##### 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 June 30, 2005
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
 
  þ o
  o þ




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PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsBalance Sheets as of June 30, 2005 (Unaudited) and December 31, 2004
    
    
    4Statements of Operations for the three months and six months ended June 30, 2005 and 2004 (Unaudited)
    
    
    5Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 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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June 30,
    
    December 31,2005
    
    2004(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    2,694,562
    
    
    $
    3,669,950Accounts receivable
    
    
    1,951,808
    
    
    
    2,171,102Other current assets
    
    
    300,784
    
    
    
    328,677Total current assets
    
    
    4,947,154
    
    
    
    6,169,729Properties and equipmentDeveloped properties
    
    
    37,550,516
    
    
    
    32,293,958Undeveloped properties
    
    
    3,189,072
    
    
    
    3,026,168Corporate and other
    
    
    694,148
    
    
    
    624,15341,433,736
    
    
    
    35,944,279Less accumulated depreciation, depletion, amortization, and impairment
    
    
    (13,462,392
    )
    
    
    (11,185,792
    )Net properties and equipment
    
    
    27,971,344
    
    
    
    24,758,487Other assets
    
    
    66,079
    
    
    
    41,125Total assets
    
    $
    32,984,577
    
    
    $
    30,969,341LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    
    2,465,027
    
    
    $
    1,597,224Accrued expenses
    
    
    718,327
    
    
    
    2,890,630Accrued production taxes
    
    
    1,182,999
    
    
    
    971,710Total current liabilities
    
    
    4,366,353
    
    
    
    5,459,564Non current liabilitiesAsset retirement obligation
    
    
    419,802
    
    
    
    406,865Deferred tax liability
    
    
    1,001,000
    
    
    
    176,000Total non current liabilities
    
    
    1,420,802
    
    
    
    582,865Total liabilities
    
    
    5,787,155
    
    
    
    6,042,429Stockholders equityCommon stock, $.10 par value; 50,000,000 shares authorized; issued
and outstanding 8,575,604 shares at June 30, 2005 and 8,488,404 at June 30, 2004
    
    
    857,560
    
    
    
    848,840Capital in excess of par value
    
    
    21,885,617
    
    
    
    21,224,393Retained earnings
    
    
    4,454,245
    
    
    
    2,853,679Total stockholders equity
    
    
    27,197,422
    
    
    
    24,926,912Total liabilities and stockholders equity
    
    $
    32,984,577
    
    
    $
    30,969,341
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For the three months ended
    
    For the six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004RevenuesOil and gas sales
    
    $
    4,333,823
    
    
    $
    3,403,504
    
    
    $
    8,897,773
    
    
    $
    5,568,768Other income
    
    
    13,200
    
    
    
    16,432
    
    
    
    24,388
    
    
    
    38,426Total revenues
    
    
    4,347,023
    
    
    
    3,419,936
    
    
    
    8,922,161
    
    
    
    5,607,194Costs and ExpensesProduction costs
    
    
    931,171
    
    
    
    402,367
    
    
    
    1,761,833
    
    
    
    686,846Production taxes
    
    
    471,154
    
    
    
    349,421
    
    
    
    962,197
    
    
    
    617,787Exploration expenses including dry holes
    
    
    25,221
    
    
    
    84,752
    
    
    
    85,778
    
    
    
    98,742Write-offs and abandonments
    
    
    23,557
    
    
    
    19,876
    
    
    
    40,732
    
    
    
    30,794General and administrative
    
    
    775,188
    
    
    
    389,640
    
    
    
    1,364,620
    
    
    
    700,221Depreciation, depletion and
amortization of oil and gas properties
    
    
    953,952
    
    
    
    761,744
    
    
    
    1,937,298
    
    
    
    1,258,163Impairment of equipment
    
    
    
    
    
    
    71,462
    
    
    
    357,000
    
    
    
    71,462Total costs and expenses
    
    
    3,180,243
    
    
    
    2,079,262
    
    
    
    6,509,458
    
    
    
    3,464,015Income from operations
    
    
    1,166,780
    
    
    
    1,340,674
    
    
    
    2,412,703
    
    
    
    2,143,179Other expense
    
    
    
    
    
    
    
    
    
    
    (6,854
    )Interest income, net
    
    
    9,334
    
    
    
    1,133
    
    
    
    19,779
    
    
    
    6,951Income before income taxes
    
    
    1,176,114
    
    
    
    1,341,807
    
    
    
    2,425,628
    
    
    
    2,150,130Provision for deferred taxes
    
    
    (400,000
    )
    
    
    
    
    
    
    (825,000
    )
    
    
    Net income
    
    $
    776,114
    
    
    $
    1,341,807
    
    
    $
    1,600,628
    
    
    $
    2,150,130Net income per common share  basic
    
    $
    .09
    
    
    $
    .16
    
    
    $
    .19
    
    
    $
    .25Net income per common share  diluted
    
    $
    .09
    
    
    $
    .16
    
    
    $
    .19
    
    
    $
    .25Weighted average shares outstanding  basic
    
    
    8,562,283
    
    
    
    8,468,338
    
    
    
    8,548,559
    
    
    
    8,454,173Weighted average shares outstanding  diluted
    
    
    8,624,999
    
    
    
    8,593,799
    
    
    
    8,621,980
    
    
    
    8,594,844
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Six Months Ended June 30,2005
    
    2004Cash Flows from Operating ActivitiesNet income
    
    $
    1,600,628
    
    
    $
    2,150,130Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation, depletion, amortization and accretion of
asset retirement obligation
    
    
    1,946,448
    
    
    
    1,339,325Abandonment of non-producing properties
    
    
    40,732
    
    
    
    30,794Impairment of equipment
    
    
    357,000
    
    
    
    Deferred income taxes
    
    
    825,000
    
    
    
    Directors fees paid in stock
    
    
    160,286
    
    
    
    54,240Other
    
    
    6,854
    
    
    
    Decrease (increase) in operating assets and liabilities:Accounts receivable
    
    
    219,294
    
    
    
    (1,009,861
    )Other current assets
    
    
    (27,893
    )
    
    
    (104,341
    )Accounts payable and accrued expenses
    
    
    (357,500
    )
    
    
    99,953Accrued production taxes
    
    
    211,289
    
    
    
    336,708Net cash provided by operating activities
    
    
    5,037,924
    
    
    
    2,896,948Cash Flows from investing activitiesProceeds from sales of properties and assets
    
    
    10,933
    
    
    
    Other assets
    
    
    (24,954
    )
    
    
    (570,042
    )Additions of producing properties and equipment
    
    
    (6,199,771
    )
    
    
    (4,070,315
    )Additions of corporate and non-producing properties
    
    
    (309,116
    )
    
    
    (28,371
    )Net cash used in investing activities
    
    
    (6,522,908
    )
    
    
    (4,668,728
    )Cash flows from financing activitiesExercise of options and warrants
    
    
    509,595
    
    
    
    645,212Net cash provided by financing activities
    
    
    509,595
    
    
    
    645,212Decrease in cash and cash equivalents
    
    
    (975,389
    )
    
    
    (1,126,568
    )Cash and cash equivalents at beginning of period
    
    
    3,669,950
    
    
    
    2,920,846Cash and cash equivalents at end of period
    
    $
    2,694,562
    
    
    $
    1,794,278Supplemental disclosures of cash and non-cash transactionsCash paid for interest
    
    $
    
    
    
    $
    473Additions to developed properties included in accounts payable
    
    
    1,200,000
    
    
    
    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 PoliciesThe financial statements have been prepared by the Company without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted as allowed by such rules and
regulations, and management believes that the disclosures are adequate to make the information
presented not misleading. These 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 and 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. These
financial statements should be read in conjunction with the audited financial statements at
December 31, 2004 included in the Companys Annual Report on Form 10-KSB.Stock-Based CompensationThe Company has elected to follow APB Opinion No. 25 and related interpretations in accounting
for its stock options and grants to employees and directors since the alternative fair market
value accounting provided under Statement of Financial Accounting Standards (SFAS) No. 123
requires use of grant valuation models that were not developed for use in valuing employee stock
options and grants. Under APB Opinion No. 25, if the exercise price of the Companys stock
grants and options equal the fair value of the underlying stock on the date of grant, no
compensation expenses are recognized.If compensation cost for the Companys stock-based compensation plans had been determined based
on the fair value at the grant dates for awards under those plans consistent with the method of
SFAS No. 123, then the Companys net income per share would have been adjusted to the pro forma
amounts indicated below:
 For the three months ended
    
    For the six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income as reported
    
    $
    776,114
    
    
    $
    1,341,807
    
    
    $
    1,600,628
    
    
    $
    2,150,130Add: stock-based compensationIncluded in reported net income
    
    
    6,400
    
    
    
    6,400
    
    
    
    12,800
    
    
    
    12,800Deduct: stock-based compensationCost under SFAS 123
    
    
    (213,000
    )
    
    
    (111,607
    )
    
    
    (401,000
    )
    
    
    (125,707
    )Pro forma net income
    
    $
    569,514
    
    
    $
    1,236,600
    
    
    $
    1,212,428
    
    
    $
    2,037,223Pro forma basic and diluted net income per
share:Reported net income per common share  basic
    
    
    .09
    
    
    
    .16
    
    
    
    .19
    
    
    
    .25Reported net
income per common share 
diluted
    
    
    .09
    
    
    
    .16
    
    
    
    .19
    
    
    
    .25Pro forma net income per common share  basic
    
    
    .07
    
    
    
    .14
    
    
    
    .14
    
    
    
    .24Pro forma
net income per common share 
diluted
    
    
    .06
    
    
    
    .14
    
    
    
    .14
    
    
    
    .24
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For the six months ended June 30,2005
    
    2004Volatility
    
    
    42
    %
    
    
    53
    %Expected term of options (in years)
    
    
    3-8
    
    
    
    3-8Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Risk free interest rate
    
    
    3.5
    %
    
    
    3.5
    %
 2.
    
    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 stock outstanding during the period.The following is the calculation of basic and diluted weighted average shares outstanding and
EPS for the indicated periods (000s omitted, except per share data):
 Three months ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Income (numerator)Net Income  basic
    
    $
    776
    
    
    $
    1,342
    
    
    $
    1,601
    
    
    $
    2,150Net Income  diluted
    
    $
    776
    
    
    $
    1,342
    
    
    $
    1,601
    
    
    $
    2,150Weighted average shares
(denominator):Weighted average shares  basic
    
    
    8,562
    
    
    
    8,468
    
    
    
    8,549
    
    
    
    8,454Dilution effect of stock options
outstanding at the end of period
    
    
    63
    
    
    
    126
    
    
    
    73
    
    
    
    141Weighted average shares  diluted
    
    
    8,625
    
    
    
    8,594
    
    
    
    8,622
    
    
    
    8,651Earnings per share:Basic
    
    $
    .09
    
    
    $
    .16
    
    
    $
    .19
    
    
    $
    .25Diluted
    
    $
    .09
    
    
    $
    .16
    
    
    $
    .19
    
    
    $
    .25
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3.
    
    Impairment of Long-Lived AssetsSFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, 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 that was replaced in
the second quarter of 2005.4.
    
    Income TaxesAt December 31, 2004, the Company had a net operating loss carryforward for regular income
tax reporting purposes of approximately $5 million, which will begin expiring in 2007.
Although we 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 loss carryforward.Reconciliation of the Companys effective tax rate to the expected federal tax rate is as
follows:
 For the six months ended June 30,2005
    
    2004Expected federal tax rate
    
    
    34
    %
    
    
    34
    %Permanent differences  change in
valuation allowance
    
    
    
    
    
    
    (34
    %)Effective tax rate
    
    
    34
    %
    
    
    0
    %
 5.
    
    Subsequent EventOn July 27, 2005, the Company entered into an agreement with Southern Star Central Gas
Pipeline, Inc. (Pipeline) to construct an Interconnect Point on Pipelines Skull Creek Rawlins
Pipeline, approximately 12 miles north of the Companys Cow Creek field in south central Wyoming.
The Interconnect facility will serve as an alternative delivery point for the Companys Cow
Creek production. In accordance with the terms of the agreement, the Company has prepaid the
estimated facilities cost of $334,000. Construction of the facilities is expected to be
completed by October 1, 2005.
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OVERVIEW
    
    
    Daily production increased 33% in 2005, from 6,420 mcfe per day in the first six
months of 2004 to 8,512 mcfe per day in 2005. The increase in production is
attributed to higher gas flow rates from the drilling and completion of successful
wells in our Cow Creek field late in the second quarter of 2004, as well as new wells
drilled late in 2004 and early in 2005 at the Mesa B field.
    
    Revenues increased 59% from $5.6 million during the six months ended June 30, 2004
to $9.0 million during the same period in 2005 as a result of a 33% increase in daily
production volumes and 21% increase in gas prices.
    
    Net cash provided by operating activities increased 74%, from $2.90 million in the
first six months of 2004 to $5.04 million in the first six months of 2005.
    
    We incurred $5.26 million in development costs during the first six months of
2005. The development spending related primarily to our coal bed methane
locations in the Eastern Washakie Basin and to our participation in the development
drilling on the Pinedale Anticline.
 FACTORS AFFECTING FINANCIAL CONDITION AND LIQUIDITY
 Liquidity and Capital Resources
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Capital Requirements
  Line of Credit
  11




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RESULTS OF OPERATIONS
 Six months ended June 30, 2005 compared to six months ended June 30, 2004
  Six months ended
    
    Six months ended
    
    Percent
    
    PercentJune 30, 2005
    
    June 30, 2004
    
    Volume
    
    PriceProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Change
    
    ChangeGas (mcf)
    
    
    1,494,352
    
    
    $
    5.72
    
    
    
    1,111,053
    
    
    $
    4.73
    
    
    
    +34
    %
    
    
    +21
    %Oil (bbls)
    
    
    7,707
    
    
    $
    46.10
    
    
    
    9,551
    
    
    $
    32.62
    
    
    
    -19
    %
    
    
    +41
    %Mcfe
    
    
    1,540,594
    
    
    $
    5.78
    
    
    
    1,168,359
    
    
    $
    4.77
    
    
    
    +32
    %
    
    
    +21
    %
  $ Per mcfe2005
    
    2004Average price
    
    
    5.78
    
    
    
    4.77Production costs
    
    
    1.14
    
    
    
    .59Production taxes
    
    
    .62
    
    
    
    .53Depreciation, depletion, amortization
    
    
    1.26
    
    
    
    1.08Total operating costs
    
    
    3.02
    
    
    
    2.20Gross margin
    
    
    2.76
    
    
    
    2.57Gross margin percentage
    
    
    48
    %
    
    
    54
    %
 12




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Daily
    
    
    
    
    
    AverageProperty
    
    Volume
    
    Production
    
    Term
    
    Price ($)Cow Creek
    
    
    488,000
    
    
    
    1,000
    
    
    
    11/04-10/06
    
    
    
    5.50107,500
    
    
    
    500
    
    
    
    2/05-1/06
    
    
    
    5.30579,000
    
    
    
    1,000
    
    
    
    4/05-3/07
    
    
    
    6.00Total Cow Creek
    
    
    1,174,500Mesa
    
    
    123,000
    
    
    
    1,000
    
    
    
    11/04-10/05
    
    
    
    5.80107,500
    
    
    
    500
    
    
    
    2/05-1/06
    
    
    
    5.30Total Mesa
    
    
    230,500Company Total
    
    
    1,405,000
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Quarter ended June 30, 2005 compared with the quarter ended June 30, 2004
  New Accounting Pronouncements
 Stock-Based Compensation
 Financial Accounting and Reporting by Oil and Gas
Producing Companies
 14




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Accounting Changes and Error Corrections
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Reserve Estimates
  15




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
    
    the amount and timing of actual production
    
    supply and demand for natural gas
    
    curtailments or increases in consumption by natural gas purchasers
    
    changes in governmental regulations or taxation
 Oil and Gas Properties
  Stock Based Compensation
  16




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Interest Rate Risks
  Commodity Price Risks
   
   17




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PLEASE DESCRIBE ANY OTHER ISSUANCES OF SHARES OR GRANTS OF OPTIONS DURING THE QUARTER.
  
    Shares Voted For
    
    Votes WithheldStephen H. Hollis
    
    
    6,688,867
    
    
    
    180,932Thomas A. Prendergast
    
    
    6,825,432
    
    
    
    44,367Roy G. Cohee
    
    
    6,848,289
    
    
    
    21,510Richard D. Dole
    
    
    6,848,169
    
    
    
    21,630Sigmund A. Balaban
    
    
    6,847,829
    
    
    
    21,970
  Shares voting for
    
    
    6,387,430Shares voting against
    
    
    451,430Shares abstaining
    
    
    30,939
  Shares voting for
    
    
    6,832,825Shares voting against
    
    
    24,314Shares abstaining
    
    
    12,660
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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.
    
    Exhibit Description31.1
    
    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.