    
    
    
    2
    %
    
    
    -10
    %Oil (Bbls)
    
    
    6,751
    
    
    $
    63.31
    
    
    
    7,271
    
    
    $
    59.88
    
    
    
    -7
    %
    
    
    6
    %Mcfe
    
    
    2,340,556
    
    
    $
    3.98
    
    
    
    2,304,806
    
    
    $
    4.38
    
    
    
    2
    %
    
    
    -9
    %
     19




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##### Table of Contents



Transportation and gathering revenue
  Price risk management activities
  Proceeds from Madden Deep settlement
   20




---



##### Table of Contents



Oil and gas production expenses, production taxes, depreciation, depletion and amortization
 Three Months Ended September 30,2010
    
    
    2009(in dollars per Mcfe)Average price
    
    $
    3.98
    
    
    $
    4.38Production costs
    
    
    1.21
    
    
    
    0.84Production taxes
    
    
    0.50
    
    
    
    0.38Depletion and amortization
    
    
    1.96
    
    
    
    1.99Total operating costs
    
    
    3.67
    
    
    
    3.21Gross margin
    
    $
    0.31
    
    
    $
    1.17Gross margin percentage
    
    
    8
    %
    
    
    27
    %
    Pipeline operating costs
  General and administrative expenses
  Income taxes
   21




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##### Table of Contents



Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
 Oil and gas sales volume and price comparisons
 Nine Months Ended September 30,
    
    
    Percent
    
    
    Percent2010
    
    
    2009
    
    
    Volume
    
    
    PriceProduct:
    
    Volume
    
    
    Average Price
    
    
    Volume
    
    
    Average Price
    
    
    Change
    
    
    ChangeGas (Mcf)
    
    
    6,712,176
    
    
    $
    4.18
    
    
    
    6,838,382
    
    
    $
    4.83
    
    
    
    -2
    %
    
    
    -13
    %Oil (Bbls)
    
    
    19,579
    
    
    $
    69.71
    
    
    
    22,006
    
    
    $
    45.40
    
    
    
    -11
    %
    
    
    54
    %Mcfe
    
    
    6,829,650
    
    
    $
    4.31
    
    
    
    6,970,418
    
    
    $
    4.88
    
    
    
    -2
    %
    
    
    -12
    %
        22




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##### Table of Contents



Transportation and gathering revenue
  Price risk management activities
  Proceeds from Madden Deep settlement
  Oil and gas production expenses, production taxes, depreciation, depletion and amortization
 Nine Months Ended September 30,2010
    
    
    2009(in dollars per Mcfe)Average price
    
    $
    4.31
    
    
    $
    4.88Production costs
    
    
    1.05
    
    
    
    0.79Production taxes
    
    
    0.51
    
    
    
    0.36Depletion and amortization
    
    
    1.97
    
    
    
    1.93Total operating costs
    
    
    3.53
    
    
    
    3.08Gross margin
    
    $
    0.78
    
    
    $
    1.80Gross margin percentage
    
    
    18
    %
    
    
    37
    %
   23




---



##### Table of Contents



Pipeline operating costs
  General and administrative expenses
  Income taxes
  CONTRACTED VOLUMES
   24




---



##### Table of Contents



RemainingContractual
    
    
    Daily
    
    
    
    
    
    
    
    
    
    
    PriceType of Contract
    
    Volume
    
    
    Production
    
    
    Term
    
    
    Price
    
    
    Index (1)Fixed Price Swap
    
    
    1,104,000
    
    
    
    12,000
    
    
    
    1/10-12/10
    
    
    $
    4.30
    
    
    CIGFixed Price Swap
    
    
    2,920,000
    
    
    
    8,000
    
    
    
    1/11-12/11
    
    
    $
    7.07
    
    
    CIGCostless Collar
    
    
    1,520,000
    
    
    
    5,000
    
    
    
    8/09-7/11
    
    
    $
    4.50 floor
    
    
    NYMEX$
    7.90 ceilingCostless Collar
    
    
    2,130,000
    
    
    
    5,000
    
    
    
    12/09-11/11
    
    
    $
    4.50 floor
    
    
    NYMEX$
    9.00 ceilingTotal
    
    
    7,674,000
 (1)
    
    NYMEX refers to quoted prices on the New York Mercantile Exchange. CIG refers to the
Colorado Interstate Gas price as quoted on the first day of each month.  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Price Risks
   Interest Rate Risks
   25




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
  
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
   26




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##### Table of Contents



ITEM 6. EXHIBITS
  Exhibit
    
    Description:3.1
    (a)
    
    Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1(a)
of the Companys Annual Report on Form 10-KSB for the year ended August 31, 2001).3.1
    (b)
    
    Certificate of Correction of the Company (incorporated by reference from Exhibit 3.1(b)
of the Companys Annual Report on Form 10-KSB for the year ended August 31, 2001).3.1
    (c)
    
    Certificate of Correction of the Company (incorporated by reference from Exhibit 3 of the
Companys Quarterly Report on Form 10-QSB for the quarter ended November 30, 2001).3.1
    (d)
    
    Certificate of Correction to the Articles of Incorporation of the Company (incorporated
by reference from Exhibit 3.3 of the Companys Current Report of Form 8-K dated June 29,
2007).3.1
    (e)
    
    Articles of Amendment to the Articles of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 of the companys Current Report on Form 8-K dated June 29,
2007).3.1
    (f)
    
    Articles Supplementary (incorporated by reference from Exhibit 3.2 of the Companys
Current report of Form 8-K dated June 29, 2007).3.1
    (g)
    
    Articles Supplementary of Junior Participating Preferred Stock, Series B of the Company
(incorporated by reference from Exhibit 3.1 of the Companys Current Report of Form 8-K
dated August 28, 2007).3.1
    (h)
    
    Amendment to Bylaws, Revised Article II, Section 9 (incorporated by reference from
Exhibit 3.1 of the companys Current Report on Form 8-K filed on March 5, 2010).3.2
    
    
    Second Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit
3.2 of the Companys Current Report on Form 8-K filed on June 11, 2007).4.1
    (a)
    
    Form of Warrant Agreement concerning Common Stock Purchase Warrants (incorporated by
reference from Exhibit 4.3 of the Amendment No. 1 to the Companys Registration Statement
on Form SB-2 filed on November 27, 1996, SEC Registration No. 333-14011).4.1
    (b)
    
    Rights Agreement, dated as of August 24, 2007 between the Company and Computershare Trust
Company, N. A.(incorporated herein by reference to the Companys Current report on Form 8-K
filed on August 24, 2007).10.1
    
    
    First Amendment to Amended and Restated Credit Agreement, dated August 6, 2010, between the
Company and Bank of Oklahoma, N.A. et al (incorporated herein by reference from the Companys
Current Report on Form 8-K filed on August 9, 2010).31.1
    #
    
    Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule
13a-14(a) or Rule 15a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    #
    
    Certification of Chief Financial Officer (Principal Accounting Officer) pursuant to Rule
13a-14(a) or Rule 15a-14(a) of the Securities Exchange Act of 1934, as amended.32
    #
    
    Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial
Officer (Principal Accounting Officer) pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
 #
    
    Filed herewith.  27




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##### Table of Contents



SIGNATURES
  DOUBLE EAGLE PETROLEUM CO.Date:  October 28, 2010
    By:
    /s/ Richard D. DoleRichard D. DoleChief Executive Officer
(Principal Executive Officer)Date:  October 28, 2010
    By:
    /s/ Kurtis S. HooleyKurtis S. HooleyChief Financial Officer
(Principal Accounting Officer)  28




---



##### Table of Contents



Exhibit Number
    
    Description3.1
    (a)
    
    Articles of Incorporation of the Company (incorporated by
reference from Exhibit 3.1(a) of the Companys Annual
Report on Form 10-KSB for the year ended August 31, 2001).3.1
    (b)
    
    Certificate of Correction of the Company (incorporated by
reference from Exhibit 3.1(b) of the Companys Annual
Report on Form 10-KSB for the year ended August 31, 2001).3.1
    (c)
    
    Certificate of Correction of the Company (incorporated by
reference from Exhibit 3 of the Companys Quarterly Report
on Form 10-QSB for the quarter ended November 30, 2001).3.1
    (d)
    
    Certificate of Correction to the Articles of Incorporation
of the Company (incorporated by reference from Exhibit 3.3
of the Companys Current Report of Form 8-K dated June 29,
2007).3.1
    (e)
    
    Articles of Amendment to the Articles of Incorporation of
the Company, filed with the Maryland Department of
Assessments and Taxation on June 26, 2007 (incorporated by
reference from Exhibit 3.1 of the companys Current Report
on Form 8-K dated June 29, 2007).3.1
    (f)
    
    Articles Supplementary, (incorporated by reference from
Exhibit 3.2 of the Companys Current Report of Form 8-K
dated June 29, 2007).3.1
    (g)
    
    Articles Supplementary of Junior Participating Preferred
Stock, Series B of the Company, dated as of August 21, 2007
(incorporated by reference from Exhibit 3.1 of the
Companys Current Report of Form 8-K dated August 28,
2007).3.1
    (h)
    
    Amendment to Bylaws, Revised Article II, Section 9
-(incorporated by reference from Exhibit 3.1 of the
companys Current Report on Form 8-K filed on March 5,
2010).3.2
    
    
    Second Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 of the
Companys Current Report on Form 8-K filed on June 11,
2007).4.1
    (a)
    
    Form of Warrant Agreement concerning Common Stock Purchase
Warrants (incorporated by reference from Exhibit 4.3 of the
Amendment No. 1 to the Companys Registration Statement on
Form SB-2 filed on November 27, 1996, SEC Registration No.
333-14011).4.1
    (b)
    
    Rights Agreement between the Company and Computershare
Trust Company, N.A. (incorporated herein by reference to
the Companys Current report on Form 8-K filed on August
24, 2007)10.1
    
    
    First Amendment to Amended and Restated Credit Agreement,
dated August 6, 2010, between the Company and Bank of
Oklahoma, N.A. et al (incorporated herein by reference from
the Companys Current Report on Form 8-K filed on August 9,
2010).31.1
    #
    
    Certification of Chief Executive Officer (Principal
Executive Officer) pursuant to Rule 13a  14(a) or Rule 15a
- 14(a) of the Securities Exchange Act of 1934, as amended.31.2
    #
    
    Certification of Chief Financial Officer (Principal
Accounting Officer) pursuant to Rule 13a -14(a) or Rule 15a
- 14(a) of the Securities Exchange Act of 1934, as amended.32
    #
    
    Certification of Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal
Accounting Officer) pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes  Oxley Act
of 2002.
 #
    
    Filed herewith.  29