##### Table of Contents



U.S. 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 Quarterly period ended September 30, 2005
    
    Commission File Number 0-6529
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 DOUBLE EAGLE PETROLEUM CO.
  MARYLAND
(State or other jurisdiction of
incorporation or organization)
    
    83-0214692
(I.R.S. Employer
Identification No.)
 
 
 
 þ o
 o þ
 o þ




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PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsBalance Sheets as of September 30, 2005 (Unaudited)
and December 31, 2004
    
    
    4Statements of Operations for the three and nine months
ended September 30, 2005 and 2004 (Unaudited)
    
    
    5Statements of Cash Flows for the nine months
ended September 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Conditions
and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Rule 13a-14(a)/15a-14(a) Certification of CEORule 13a-14(a)/15a-14(a) Certification of CFOCertification of CEO and CFO Pursuant to Section 906
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3




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September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    580,157
    
    
    $
    3,669,950Accounts receivable
    
    
    3,318,706
    
    
    
    2,171,102Other current assets
    
    
    729,551
    
    
    
    328,677Total current assets
    
    
    4,628,414
    
    
    
    6,169,729Properties and equipmentDeveloped properties
    
    
    42,881,161
    
    
    
    32,293,958Undeveloped properties
    
    
    3,414,631
    
    
    
    3,026,168Corporate and other
    
    
    702,718
    
    
    
    624,15346,998,510
    
    
    
    35,944,279Less accumulated depreciation, depletion, amortization, and impairment
    
    
    (14,140,904
    )
    
    
    (11,185,792
    )Net properties and equipment
    
    
    32,857,606
    
    
    
    24,758,487Other assets
    
    
    56,079
    
    
    
    41,125Total assets
    
    $
    37,542,099
    
    
    $
    30,969,341LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    4,545,716
    
    
    $
    1,597,224Accrued expenses
    
    
    1,541,615
    
    
    
    2,890,630Accrued production taxes
    
    
    1,336,003
    
    
    
    971,710Total current liabilities
    
    
    7,423,334
    
    
    
    5,459,564Non current liabilitiesAsset retirement obligation
    
    
    424,552
    
    
    
    406,865Deferred tax liability
    
    
    1,503,000
    
    
    
    176,000Total non current liabilities
    
    
    1,927,552
    
    
    
    582,865Total liabilities
    
    
    9,350,886
    
    
    
    6,042,429Commitment and contingencies (Notes 5 and 6)Stockholders equityCommon stock, $.10 par value; 50,000,000 shares authorized; issued
and outstanding 8,575,604 shares at September 30, 2005 and 8,488,404 at
December 31, 2004
    
    
    857,560
    
    
    
    848,840Capital in excess of par value
    
    
    21,904,818
    
    
    
    21,224,393Retained earnings
    
    
    5,428,835
    
    
    
    2,853,679Total stockholders equity
    
    
    28,191,213
    
    
    
    24,926,912Total liabilities and stockholders equity
    
    $
    37,542,099
    
    
    $
    30,969,341
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##### Table of Contents



For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesOil and gas sales
    
    $
    5,233,012
    
    
    $
    3,259,214
    
    
    $
    14,130,785
    
    
    $
    8,827,982Sale of non-producing leases
    
    
    
    
    
    
    45,851
    
    
    
    
    
    
    
    45,851Other income
    
    
    13,770
    
    
    
    13,443
    
    
    
    38,158
    
    
    
    51,869Total revenues
    
    
    5,246,782
    
    
    
    3,318,508
    
    
    
    14,168,943
    
    
    
    8,925,702Costs and ExpensesProduction costs
    
    
    929,649
    
    
    
    588,611
    
    
    
    2,691,482
    
    
    
    1,275,457Production taxes
    
    
    682,471
    
    
    
    392,726
    
    
    
    1,644,668
    
    
    
    1,010,513Exploration expenses including dry holes
    
    
    303,930
    
    
    
    40,871
    
    
    
    389,709
    
    
    
    139,613Write-offs and abandonments
    
    
    2,899
    
    
    
    100,586
    
    
    
    43,632
    
    
    
    131,380General and administrative
    
    
    740,867
    
    
    
    388,250
    
    
    
    2,105,487
    
    
    
    1,088,471Depreciation, depletion and amortization
    
    
    1,098,512
    
    
    
    787,753
    
    
    
    3,035,810
    
    
    
    2,045,916Impairment of equipment and properties
    
    
    
    
    
    
    83,859
    
    
    
    357,000
    
    
    
    155,321Total costs and expenses
    
    
    3,758,328
    
    
    
    2,382,656
    
    
    
    10,267,788
    
    
    
    5,846,671Income from operations
    
    
    1,488,454
    
    
    
    935,852
    
    
    
    3,901,155
    
    
    
    3,079,031Other expense
    
    
    
    
    
    
    
    
    
    
    (6,854
    )
    
    
    Interest income (expense), net
    
    
    (11,925
    )
    
    
    5,509
    
    
    
    7,855
    
    
    
    12,460Income before income taxes
    
    
    1,476,529
    
    
    
    941,361
    
    
    
    3,902,156
    
    
    
    3,091,491Provision for deferred taxes
    
    
    (502,000
    )
    
    
    (175,000
    )
    
    
    (1,327,000
    )
    
    
    (175,000
    )Net income
    
    $
    974,529
    
    
    $
    766,361
    
    
    $
    2,575,156
    
    
    $
    2,916,491Net income per common share  basic
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34Net income per common share  diluted
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34Weighted average shares outstanding  basic
    
    
    8,575,604
    
    
    
    8,482,741
    
    
    
    8,558,018
    
    
    
    8,463,765Weighted average shares outstanding  diluted
    
    
    8,764,472
    
    
    
    8,599,795
    
    
    
    8,632,579
    
    
    
    8,596,506
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For the nine months endedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    2,575,156
    
    
    $
    2,916,491Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation, depletion, amortization and accretion of asset
retirement obligation
    
    
    3,049,710
    
    
    
    2,215,787Abandonment of non-producing properties
    
    
    40,732
    
    
    
    131,380Impairment of equipment
    
    
    357,000
    
    
    
    Deferred income taxes
    
    
    1,327,000
    
    
    
    175,000Directors fees paid in stock
    
    
    160,286
    
    
    
    54,240Loss (gain) on sale of assets
    
    
    6,854
    
    
    
    (45,851
    )Decrease (increase) in operating assets and liabilities:Accounts receivable
    
    
    (1,147,604
    )
    
    
    (625,348
    )Other current assets
    
    
    (400,874
    )
    
    
    (152,015
    )Accounts payable and accrued expenses
    
    
    528,477
    
    
    
    1,011,226Accrued production taxes
    
    
    364,293
    
    
    
    440,459Net cash provided by operating activities
    
    
    6,861,030
    
    
    
    6,121,369Cash flows from investing activities:Proceeds from sales of properties and assets
    
    
    290,933
    
    
    
    173,543Other assets
    
    
    (14,954
    )
    
    
    10,000Additions of producing properties and equipment
    
    
    (10,212,416
    )
    
    
    (6,180,108
    )Additions of corporate and non-producing properties
    
    
    (543,245
    )
    
    
    (95,747
    )Net cash used in investing activities
    
    
    (10,479,682
    )
    
    
    (6,092,312
    )Cash flows from financing activities:Exercise of options and warrants
    
    
    528,859
    
    
    
    707,762Net borrowings on line of credit
    
    
    
    
    
    
    (22,197
    )Net cash provided by financing activities
    
    
    528,859
    
    
    
    685,565Increase (decrease) in cash and cash equivalents
    
    
    (3,089,793
    )
    
    
    714,622Cash and cash equivalents at beginning of period
    
    
    3,669,950
    
    
    
    2,920,846Cash and cash equivalents at end of period
    
    $
    580,157
    
    
    $
    3,635,468Supplemental disclosures of cash and non-cash transactions:Cash paid for interest
    
    $
    9,139
    
    
    $
    503Additions to developed properties included in accounts payable
    
    $
    4,060,000
    
    
    $
    Additions to developed properties for retirement obligations
    
    $
    3,787
    
    
    $
    Directors fees paid in stock
    
    $
    160,286
    
    
    $
    54,240
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1.
    
    Summary of Significant Accounting Policies
  Stock-Based Compensation
   For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income as reported
    
    $
    974,591
    
    
    $
    766,361
    
    
    $
    2,575,156
    
    
    $
    2,916,491Add: stock-based compensation
included in reported net income
    
    
    6,400
    
    
    
    6,400
    
    
    
    179,486
    
    
    
    73,440Deduct: stock-based compensation
cost under SFAS 123
    
    
    (108,473
    )
    
    
    (65,200
    )
    
    
    (671,352
    )
    
    
    (215,540
    )Pro forma net income
    
    $
    872,518
    
    
    $
    707,561
    
    
    $
    2,083,290
    
    
    $
    2,774,391Pro forma basic and diluted net income per
share:Reported net income per common share  basic
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34Reported net income per common share 
diluted
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34Pro forma net income per common share  basic
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.24
    
    
    $
    0.33Pro forma net income per common share 
diluted
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.24
    
    
    $
    0.33
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For the nine months endedSeptember 30,2005
    
    2004Volatility
    
    
    42
    %
    
    
    51
    %Expected term of options (in years)
    
    
    3-8
    
    
    
    5Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk free interest rate
    
    
    3.5
    %
    
    
    3.9
    %
 2.
    
    Earnings per share
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Income (numerator)Net Income  basic
    
    $
    975
    
    
    $
    766
    
    
    $
    2,575
    
    
    $
    2,916Net Income  diluted
    
    $
    975
    
    
    $
    766
    
    
    $
    2,575
    
    
    $
    2,916Weighted average shares
(denominator)Weighted average shares  basic
    
    
    8,576
    
    
    
    8,483
    
    
    
    8,558
    
    
    
    8,464Dilutive effect of stock options
outstanding at the end of period
    
    
    188
    
    
    
    117
    
    
    
    75
    
    
    
    133Weighted average shares  diluted
    
    
    8,764
    
    
    
    8,600
    
    
    
    8,633
    
    
    
    8,597Earnings per share:Basic
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34Diluted
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.34
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3.
    
    Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
  4.
    
    Income Taxes
   For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Expected federal tax rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %Change in valuation
allowance
and other
    
    
    
    
    
    
    (15
    %)
    
    
    
    
    
    
    (28
    %)Effective tax rate
    
    
    34
    %
    
    
    19
    %
    
    
    34
    %
    
    
    6
    %
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5.
    
    Line of Credit
  6.
    
    Subsequent Event
  10




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OVERVIEW
    
    
    Daily production increased 27% to 8,556 mcfe per day during the first nine months
of 2005, as compared to 6,729 mcfe per day during the first nine months of 2004. The
increase in production is attributed to higher gas flow rates from the drilling and
completion of successful wells in our Cow Creek field and the Mesa field in 2004, as
well as new wells drilled at the Mesa field in 2005 that came on line during the third
quarter of 2005.
    
    Oil and gas revenues increased 60% to $14.1 million during the nine months ended
September 30, 2005 from $8.8 million during the same period in 2004. The change is
attributed to a 27% increase in daily production volumes and 26% increase in gas
prices.
    
    Net cash provided by operating activities increased 13%, to $6.9 million in the
first nine months of 2005 from $6.1 million in the first nine months of 2004.
    
    We incurred $11.8 million in capital costs during the first nine months of
2005. The spending related primarily to the further development of our coal bed
methane projects in the Eastern Washakie Basin, our participation in the development
drilling on the Pinedale Anticline, and costs associated with the Companys new
pipeline currently under construction.
 FACTORS AFFECTING FINANCIAL CONDITION AND LIQUIDITY
 Liquidity and Capital Resources
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Capital Requirements
  Line of Credit
  12




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RESULTS OF OPERATIONS
 Nine months ended September 30, 2005 compared to nine months ended September 30, 2004
  Nine months ended
    
    Nine months ended
    
    Percent
    
    PercentSeptember 30, 2005
    
    September 30, 2004
    
    Volume
    
    PriceProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Change
    
    ChangeGas (mcf) (Mcf)
    
    
    2,266,519
    
    
    $
    5.98
    
    
    
    1,763,207
    
    
    $
    4.74
    
    
    
    +29
    %
    
    
    +26
    %Oil (bbls)
    
    
    11,545
    
    
    $
    49.18
    
    
    
    13,413
    
    
    $
    34.79
    
    
    
    -14
    %
    
    
    +41
    %Mcfe
    
    
    2,335,786
    
    
    $
    6.05
    
    
    
    1,843,685
    
    
    $
    4.79
    
    
    
    +27
    %
    
    
    +26
    %
  $ Per mcfe2005
    
    
    2004Average price
    
    $
    6.05
    
    
    $
    4.79Production costs
    
    
    1.15
    
    
    
    .69Production taxes
    
    
    .70
    
    
    
    .55Depreciation, depletion, amortization
    
    
    1.30
    
    
    
    1.11Total operating costs
    
    
    3.15
    
    
    
    2.35Gross margin
    
    $
    2.90
    
    
    $
    2.44Gross margin percentage
    
    
    48
    %
    
    
    51
    %
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Double
Eagle Sales Contracts
 Daily
    
    
    
    
    
    AverageProperty
    
    Volume
    
    Production
    
    Term
    
    Price ($)Cow Creek
    
    
    395,000
    
    
    
    1,000
    
    
    
    11/04-10/06
    
    
    $
    5.5061,500
    
    
    
    500
    
    
    
    02/05-01/06
    
    
    
    5.30547,000
    
    
    
    1,000
    
    
    
    04/05-03/07
    
    
    
    6.00Total Cow Creek
    
    
    1,003,500Mesa
    
    
    31,000
    
    
    
    1,000
    
    
    
    11/04-10/05
    
    
    $
    5.8061,500
    
    
    
    500
    
    
    
    02/05-01/06
    
    
    
    5.30Total Mesa
    
    
    92,500Company Total
    
    
    1,096,000
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Quarter ended September 30, 2005 compared with the quarter ended September 30, 2004
  New Accounting Pronouncements
 Stock-Based Compensation
 Financial Accounting and Reporting by Oil and Gas
Producing Companies
 Accounting Changes and Error Corrections
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Accounting for Conditional Asset
Retirement Obligations Accounting for Asset
Retirement Obligations.
   Reserve Estimates
   
    
    the amount and timing of actual production
    
    supply and demand for natural gas
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
    
    curtailments or increases in consumption by natural gas purchasers
    
    changes in governmental regulations or taxation
 Oil and Gas Properties
  Stock Based Compensation
  17




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Interest Rate Risks
  Commodity Price Risks
   
   18




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Exhibit No.31.1
    
    Rule 13a-14(a)/15a-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15a-14(a) Certification of Chief Financial Officer32
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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DOUBLE EAGLE PETROLEUM CO.(Registrant)By:
    
    /s/ David C. MilholmDavid C. MilholmVice President of Finance andChief Financial Officer(Principal Financial Officer)
  20




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Exhibit No.31.1
    
    Rule 13a-14(a)/15a-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15a-14(a) Certification of Chief Financial Officer32
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.