##### 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 quarterly period ended June 30, 2006
 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 0-6529
 DOUBLE EAGLE PETROLEUM CO.
  MARYLAND
    
    83-0214692(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. employer
identification no.)777 Overland Trail, P.O. Box 766, Casper, Wyoming
(Address of principal executive offices)
    
    82602
(Zip code)
 307-237-9330
 
 þ o
  o þ o
 o þ
  Class
Common stock, $.10 par value
    
    Outstanding as of July 31, 2006
8,639,604




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##### 



PagePART I. Financial Information:Item 1. Financial StatementsConsolidated Balance Sheet as of June 30, 2006 (Unaudited)
and December 31, 2005
    
    
    3Consolidated Statement of Operations for the three months and six months
ended June 30, 2006 and 2005 (Unaudited)
    
    
    4Consolidated Statement of Cash Flows for the six months
ended June 30, 2006 and 2005 (Unaudited)
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II. Other Information:Item 1A. Risk Factors
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    21Debt Modification AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer and Chief Financial Officer
  2




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ITEM 1. FINANCIAL STATEMENTS
 DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED BALANCE SHEET
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,386
    
    
    $
    1,430,977Cash held in escrow
    
    
    2,460,869
    
    
    
    Accounts receivable
    
    
    2,816,262
    
    
    
    4,247,573Other current assets
    
    
    339,527
    
    
    
    217,703Total current assets
    
    
    5,639,044
    
    
    
    5,896,253Oil and gas properties and equipment, successful efforts method:Developed properties
    
    
    45,767,868
    
    
    
    41,145,800Wells in progress
    
    
    3,188,601
    
    
    
    2,946,260Gas transportation pipeline
    
    
    5,379,341
    
    
    
    5,378,589Undeveloped properties
    
    
    3,251,809
    
    
    
    3,212,955Corporate and other assets
    
    
    1,001,896
    
    
    
    748,43258,589,515
    
    
    
    53,432,036Less accumulated depreciation, depletion and amortization
    
    
    (17,337,460
    )
    
    
    (15,173,628
    )Net properties and equipment
    
    
    41,252,055
    
    
    
    38,258,408Other assets
    
    
    56,079
    
    
    
    56,079TOTAL ASSETS
    
    $
    46,947,178
    
    
    $
    44,210,740LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,505,063
    
    
    $
    2,009,527Accrued expenses
    
    
    4,653,795
    
    
    
    5,033,521Accrued production taxes
    
    
    1,668,522
    
    
    
    1,657,164Total current liabilities
    
    
    8,827,380
    
    
    
    8,700,212Line of credit
    
    
    3,190,181
    
    
    
    3,000,000Asset retirement obligation
    
    
    586,052
    
    
    
    513,272Deferred tax liability
    
    
    2,813,000
    
    
    
    2,219,000Total liabilities
    
    
    15,416,613
    
    
    
    14,432,484Stockholders equity:Common stock, $0.10 par value; 50,000,000 shares authorized;
8,639,604 and 8,590,604 shares issued and outstanding as of June 30,
2006 and December 31, 2005, respectively
    
    
    863,960
    
    
    
    859,060Additional paid-in capital
    
    
    22,746,375
    
    
    
    22,100,867Retained earnings
    
    
    7,920,230
    
    
    
    6,818,329Total stockholders equity
    
    
    31,530,565
    
    
    
    29,778,256TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    46,947,178
    
    
    $
    44,210,740
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DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED STATEMENT OF OPERATIONS
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesOil and gas sales
    
    $
    4,052,380
    
    
    $
    4,333,823
    
    
    $
    8,645,571
    
    
    $
    8,897,773Other income, net
    
    
    21,795
    
    
    
    13,200
    
    
    
    35,355
    
    
    
    17,534Total revenues
    
    
    4,074,175
    
    
    
    4,347,023
    
    
    
    8,680,926
    
    
    
    8,915,307Costs and expensesProduction costs
    
    
    807,876
    
    
    
    931,171
    
    
    
    1,683,652
    
    
    
    1,761,833Production taxes
    
    
    495,225
    
    
    
    471,154
    
    
    
    1,018,363
    
    
    
    962,197Exploration expenses including dry holes
    
    
    60,432
    
    
    
    25,221
    
    
    
    92,020
    
    
    
    85,778Write-offs and abandonments
    
    
    13,926
    
    
    
    23,557
    
    
    
    13,926
    
    
    
    40,732General and administrative
    
    
    1,080,660
    
    
    
    775,188
    
    
    
    1,949,054
    
    
    
    1,364,620Depreciation, depletion and amortization of
oil and gas properties
    
    
    1,167,197
    
    
    
    953,952
    
    
    
    2,163,832
    
    
    
    1,937,298Impairment of equipment and properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357,000Total costs and expenses
    
    
    3,625,316
    
    
    
    3,180,243
    
    
    
    6,920,847
    
    
    
    6,509,458Income from operations
    
    
    448,859
    
    
    
    1,166,780
    
    
    
    1,760,079
    
    
    
    2,405,849Interest (expense) income, net
    
    
    (43,157
    )
    
    
    9,334
    
    
    
    (64,178
    )
    
    
    19,779Net income before income taxes
    
    
    405,702
    
    
    
    1,176,114
    
    
    
    1,695,901
    
    
    
    2,425,628Provision for deferred taxes
    
    
    (142,000
    )
    
    
    (400,000
    )
    
    
    (594,000
    )
    
    
    (825,000
    )NET INCOME
    
    $
    263,702
    
    
    $
    776,114
    
    
    $
    1,101,901
    
    
    $
    1,600,628Net income per common share:Basic
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.13
    
    
    $
    0.19Diluted
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.13
    
    
    $
    0.19Weighted average shares outstanding:Basic
    
    
    8,633,033
    
    
    
    8,562,283
    
    
    
    8,624,908
    
    
    
    8,548,559Diluted
    
    
    8,658,798
    
    
    
    8,624,999
    
    
    
    8,651,211
    
    
    
    8,621,980
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DOUBLE EAGLE PETROLEUM CO.
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
  Six months ended June 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,101,901
    
    
    $
    1,600,628Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation, depletion, amortization and
accretion of asset retirement obligation
    
    
    2,208,143
    
    
    
    1,946,448Abandonment of non-producing properties
    
    
    13,926
    
    
    
    40,732Impairment of equipment
    
    
    
    
    
    
    357,000Deferred income taxes
    
    
    594,000
    
    
    
    825,000Directors fees paid in stock
    
    
    96,660
    
    
    
    160,286Non-cash employee stock option expense
    
    
    332,918
    
    
    
    Other
    
    
    
    
    
    
    6,854Changes in assets and liabilities:(Increase) in deposit held in escrow
    
    
    (2,460,869
    )
    
    
    Decrease in accounts receivable
    
    
    1,431,311
    
    
    
    219,294(Increase) decrease in other current assets
    
    
    (121,824
    )
    
    
    27,893Increase (decrease) in accounts payable
    
    
    683,384
    
    
    
    (332,197
    )Increase (decrease) in accrued expenses
    
    
    2,987,607
    
    
    
    (25,303
    )Increase in accrued production taxes
    
    
    11,358
    
    
    
    211,289NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    6,878,515
    
    
    
    5,037,924Cash flows from investing activities:Proceeds from sales of properties and assets
    
    
    
    
    
    
    10,933Other assets
    
    
    
    
    
    
    (24,953
    )Additions of producing properties and equipment
    
    
    (8,391,873
    )
    
    
    (6,199,771
    )Additions of corporate and non-producing
properties
    
    
    (306,244
    )
    
    
    (309,116
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (8,698,117
    )
    
    
    (6,522,907
    )Cash flows from financing activities:Exercise of options
    
    
    325,150
    
    
    
    509,595Settlement of options
    
    
    (104,320
    )
    
    
    Net borrowings on line of credit
    
    
    190,181
    
    
    
    NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    411,011
    
    
    
    509,595Change in cash and cash equivalents
    
    
    (1,408,591
    )
    
    
    (975,388
    )Cash and cash equivalents at beginning of period
    
    
    1,430,977
    
    
    
    3,669,950CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    22,386
    
    
    $
    2,694,562Supplemental disclosure of cash and non-cash transactions:Cash paid for interest
    
    $
    161,135
    
    
    $
    Additions to developed properties included in
current liabilities
    
    $
    1,202,820
    
    
    $
    1,200,000Additions to developed properties for
retirement obligations
    
    $
    28,469
    
    
    $
    3,787Directors fees paid in stock
    
    $
    96,660
    
    
    $
    160,286Stock option expense
    
    $
    332,918
    
    
    $
    
  5




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DOUBLE EAGLE PETROLEUM CO.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    
    Summary of Significant Accounting PoliciesBasis of presentationThe accompanying unaudited interim consolidated financial statements were prepared by Double
Eagle Petroleum Co. (Double Eagle or the Company) pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and note disclosures
normally included in the annual consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or
omitted as allowed by such rules and regulations. These consolidated financial statements
include all of the adjustments, which, in the opinion of management, are necessary to a fair
presentation of financial position and results of operations. All such adjustments are of a
normal recurring nature only, except for the impairment charge noted below. The results of
operations for the interim periods are not necessarily indicative of the results to be expected
for the full fiscal year. The consolidated financial statements should be read in conjunction
with the audited financial statements and the notes thereto for the year ended December 31,
2005, included in the Companys Annual Report on Form 10-K filed with the SEC.On February 10, 2006, Eastern Washakie Midstream LLC was formed as a wholly owned subsidiary of
Double Eagle Petroleum Co. In the second quarter of 2006, the assets held by Double Eagle
Petroleum Co. related to the then-recently completed 13-mile intrastate gas pipeline connecting
the Cow Creek field with Southern Star Central Gas Pipeline, Inc. were transferred to the newly
formed entity. As a result, beginning in the second quarter of fiscal year 2006, Double Eagle
has presented unaudited consolidated financial statements to reflect the consolidation of the
two entities for reporting purposes. The total cost of the newly operational pipeline was $5.4
million. Depreciation is recorded using the straight line method over a 25 year estimated useful
life.Certain amounts in the 2005 unaudited financial statements were reclassified to conform to the
2006 unaudited consolidated financial statement presentation.The accounting policies followed by the Company are set forth in Note 2 to the Companys
consolidated financial statements in the Form 10-K for the year ended December 31, 2005 and are
supplemented throughout the notes to this quarterly report on From 10-Q. The interim
consolidated financial statements presented herein should be read in conjunction with the
financial statements and notes included in the Form 10-K for the year ended December 31, 2005.New accounting pronouncementsIn February 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards 155  Accounting for Certain Hybrid Financial Instruments (SFAS
155), which eliminates the exemption from applying SFAS 133 to interests in securitized
financial assets so that similar instruments are accounted for similarly regardless of the form
of the instruments. SFAS 155 also allows the election of fair value measurement at acquisition,
at issuance, or when a previously recognized financial instrument is subject to a re-measurement
event. Adoption is effective for all financial instruments acquired or issued after the
beginning of the first fiscal year that begins after September 15, 2006. The adoption of SFAS
155 is not expected to have a material effect on the Companys financial position, results of
operations or cash flows.In March 2006, the FASB issued Statement of Financial Accounting Standards 156  Accounting for
Servicing of Financial Assets (SFAS 156), which requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value. SFAS 156 also permits,
but does not require, the subsequent measurement of servicing assets and servicing liabilities
measured at fair value with changes in fair value reported in earnings. Adoption is required as
of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of
SFAS 156 is not expected to have a material effect on the Companys financial position, results
of operations or cash flows.2.
    
    Share-Based PaymentsDouble Eagle has outstanding stock options issued to certain employees under four stock option
plans, approved by the Companys shareholders (collectively the Stock Option Plans). On
occasion, the Board of Directors also grants stock options not covered under the plans approved
by the shareholders to individuals that perform services for the Company. Options were granted
with an exercise price equal to the market price of Double Eagles stock on the date of grant,vest annually over various periods from two to five years of continuous service, and expire over
various periods up to ten years from the date of grant.
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Effective January 1, 2006, Double Eagle adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004)  Share-Based Payment (SFAS No. 123(R)), which
requires the measurement and recognition of compensation expense for all share-based payment
awards (including stock options) made to employees and directors based on estimated fair value.
The Company previously accounted for the plans under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB No. 25), and related interpretations and
disclosure requirements established by SFAS No. 123  Accounting for Stock-Based Compensation,
as amended by SFAS No. 148  Accounting for Stock-Based Compensation  Transition and
Disclosure. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107),
relating to SFAS No. 123(R). Double Eagle considered the guidance of SAB 107 in our adoption of
SFAS 123 (R).Under APB No. 25, no compensation expense was recorded for Double Eagles stock options issued
under the qualified plans. The pro forma effects on net income and earnings per share for
qualified stock options were disclosed in a footnote to the financial statements. Under APB No.
25, compensation expense for non-qualified stock options with stock appreciation rights features
was recorded utilizing the market price of Double Eagles stock at each period-end to determine
the vested intrinsic value of the stock appreciation rights.Under SFAS No. 123(R), compensation expense for equity-classified awards, such as Double Eagles
stock options issued under the qualified plan, is measured at the grant date based on the fair
value of the award and is recognized as an expense in earnings over the requisite service period
using a graded vesting method.The Company adopted SFAS No. 123(R) using the modified prospective transition method. Under this
transition method, compensation cost recognized in the first two quarters of 2006 includes the
cost for options vested during the period which were granted prior to January 1, 2006, as
determined under the provisions of SFAS No. 123(R). There was no cumulative effect of the
impact of adoption of SFAS No. 123(R) on liability-classified awards to the consolidated
financial statements. Results for prior periods have not been restated. Total share-based
compensation expense for vested equity-classified awards in the three and six months ended June
30, 2006, was approximately $221,000 and $333,000, respectively, and is reflected in General
and Administrative expense in the Consolidated Statement of Operations. There was no impact on
income tax expense. Total estimated unrecognized compensation expense from unvested stock
options, as of June 30, 2006, was approximately $1.4 million, which is expected to be recognized
over a weighted average period of 1.8 years.The Company uses the Black-Scholes valuation model to determine the fair value of each option
award. Expected volatilities are based on the historical volatility of Double Eagles stock over
a period consistent with that of the expected terms of the options. The expected terms of the
options are estimated based on factors such as vesting periods, contractual expiration dates,
historical trends in Double Eagles stock price and historical exercise behavior. The risk-free
rates for periods within the contractual life of the options are based on the yields of U.S.
Treasury instruments with terms comparable to the estimated option terms. The following
assumptions were used in estimating fair value of share-based awards for the periods indicated:
 Three Months Ended
    
    Year Ended DecemberJune 30, 2006
    
    31, 2005Weighted-average volatility
    
    
    41
    %
    
    
    42
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Expected term (in years)
    
    
    1.5
    
    
    
    5.0Risk-free rate
    
    
    5.02
    %
    
    
    3.50
    %
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Three months ended
    
    
    Six months endedJune 30, 2005
    
    
    June 30, 2005Net income, as reported
    
    $
    776,114
    
    
    $
    1,600,628Add: Share-based employee
compensation expense
included in reported net
income
    
    
    6,400
    
    
    
    12,800Deduct: Total share-based
employee compensation
expense determined under
the fair value based
method for all awards
    
    
    (213,000
    )
    
    
    (401,000
    )Pro forma net income
    
    $
    569,514
    
    
    $
    1,212,428Basic Earnings Per Share:As reported
    
    $
    .09
    
    
    $
    .19Pro forma
    
    $
    .07
    
    
    $
    .14Diluted Earnings Per Share:As reported
    
    $
    .09
    
    
    $
    .19Pro forma
    
    $
    .07
    
    
    $
    .14
  Weighted-Weighted-
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicOptions
    
    Shares
    
    Price
    
    Term (Years)
    
    ValueOutstanding at January 1, 2006
    
    
    354,243
    
    
    $
    15.38
    
    
    
    3.78Options granted
    
    
    15,000
    
    
    $
    16.21
    
    
    
    Options exercised
    
    
    (43,000
    )
    
    $
    7.55
    
    
    
    Options cancelled / expired
    
    
    (66,743
    )
    
    $
    15.12
    
    
    
    Outstanding at June 30, 2006
    
    
    259,500
    
    
    $
    16.67
    
    
    
    3.94
    
    
    $
    226,850Exercisable at June 30, 2006
    
    
    103,500
    
    
    $
    16.53
    
    
    
    3.65
    
    
    $
    107,250
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OptionsOutstandingWeightedAverage
    
    
    
    
    
    
    Options ExerciseableNumber of
    
    
    Remaining
    
    
    Weighted
    
    
    Number of
    
    
    WeightedOptions
    
    
    Contractual Life
    
    
    Average
    
    
    Options
    
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    
    (in years)
    
    
    Exercise Price
    
    
    Exerciseable
    
    
    Exercise Price$14.00 - $16.21
    
    
    105,000
    
    
    
    5.2
    
    
    $
    12.00
    
    
    
    54,000
    
    
    $
    14.61$18.01 - $19.44
    
    
    154,500
    
    
    
    3.4
    
    
    $
    18.71
    
    
    
    49,500
    
    
    $
    16.77259,500
    
    
    
    4.4
    
    
    $
    15.35
    
    
    
    103,500
    
    
    $
    16.51
 3.
    
    Earnings per shareBasic earnings per share (EPS) is calculated by dividing net income (the numerator) by the
weighted average number of shares of common stock outstanding during the period (the
denominator). Diluted earnings per share incorporates the dilutive impact of outstanding stock
options by including the effect of outstanding vested and unvested options in the average number
of common shares outstanding during the period.The following is the calculation of basic and diluted weighted average shares outstanding and
EPS for the indicated periods:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (numerator)
    
    $
    263,702
    
    
    $
    776,114
    
    
    $
    1,101,901
    
    
    $
    1,600,628Weighted average shares (denominator):Weighted average shares  basic
    
    
    8,633,033
    
    
    
    8,562,283
    
    
    
    8,624,908
    
    
    
    8,548,559Dilution effect of stock options
outstanding at the end of period
    
    
    25,765
    
    
    
    62,716
    
    
    
    26,303
    
    
    
    73,421Weighted average shares  diluted
    
    
    8,658,798
    
    
    
    8,624,999
    
    
    
    8,651,211
    
    
    
    8,621,980Earnings per share:Basic
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.13
    
    
    $
    0.19Diluted
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.13
    
    
    $
    0.19
 4.
    
    Impairment of Long-Lived AssetsStatement of Financial Accounting Standards 144  Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144) requires that an asset be evaluated for impairment when the
carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows of
the asset. In accordance with the provisions of SFAS 144, the Company reviews the carrying
values of its long-lived assets whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. If, upon review, the sum of the undiscounted pretax
cash flows is less than the carrying value of the asset group, the carrying value is written
down to estimated fair value.Individual assets are grouped for impairment purposes at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other groups of
assets, generally on a field-by-field basis. The fair value of impaired assets is determined
based on quoted market prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the risks involved in the
asset group. The long-lived assets of the Company, which are subject to evaluation, consist
primarily of oil and gas properties. During the first quarter of 2005, the Company recognized a
non-cash charge of $357,000 on electrical generating equipment at Cow Creek field that was
replaced in the second quarter of 2005. During the six months ended June 30, 2006, the Company
did not recognize any impairments.
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##### Table of Contents



5.
    
    Income TaxesAt December 31, 2005, the Company had a net operating loss carry forward for regular income
tax reporting purposes of approximately $12.4 million that will begin expiring in 2007.
Although Double Eagle is required to record income tax expense for financial reporting purposes,
we do not anticipate any payments of current tax liabilities in the near future as a result of
our net operating loss carry forward.A reconciliation of the Companys effective tax rate to the expected federal tax rate is as
follows:
 For the six months endedJune 30,2006
    
    2005Expected federal tax rate
    
    
    35
    %
    
    
    34
    %Change in valuation allowance and other
    
    
    
    
    
    
    Effective tax rate
    
    
    35
    %
    
    
    34
    %
 6. Line of Credit
   7. Cash Held in Escrow
  10




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 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 the risk factors described in Item 1A. of
Part I of our 2005 Annual Report on Form 10-K and in Item 1A. of Part II of this Quarterly Report
on Form 10-Q filed with the SEC, and the following:
 
    
    Our ability to obtain, or a decline in, oil or gas production, or a decline in oil or gas prices;
    
    Incorrect estimates of required capital expenditures;
    
    Increases in the cost of drilling, completion and gas collection or other costs of production and
operations ;
    
    Our ability to meet growth projections;
    
    The amount and timing of capital deployment in new investment opportunities;
    
    The volumes of production from our oil and gas development properties, which may be dependent upon
issuance by federal, state, and tribal governments, or agencies thereof, of drilling, environmental and other permits, and
the availability of specialized contractors, work force, and equipment;
    
    Our ability to successfully integrate and profitably operate any future acquisitions;
    
    The possibility that we may be required to take impairment charges to reduce the carrying value of
some of our long-lived assets when indicators of impairment emerge;
    
    Numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual
future production rates and associated costs;
    
    Our ability to remedy any deficiencies that may be identified in the review of our internal controls;
    
    General economic and political conditions, including tax rates or policies and inflation rates;
    
    Changes in or compliance with laws and regulations, particularly those relating to taxation, safety
and protection of the environment;
    
    Weather and other natural phenomena;
    
    Industry and market changes, including the impact of consolidations and changes in competition;
    
    The effect of accounting policies issued periodically by accounting standard-setting bodies;
    
    The cost and effects on our business, including insurance, resulting from terrorist actions or
natural disasters and responses to such actions or events; and
    
    The outcome of any future litigation or similar disputes and the impact on any such outcome or
related settlements.
 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.
 The following discussion should be read in conjunction with Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations  included in our 2005 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
 11




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##### Table of Contents



Business Overview and Strategy
    
    
    During the quarter ended June 30, 2006, average daily production increased 6% to
8,506 mcfe per day, as compared to 8,058 mcfe per day during the same prior year
period. At Cow Creek, well maintenance and repairs, completed during the second
quarter, have increased our net average daily production by 6% to 4,835 mcfe per day
during the quarter ended June 30, 2006, compared to 4,567 mcfe per day during the
quarter ended June 30, 2005. Average daily production decreased 8% to 7,817 mcfe per
day during the first six months of 2006, as compared to 8,512 mcfe per day during the
same period in 2005. The decrease is primarily due to lowered production at Cow Creek
and Mesa in the first quarter of 2006. Cow Creeks decrease in production resulted
from operational issues experienced in the first quarter of 2006 on three significant
wells, which were resolved during the second quarter. At Mesa, the operator has
represented to us that new drilling is scheduled later in 2006 to increase production.
Our other properties, which make up approximately 10% of our production, have
increased their average daily production volumes by 13% in the first half of 2006
compared to the same period in 2005 to 837 mcfe.
    
    During the quarter ended June 30, 2006, oil and gas sales decreased 6% to $4.05
million, compared to $4.33 million during the quarter ended June 30, 2005. The
decrease in total revenue in the second quarter of fiscal 2006 was driven largely by
lower gas prices at Mesa resulting from competition in the marketplace, which was
partially offset by increased revenues from increased production at Cow Creek. Oil
and gas sales were $8.6 million and $8.9 million for the six months ended June 30,
2006 and June 30, 2005, respectively, which represents a decrease of 3%. The decrease
in total revenue during the six months ended June 30, 2006 occurred during the second
quarter and relates to the items discussed in the above comments.
    
    Net cash provided by operating activities increased
approximately 38% to $6.89 million in the first six months of 2006
from $5.04 million in the first six months of
2005. Although net income was down approximately $500,000, more than $300,000 of that
amount resulted from a non-cash charge to income related to the implementation of SFAS
No. 123(R) and more than $200,000 of additional depreciation related primarily to
beginning the operation of our Eastern Washakie Midstream pipeline. Net cash provided
by operating activities increased largely due to collections of accounts receivable
and an increase in accrued expenses. The increase was offset, in part, by escrow
deposits received from third party working interest owners in the Christmas Meadows
exploration project totaling $2.5 million. This amount represents prepayments of the
expected total capital expenditures of the project received to date.
    
    In early January, 2006, we began transporting our equity gas through our recently
completed intrastate gas pipeline connecting the Cow Creek field with Southern Star
Central Gas Pipeline, Inc. The 13-mile pipeline provides us with full access to the
interstate gas markets from southern Wyoming. The pipeline was constructed at a cost
of approximately $5.4 million and will provide reliable transportation for future
development by us in the Eastern Washakie Basin.
 12




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##### Table of Contents



OVERVIEW OF FINANCIAL CONDITION AND LIQUIDITY
 Liquidity and Capital Resources
 Overview
   June 30,
    
    December 31,2006
    
    2005Financial Position SummaryCash and cash equivalents
    
    $
    22,386
    
    
    $
    1,430,977Working capital
    
    
    (3,188,336
    )
    
    
    (2,803,959
    )Line of credit outstanding
    
    
    3,190,181
    
    
    
    3,000,000Stockholders equity
    
    
    31,530,565
    
    
    
    29,778,256RatiosLong-term debt to total capital ratio
    
    
    9.2
    %
    
    
    9.2
    %Total debt to equity ratio
    
    
    10.1
    %
    
    
    10.1
    %
  Cash flow activities
  Six months ended June 30,2006
    
    
    2005Cash provided by (used in):Operating Activities
    
    
    6,878,515
    
    
    
    5,037,924Investing Activities
    
    
    (8,698,117
    )
    
    
    (6,522,907
    )Financing Activities
    
    
    411,011
    
    
    
    509,595Net change in cash
    
    $
    (1,408,591
    )
    
    $
    (975,388
    )
   13




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##### Table of Contents



Off-Balance Sheet Financing
  Capital Requirements
   Line of Credit
   
    
    A current ratio, plus the line of credit availability, of 1:1.
   14




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##### Table of Contents



RESULTS OF OPERATIONS
 Three months ended June 30, 2006 compared to the three months ended June 30, 2005
 Oil and gas sales volume and price comparisons
 Three Months Ended June 30,
    
    Percent
    
    Percent2006
    
    2005
    
    Volume
    
    PriceProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Change
    
    ChangeGas (mcf)
    
    
    750,947
    
    
    $
    5.08
    
    
    
    712,587
    
    
    $
    5.83
    
    
    
    +5
    %
    
    
    -13
    %Oil (bbls)
    
    
    3,849
    
    
    $
    62.66
    
    
    
    3,445
    
    
    $
    51.60
    
    
    
    +12
    %
    
    
    +21
    %Mcfe
    
    
    774,041
    
    
    $
    5.24
    
    
    
    733,257
    
    
    $
    5.91
    
    
    
    +6
    %
    
    
    -11
    %
  Oil and gas production expenses, depreciation, depletion and amortization
 Three Months Ended June 30,2006
    
    
    2005(in dollars per mcfe)Average price
    
    $
    5.24
    
    
    $
    5.91Production costs
    
    
    1.04
    
    
    
    1.27Production taxes
    
    
    .64
    
    
    
    .64Depletion and amortization
    
    
    1.26
    
    
    
    1.15Total operating costs
    
    
    2.94
    
    
    
    3.06Gross margin
    
    $
    2.30
    
    
    $
    2.85Gross margin percentage
    
    
    44
    %
    
    
    48
    %
   15




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##### Table of Contents



General and administrative
  Income taxes
  Six months ended June 30, 2006 compared to the six months ended June 30, 2005
 Oil and gas sales volume and price comparisons
 Six Months Ended June 30,
    
    Percent
    
    Percent2006
    
    2005
    
    Volume
    
    PriceProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Change
    
    ChangeGas (mcf)
    
    
    1,368,844
    
    
    $
    5.99
    
    
    
    1,494,352
    
    
    $
    5.72
    
    
    
    -8
    %
    
    
    +5
    %Oil (bbls)
    
    
    7,685
    
    
    $
    58.35
    
    
    
    7,707
    
    
    $
    46.10
    
    
    
    
    
    
    
    +27
    %Mcfe
    
    
    1,414,954
    
    
    $
    6.11
    
    
    
    1,540,594
    
    
    $
    5.78
    
    
    
    -8
    %
    
    
    +6
    %
  16




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##### Table of Contents



Oil and gas production expenses, depreciation, depletion and amortization
 Six Months Ended June 30,2006
    
    
    2005(in dollars per mcfe)Average price
    
    $
    6.11
    
    
    $
    5.78Production costs
    
    
    1.19
    
    
    
    1.14Production taxes
    
    
    .72
    
    
    
    .62Depletion and amortization
    
    
    1.26
    
    
    
    1.11Total operating costs
    
    
    3.17
    
    
    
    2.87Gross margin
    
    $
    2.94
    
    
    $
    2.91Gross margin percentage
    
    
    48
    %
    
    
    50
    %
   General and administrative
  Income taxes
  17




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##### Table of Contents



DELIVERY CONTRACTS
  Double Eagle Sales ContractsContractual
    
    
    Daily
    
    
    
    
    
    
    AverageProperty
    
    Volume
    
    
    Production
    
    
    Term
    
    
    Price ($)Cow Creek
    
    
    123,000
    
    
    
    1,000
    
    
    
    07/06-10/06
    
    
    
    4.93274,000
    
    
    
    1,000
    
    
    
    07/06-03/07
    
    
    
    5.42365,000
    
    
    
    1,000
    
    
    
    07/06-06/07
    
    
    
    6.32365,000
    
    
    
    1,000
    
    
    
    07/06-06/07
    
    
    
    5.94365,000
    
    
    
    1,000
    
    
    
    07/06-03/07
    
    
    
    5.72Company Total
    
    
    1,492,000
 PIPELINE
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Reserve Estimates
   
    
    the amount and timing of actual production
    
    supply and demand for natural gas
 18




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##### Table of Contents




    
    curtailments or increases in consumption by natural gas purchasers; and
    
    changes in governmental regulations or taxation
 Oil and Gas Properties
  Income Taxes
  NEW ACCOUNTING PRONOUNCEMENTS
 re-measurement
  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
    19




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risks
    Commodity Price Risks
   
 ITEM 4. CONTROLS AND PROCEDURES
   20




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    
    WithheldSteven H. Hollis
    
    
    6,794,561
    
    
    
    64,938Roy G. Cohee
    
    
    6,846,144
    
    
    
    13,355Sigmund Balaban
    
    
    6,849,594
    
    
    
    9,905Richard Dole
    
    
    6,849,744
    
    
    
    9,755
  
 ITEM 6. EXHIBITS
  Exhibit Number and Description:
 10.1
    
    Debt Modification Agreement, effective August 1, 2006,
including Commercial Loan Agreement dated January 3, 2000,
between Double Eagle Petroleum Co. and American National Bank.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15a-14(a) of the
Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15a-14(a) of the
Securities Exchange Act, as amended.32
    
    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.
 
 SIGNATURES
  DOUBLE EAGLE PETROLEUM CO.
                  (Registrant)Date:  August 8, 2006
    By:
    /s/ Lonnie R. BrockLonnie R. BrockChief Financial Officer
(Principal Financial Officer) 21




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number and Description:
 10.1
    
    Debt Modification Agreement, effective August 1, 2006,
including Commercial Loan Agreement dated January 3, 2000,
between Double Eagle Petroleum Co. and American National Bank.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15a-14(a) of the
Securities Exchange Act, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15a-14(a) of the
Securities Exchange Act, as amended.32
    
    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.