##### 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 June 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: 001-34224
 Brigham Exploration Company
  Delaware
(State of other jurisdiction 
of incorporation or organization)
    
    75-2692967
(I.R.S. Employer
Identification No.)6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas
(Address of principal executive offices)
    
    78730
(Zip Code)
 (512) 427-3300
  þ o
  o o
 Rule 12b-2 of the
Exchange Act.
 Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    

Smaller Reporting Company o(Do not check if smaller reporting company)
  o þ
 Class
    
    OutstandingCommon Stock, par value $.01 per share as of August 4, 2010
    
    116,610,421




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##### 



Brigham Exploration Company
 Second Quarter 2010 Form 10-Q Report
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets  June 30, 2010 and December 31, 2009
    
    
    1Consolidated Statements of Operations  Three and six months ended June 30, 2010 and 2009
    
    
    2Consolidated Statement of Stockholders Equity  Six months ended June 30, 2010
    
    
    3Consolidated Statements of Cash Flows  Six months ended June 30, 2010 and 2009
    
    
    4Notes to the Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 4. CONTROLS AND PROCEDURES
    
    
    37PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    38ITEM 1A. RISK FACTORS
    
    
    38ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    39ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    40ITEM 4. (REMOVED AND RESERVED)
    
    
    40ITEM 5. OTHER INFORMATION
    
    
    40ITEM 6. EXHIBITS
    
    
    40SIGNATURES
    
    
    42Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 (Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    82,822
    
    
    $
    40,781Accounts receivable
    
    
    37,671
    
    
    
    21,194Short-term investments
    
    
    250,354
    
    
    
    80,093Inventory
    
    
    17,757
    
    
    
    14,087Other current assets
    
    
    7,749
    
    
    
    2,284Total current assets
    
    
    396,353
    
    
    
    158,439Oil and natural gas properties, using the full cost method including
Proved, net of accumulated depletion of $388,954 and $365,496
    
    
    365,249
    
    
    
    254,424Unproved
    
    
    82,020
    
    
    
    76,309447,269
    
    
    
    330,733Other property and equipment, net
    
    
    8,284
    
    
    
    3,025Deferred loan fees
    
    
    4,425
    
    
    
    5,213Other noncurrent assets
    
    
    5,881
    
    
    
    846Total assets
    
    $
    862,212
    
    
    $
    498,256LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    44,825
    
    
    $
    19,251Royalties payable
    
    
    24,182
    
    
    
    8,268Accrued drilling costs
    
    
    45,347
    
    
    
    15,498Participant advances received
    
    
    4,415
    
    
    
    6,949Series A Preferred Stock, mandatorily redeemable, $.01 par value, $20 stated and redemption value,
2,250,000 shares authorized, 505,051 shares issued and outstanding at December 31, 2009
    
    
    
    
    
    
    10,101Other current liabilities
    
    
    5,719
    
    
    
    7,706Total current liabilities
    
    
    124,488
    
    
    
    67,773Senior Notes
    
    
    159,087
    
    
    
    158,968Other noncurrent liabilities
    
    
    5,622
    
    
    
    7,232Commitments and contingencies (Note 4)Stockholders equity:Common stock, $.01 par value, 180 million shares authorized, 116,142,287 and 99,593,075 shares issued
and 115,882,141 and 99,351,825 shares outstanding at June 30, 2010 and December 31, 2009, respectively
    
    
    1,161
    
    
    
    996Additional paid-in capital
    
    
    760,209
    
    
    
    479,077Treasury stock, at cost; 260,146 and 241,250 shares at June 30, 2010 and December 31, 2009, respectively
    
    
    (2,405
    )
    
    
    (2,133
    )Accumulated other comprehensive income (loss)
    
    
    (2,286
    )
    
    
    (205
    )Retained earnings (deficit)
    
    
    (183,664
    )
    
    
    (213,452
    )Total stockholders equity
    
    
    573,015
    
    
    
    264,283Total liabilities and stockholders equity
    
    $
    862,212
    
    
    $
    498,256
   1




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##### Table of Contents



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Oil and natural gas sales
    
    $
    40,564
    
    
    $
    13,209
    
    
    $
    69,494
    
    
    $
    27,018Gain (loss) on derivatives, net
    
    
    4,362
    
    
    
    (2,727
    )
    
    
    7,996
    
    
    
    1,916Other revenue
    
    
    4
    
    
    
    32
    
    
    
    13
    
    
    
    6644,930
    
    
    
    10,514
    
    
    
    77,503
    
    
    
    29,000Costs and expenses:Lease operating
    
    
    4,371
    
    
    
    3,573
    
    
    
    8,720
    
    
    
    7,372Production taxes
    
    
    3,900
    
    
    
    831
    
    
    
    6,408
    
    
    
    1,645General and administrative
    
    
    2,711
    
    
    
    2,264
    
    
    
    5,797
    
    
    
    4,386Depletion of oil and natural gas properties
    
    
    14,247
    
    
    
    6,233
    
    
    
    23,458
    
    
    
    16,066Impairment of oil and natural gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,781Depreciation and amortization
    
    
    261
    
    
    
    167
    
    
    
    494
    
    
    
    316Accretion of discount on asset retirement obligations
    
    
    104
    
    
    
    105
    
    
    
    209
    
    
    
    206Loss on inventory valuation
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    2,16725,594
    
    
    
    13,301
    
    
    
    45,086
    
    
    
    146,939Operating income (loss)
    
    
    19,336
    
    
    
    (2,787
    )
    
    
    32,417
    
    
    
    (117,939
    )Other income (expense):Interest income
    
    
    887
    
    
    
    111
    
    
    
    1,340
    
    
    
    204Interest expense, net
    
    
    (2,931
    )
    
    
    (4,251
    )
    
    
    (5,835
    )
    
    
    (8,378
    )Other income (expense)
    
    
    1,181
    
    
    
    (33
    )
    
    
    1,866
    
    
    
    82(863
    )
    
    
    (4,173
    )
    
    
    (2,629
    )
    
    
    (8,092
    )Income (loss) before income taxes
    
    
    18,473
    
    
    
    (6,960
    )
    
    
    29,788
    
    
    
    (126,031
    )Income tax expense:Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    18,473
    
    
    $
    (6,960
    )
    
    $
    29,788
    
    
    $
    (126,031
    )Net income (loss) per share available to common
stockholders:Basic
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    0.28
    
    
    $
    (2.39
    )Diluted
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    0.27
    
    
    $
    (2.39
    )Weighted average shares outstanding:Basic
    
    
    113,426
    
    
    
    59,687
    
    
    
    106,473
    
    
    
    52,745Diluted
    
    
    115,383
    
    
    
    59,687
    
    
    
    108,491
    
    
    
    52,745
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amounts
    
    
    Capital
    
    
    Stock
    
    
    Income (Loss)
    
    
    Earnings
    
    
    EquityBalance, December 31, 2009
    
    
    99,593
    
    
    $
    996
    
    
    $
    479,077
    
    
    $
    (2,133
    )
    
    $
    (205
    )
    
    $
    (213,452
    )
    
    $
    264,283Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,788
    
    
    
    29,788Unrealized gains (losses)
on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,081
    )
    
    
    
    
    
    
    (2,081
    )Tax benefit (provisions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,707Issuance of common stock
    
    
    16,100
    
    
    
    161
    
    
    
    277,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277,547Exercises of employee stock
options
    
    
    379
    
    
    
    3
    
    
    
    1,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,854Vesting of restricted stock
    
    
    70
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    1,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,896Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )Balance, June 30, 2010
    
    
    116,142
    
    
    $
    1,161
    
    
    $
    760,209
    
    
    $
    (2,405
    )
    
    $
    (2,286
    )
    
    $
    (183,664
    )
    
    $
    573,015
   3




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##### Table of Contents



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    29,788
    
    
    $
    (126,031
    )Adjustments to reconcile net income (loss) to cash provided by
operating activities:Depletion of oil and natural gas properties
    
    
    23,458
    
    
    
    16,066Impairment of oil and natural gas properties
    
    
    
    
    
    
    114,781Depreciation and amortization
    
    
    494
    
    
    
    316Stock based compensation
    
    
    1,038
    
    
    
    797Amortization of deferred loan fees and debt issuance costs
    
    
    1,014
    
    
    
    626Market value and other adjustments for derivative instruments
    
    
    (9,260
    )
    
    
    6,891Accretion of discount on asset retirement obligations
    
    
    209
    
    
    
    206Other noncash items
    
    
    (1
    )
    
    
    35Changes in operating assets and liabilities:Accounts receivable
    
    
    (16,477
    )
    
    
    10,807Other current assets
    
    
    (2,210
    )
    
    
    36Accounts payable
    
    
    25,574
    
    
    
    (4,301
    )Royalties payable
    
    
    15,914
    
    
    
    (2,291
    )Participant advances received
    
    
    (2,534
    )
    
    
    (1,711
    )Other current liabilities
    
    
    (56
    )
    
    
    (265
    )Other noncurrent assets and liabilities
    
    
    (31
    )
    
    
    (15
    )Net cash provided by operating activities
    
    
    66,920
    
    
    
    15,947Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (122,782
    )
    
    
    (39,703
    )Decrease (increase) in restricted cash
    
    
    
    
    
    
    555Changes to inventory
    
    
    (3,806
    )
    
    
    Decrease (increase) in short term investments
    
    
    (172,342
    )
    
    
    (5,268
    )Additions to other property and equipment
    
    
    (5,752
    )
    
    
    (1,245
    )Proceeds from the sale of assets
    
    
    12,544
    
    
    
    Decrease (increase) in drilling advances paid
    
    
    (1,654
    )
    
    
    163Net cash provided (used) by investing activities
    
    
    (293,792
    )
    
    
    (45,498
    )Cash flows from financing activities:Proceeds from issuance of common stock, net of issuance costs
    
    
    277,547
    
    
    
    93,523Redemption of Series A mandatorily redeemable preferred stock
    
    
    (10,101
    )
    
    
    Repayment of senior credit facility
    
    
    
    
    
    
    (35,000
    )Deferred loan fees paid and equity costs
    
    
    (115
    )
    
    
    (839
    )Proceeds from exercise of employee stock options
    
    
    1,854
    
    
    
    1Repurchases of common stock
    
    
    (272
    )
    
    
    (91
    )Net cash provided (used) by financing activities
    
    
    268,913
    
    
    
    57,594Net increase (decrease) in cash and cash equivalents
    
    
    42,041
    
    
    
    28,043Cash and cash equivalents, beginning of year
    
    
    40,781
    
    
    
    40,043Cash and cash equivalents, end of period
    
    $
    82,822
    
    
    $
    68,086
   4




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1. Organization and Nature of Operations
  2. Basis of Presentation
   3. Commitments and Contingencies
   4. Net Income Available Per Common Share
   5




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average common shares
outstanding  basic
    
    
    113,426
    
    
    
    59,687
    
    
    
    106,473
    
    
    
    52,745Plus: Potential common sharesStock options and restricted stock
    
    
    1,957
    
    
    
    
    
    
    
    2,018
    
    
    
    Weighted average common shares
outstanding  diluted
    
    
    115,383
    
    
    
    59,687
    
    
    
    108,491
    
    
    
    52,745Stock options excluded from diluted
EPS due to the anti-dilutive effect
    
    
    1,087
    
    
    
    4,915
    
    
    
    1,078
    
    
    
    4,915
 5. Income Taxes
     6. Derivative Instruments and Hedging Activities
  Natural Gas and Crude Oil Derivative Contracts
   6




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Natural
    
    
    Crude
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexNatural Gas Costless Collars07/01/10 - 12/31/10
    
    
    420,000
    
    
    
    
    
    
    $
    5.15
    
    
    $
    7.0007/01/10 - 09/30/10
    
    
    210,000
    
    
    
    
    
    
    $
    5.75
    
    
    $
    7.3007/01/10 - 09/30/10
    
    
    120,000
    
    
    
    
    
    
    $
    5.75
    
    
    $
    7.0007/01/10 - 09/30/10
    
    
    150,000
    
    
    
    
    
    
    $
    5.50
    
    
    $
    6.6510/01/10 - 03/31/11
    
    
    240,000
    
    
    
    
    
    
    $
    6.50
    
    
    $
    8.2510/01/10 - 03/31/11
    
    
    420,000
    
    
    
    
    
    
    $
    6.40
    
    
    $
    7.8001/01/11 - 12/31/11
    
    
    360,000
    
    
    
    
    
    
    $
    5.75
    
    
    $
    7.6501/01/11 - 12/31/11
    
    
    480,000
    
    
    
    
    
    
    $
    5.75
    
    
    $
    7.4004/01/11 - 12/31/11
    
    
    360,000
    
    
    
    
    
    
    $
    5.00
    
    
    $
    6.55Crude Oil Costless Collars07/01/10 - 08/31/10
    
    
    
    
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    99.0007/01/10 - 09/30/10
    
    
    
    
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    91.4007/01/10 - 12/31/10
    
    
    
    
    
    
    60,000
    
    
    $
    48.70
    
    
    $
    80.0007/01/10 - 12/31/10
    
    
    
    
    
    
    18,000
    
    
    $
    60.00
    
    
    $
    86.5007/01/10 - 12/31/10
    
    
    
    
    
    
    30,000
    
    
    $
    60.00
    
    
    $
    88.8007/01/10 - 12/31/10
    
    
    
    
    
    
    24,000
    
    
    $
    70.00
    
    
    $
    101.7507/01/10 - 12/31/10
    
    
    
    
    
    
    18,000
    
    
    $
    70.00
    
    
    $
    91.5007/01/10 - 12/31/10
    
    
    
    
    
    
    12,000
    
    
    $
    60.00
    
    
    $
    100.0007/01/10 - 12/31/10
    
    
    
    
    
    
    18,000
    
    
    $
    60.00
    
    
    $
    96.0007/01/10 - 11/30/10
    
    
    
    
    
    
    15,000
    
    
    $
    70.00
    
    
    $
    95.5007/01/10 - 12/31/10
    
    
    
    
    
    
    48,000
    
    
    $
    57.50
    
    
    $
    82.1507/01/10 - 09/30/10
    
    
    
    
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    87.2507/01/10 - 12/31/10
    
    
    
    
    
    
    30,000
    
    
    $
    65.00
    
    
    $
    94.2507/01/10 - 12/31/10
    
    
    
    
    
    
    12,000
    
    
    $
    65.00
    
    
    $
    107.7007/01/10 - 07/31/10
    
    
    
    
    
    
    10,000
    
    
    $
    75.00
    
    
    $
    100.5007/01/10 - 12/31/10
    
    
    
    
    
    
    30,000
    
    
    $
    75.00
    
    
    $
    101.0008/01/10 - 10/31/10
    
    
    
    
    
    
    15,000
    
    
    $
    75.00
    
    
    $
    101.0008/01/10 - 07/31/12
    
    
    
    
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    97.2008/01/10 - 07/31/12
    
    
    
    
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    98.5508/01/10 - 07/31/12
    
    
    
    
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    100.4008/01/10 - 07/31/12
    
    
    
    
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    100.0010/01/10 - 12/31/10
    
    
    
    
    
    
    3,000
    
    
    $
    70.00
    
    
    $
    88.5001/01/11 - 02/28/11
    
    
    
    
    
    
    10,000
    
    
    $
    70.00
    
    
    $
    92.0001/01/11 - 02/28/11
    
    
    
    
    
    
    8,000
    
    
    $
    75.00
    
    
    $
    103.5001/01/11 - 03/31/11
    
    
    
    
    
    
    9,000
    
    
    $
    75.00
    
    
    $
    93.5001/01/11 - 06/30/11
    
    
    
    
    
    
    18,000
    
    
    $
    65.00
    
    
    $
    97.5001/01/11 - 06/30/11
    
    
    
    
    
    
    24,000
    
    
    $
    70.00
    
    
    $
    92.5001/01/11 - 07/31/11
    
    
    
    
    
    
    21,000
    
    
    $
    70.00
    
    
    $
    94.8001/01/11 - 12/31/11
    
    
    
    
    
    
    84,000
    
    
    $
    65.00
    
    
    $
    88.2501/01/11 - 12/31/11
    
    
    
    
    
    
    60,000
    
    
    $
    60.00
    
    
    $
    97.2501/01/11 - 12/31/11
    
    
    
    
    
    
    60,000
    
    
    $
    65.00
    
    
    $
    108.0001/01/11 - 12/31/11
    
    
    
    
    
    
    48,000
    
    
    $
    70.00
    
    
    $
    106.8001/01/11 - 12/31/11
    
    
    
    
    
    
    48,000
    
    
    $
    75.00
    
    
    $
    102.6001/01/11 - 12/31/11
    
    
    
    
    
    
    36,000
    
    
    $
    65.00
    
    
    $
    100.0001/01/11 - 12/31/11
    
    
    
    
    
    
    36,000
    
    
    $
    75.00
    
    
    $
    104.3003/01/11 - 04/30/11
    
    
    
    
    
    
    16,000
    
    
    $
    75.00
    
    
    $
    104.5007/01/11 - 09/30/11
    
    
    
    
    
    
    9,000
    
    
    $
    70.00
    
    
    $
    95.0007/01/11 - 12/31/11
    
    
    
    
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    103.0007/01/11 - 12/31/11
    
    
    
    
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    95.1510/01/11 - 12/31/11
    
    
    
    
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    96.3501/01/12 - 06/30/12
    
    
    
    
    
    
    60,000
    
    
    $
    75.00
    
    
    $
    106.90
  7




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BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Natural
    
    
    Crude
    
    
    PurchasedGas
    
    
    Oil
    
    
    PutSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    NymexCrude Oil Puts01/01/11 - 06/30/12
    
    
    
    
    
    
    273,500
    
    
    $
    65.0001/01/11 - 06/30/12
    
    
    
    
    
    
    273,500
    
    
    $
    65.00
  Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Crude Oil Costless Collars03/01/11 - 08/31/11
    
    
    46,000
    
    
    $
    65.00
    
    
    $
    96.7503/01/11 - 08/31/11
    
    
    46,000
    
    
    $
    65.00
    
    
    $
    94.8005/01/11 - 12/31/11
    
    
    122,500
    
    
    $
    65.00
    
    
    $
    100.0009/01/11 - 12/31/11
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    99.0009/01/11 - 12/31/11
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    97.4001/01/12 - 06/30/12
    
    
    182,000
    
    
    $
    65.00
    
    
    $
    100.7501/01/12 - 06/30/12
    
    
    91,000
    
    
    $
    65.00
    
    
    $
    101.0001/01/12 - 06/30/12
    
    
    182,000
    
    
    $
    65.00
    
    
    $
    99.2501/01/12 - 06/30/12
    
    
    91,000
    
    
    $
    65.00
    
    
    $
    102.7507/01/12 - 07/31/12
    
    
    62,000
    
    
    $
    65.00
    
    
    $
    102.2507/01/12 - 07/31/12
    
    
    31,000
    
    
    $
    65.00
    
    
    $
    105.2505/01/11 - 12/31/11
    
    
    122,500
    
    
    $
    65.00
    
    
    $
    106.5011/01/10 - 02/28/11
    
    
    60,000
    
    
    $
    65.00
    
    
    $
    98.75
 Additional Disclosures about Derivative Instruments and Hedging Activities
  June 30, 2010
    
    
    Dec 31, 2009Estimated
    
    
    EstimatedType of Contract
    
    Balance Sheet Location
    
    Fair Value
    
    
    Fair Value(in thousands)
    
    
    (in thousands)Derivatives Not Designated as Hedging
InstrumentsDerivative Assets:Natural gas and crude oil contracts
    
    Other current assets
    
    $
    4,263
    
    
    $
    1,152Natural gas and crude oil contracts
    
    Other non-current assets
    
    
    3,602
    
    
    
    186Total Derivative Assets
    
    
    
    $
    7,865
    
    
    $
    1,338Derivative Liabilities:Natural gas and crude oil contracts
    
    Other current liabilities
    
    $
    (474
    )
    
    $
    (2,404
    )Natural gas and crude oil contracts
    
    Other non-current liabilities
    
    
    (106
    )
    
    
    (909
    )Total Derivative Liabilities
    
    
    
    $
    (580
    )
    
    $
    (3,313
    )
  8




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009Statement of Operations
    
    Amount of
    
    
    Amount ofType of Contract
    
    Location of Gain (Loss)
    
    Gain (Loss)
    
    
    Gain (Loss)(in thousands)
    
    
    (in thousands)Derivatives Not
Designated as Hedging
InstrumentsNatural gas contracts
    
    Gain (loss) on derivatives, net
    
    $
    (594
    )
    
    $
    529Crude oil contracts
    
    Gain (loss) on derivatives, net
    
    
    4,956
    
    
    
    (3,256
    )Total Derivative Gain (loss)
    
    
    
    $
    4,362
    
    
    $
    (2,727
    )
 Six Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009Statement of Operations
    
    Amount of
    
    
    Amount ofType of Contract
    
    Location of Gain (Loss)
    
    Gain (Loss)
    
    
    Gain (Loss)(in thousands)
    
    
    (in thousands)Derivatives Not
Designated as Hedging
InstrumentsNatural gas contracts
    
    Gain (loss) on derivatives, net
    
    $
    2,661
    
    
    $
    5,397Crude oil contracts
    
    Gain (loss) on derivatives, net
    
    
    5,335
    
    
    
    (3,481
    )Total Derivative Gain (loss)
    
    
    
    $
    7,996
    
    
    $
    1,916
  7. Fair Values
  
    
    Level 1  Unadjusted quoted prices are available in active markets for identical assets
or liabilities.
    
    Level 2  Pricing inputs, other than quoted prices within Level 1, that are either
directly or indirectly observable.
    
    Level 3  Pricing inputs that are unobservable requiring the use of valuation
methodologies that result in managements best estimate of fair value.
  9




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BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Fair Value Measurements at June 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other current liabilities
    
    $
    (474
    )
    
    $
    
    
    
    $
    (474
    )
    
    $
    Other non-current liabilities
    
    
    (106
    )
    
    
    
    
    
    
    (106
    )
    
    
    Current derivative assets
    
    
    4,263
    
    
    
    
    
    
    
    4,263
    
    
    
    Other non-current assets
    
    
    3,602
    
    
    
    
    
    
    
    3,602
    
    
    
    $
    7,285
    
    
    $
    
    
    
    $
    7,285
    
    
    $
    Fair Value Measurements at December 31, 2009 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other current liabilities
    
    $
    (2,404
    )
    
    $
    
    
    
    $
    (2,404
    )
    
    $
    Other non-current liabilities
    
    
    (909
    )
    
    
    
    
    
    
    (909
    )
    
    
    Current derivative assets
    
    
    1,152
    
    
    
    
    
    
    
    1,152
    
    
    
    Other non-current assets
    
    
    186
    
    
    
    
    
    
    
    186
    
    
    
    $
    (1,975
    )
    
    $
    
    
    
    $
    (1,975
    )
    
    $
    
  Fair Value Measurements at June 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other non-current liabilities
    
    
    (5,516
    )
    
    
    
    
    
    
    
    
    
    
    (5,516
    )$
    (5,516
    )
    
    $
    
    
    
    $
    
    
    
    $
    (5,516
    )Fair Value Measurements at December 31, 2009 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other non-current liabilities
    
    
    (6,323
    )
    
    
    
    
    
    
    
    
    
    
    (6,323
    )$
    (6,323
    )
    
    $
    
    
    
    $
    
    
    
    $
    (6,323
    )
   10




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Fair Value Measurements at June 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Investments
    
    
    250,354
    
    
    
    250,354
    
    
    
    
    
    
    
    $
    250,354
    
    
    $
    250,354
    
    
    $
    
    
    
    $
    Fair Value Measurements at December 31, 2009 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Investments
    
    
    80,093
    
    
    
    80,093
    
    
    
    
    
    
    
    $
    80,093
    
    
    $
    80,093
    
    
    $
    
    
    
    $
    
  Less Than 12 Months
    
    
    12 Months or Greater
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair
    
    
    Gains
    
    
    Fair
    
    
    Gains
    
    
    Fair
    
    
    GainsDescription of Securities
    
    Value
    
    
    (Losses)
    
    
    Value
    
    
    (Losses)
    
    
    Value
    
    
    (Losses)Certificates of deposit
    
    $
    3,605
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    3,605
    
    
    $
    1Corporate bonds and notes
    
    
    124,888
    
    
    
    (1,273
    )
    
    
    35,631
    
    
    
    (654
    )
    
    
    160,519
    
    
    
    (1,927
    )Government securities
    
    
    50,221
    
    
    
    (363
    )
    
    
    36,009
    
    
    
    (1
    )
    
    
    86,230
    
    
    
    (364
    )Total
    
    $
    178,714
    
    
    $
    (1,635
    )
    
    $
    71,640
    
    
    $
    (655
    )
    
    $
    250,354
    
    
    $
    (2,290
    )
   June 30, 2010
    
    
    December 31, 2009(in thousands)
    
    
    (in thousands)Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueSenior Notes
    
    $
    160,000
    
    
    $
    161,600
    
    
    $
    160,000
    
    
    $
    160,000Series A Preferred Stock
    
    $
    
    
    
    $
    
    
    
    $
    10,101
    
    
    $
    10,166
   11




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 8. Oil and Gas Properties
      9. Common Stock Offerings
    10. Senior Notes
   12




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   11. Senior Credit Facility
    12. Preferred Stock
  13. Asset Retirement Obligations
   13




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Six Months EndedJune 30,2010
    
    
    2009Beginning asset retirement obligations
    
    $
    6,323
    
    
    $
    5,592Liabilities incurred for new wells placed on production
    
    
    257
    
    
    
    275Liabilities settled
    
    
    (65
    )
    
    
    (15
    )Accretion of discount on asset retirement obligations
    
    
    209
    
    
    
    206Revisions to estimates due to sale of oil and gas properties
    
    
    (1,208
    )
    
    
    $
    5,516
    
    
    $
    6,058
 14. Stock Based Compensation
   2010
    
    
    2009Risk-free interest rate
    
    
    2.49
    %
    
    
    2.52
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    81
    %
    
    
    77
    %Expected dividend yield
    
    
    
    
    
    
    Weighted average fair value per share of stock compensation
    
    $
    12.49
    
    
    $
    2.19
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Pre-tax stock based compensation expense
    
    $
    1,133
    
    
    $
    816
    
    
    $
    1,896
    
    
    $
    1,466Capitalized stock based compensation
    
    
    (522
    )
    
    
    (372
    )
    
    
    (858
    )
    
    
    (669
    )Tax benefit
    
    
    (214
    )
    
    
    (155
    )
    
    
    (363
    )
    
    
    (279
    )Stock based compensation expense, net
    
    $
    397
    
    
    $
    289
    
    
    $
    675
    
    
    $
    518
  14




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Stock Based Plan Descriptions and Share Information
    2010
    
    
    2009Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding at the beginning of the
year
    
    
    4,170,137
    
    
    $
    5.14
    
    
    
    3,128,651
    
    
    $
    7.00Granted
    
    
    931,500
    
    
    $
    19.04
    
    
    
    1,150,000
    
    
    $
    2.21Forfeited or cancelled
    
    
    
    
    
    $
    
    
    
    
    (10,000
    )
    
    $
    3.73Exercised
    
    
    (379,412
    )
    
    $
    4.80
    
    
    
    
    
    
    $
    Options outstanding at the end of the quarter
    
    
    4,722,225
    
    
    $
    7.91
    
    
    
    4,268,651
    
    
    $
    5.71Options exercisable at the end of the quarter
    
    
    548,550
    
    
    $
    5.46
    
    
    
    1,976,451
    
    
    $
    7.21
   Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-
    
    
    
    
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Average
    
    
    Weighted-
    
    
    Exercisable at
    
    
    Average
    
    
    Weighted-June 30,
    
    
    Remaining
    
    
    Average
    
    
    June 30,
    
    
    Remaining
    
    
    AverageExercise Price
    
    2010
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    2010
    
    
    Contractual Life
    
    
    Exercise Price$2.20 to $3.41
    
    
    1,159,500
    
    
    8.7 years
    
    $
    2.25
    
    
    
    199,500
    
    
    8.4 years
    
    $
    2.283.66 to 5.08
    
    
    421,800
    
    
    5.3 years
    
    $
    5.08
    
    
    
    53,800
    
    
    5.3 years
    
    $
    5.085.96 to 6.46
    
    
    1,802,475
    
    
    8.2 years
    
    $
    5.99
    
    
    
    125,300
    
    
    2.8 years
    
    $
    6.207.22 to 8.84
    
    
    169,950
    
    
    3.6 years
    
    $
    7.64
    
    
    
    95,950
    
    
    2.5 years
    
    $
    7.708.93 to 13.86
    
    
    237,000
    
    
    7.1 years
    
    $
    11.66
    
    
    
    74,000
    
    
    4.2 years
    
    $
    10.1514.43 to 16.85
    
    
    19,000
    
    
    9.7 years
    
    $
    15.40
    
    
    
    
    
    
    
    
    
    
    $
    18.36 to 19.12
    
    
    912,500
    
    
    9.8 years
    
    $
    19.11
    
    
    
    
    
    
    
    
    
    
    $
    $2.21 to $19.12
    
    
    4,722,225
    
    
    8.2 years
    
    $
    7.91
    
    
    
    548,550
    
    
    4.9 years
    
    $
    5.46
   15




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Restricted Stock
   2010
    
    
    2009Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceRestricted shares outstanding at the
beginning of the year
    
    
    556,990
    
    
    $
    7.04
    
    
    
    593,260
    
    
    $
    7.58Shares granted
    
    
    105,363
    
    
    $
    14.45
    
    
    
    155,018
    
    
    $
    2.62Lapse of restrictions
    
    
    (69,800
    )
    
    $
    8.78
    
    
    
    (101,734
    )
    
    $
    5.10Shares outstanding at the end of the quarter
    
    
    592,553
    
    
    $
    8.16
    
    
    
    646,544
    
    
    $
    6.78
 15. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    18,473
    
    
    $
    (6,960
    )
    
    $
    29,788
    
    
    $
    (126,031
    )Unrealized gains (losses) on investments
    
    
    (1,817
    )
    
    
    
    
    
    
    (2,081
    )
    
    
    Other comprehensive income (loss), net
    
    $
    16,656
    
    
    $
    (6,960
    )
    
    $
    27,707
    
    
    $
    (126,031
    )
 16. Subsequent Events
  17. Related Party Transactions
   16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  General Overview
    
    
    Focus on Core Provinces;
 
    
    Leverage Our Engineering and Operational Expertise;
 
    
    Capitalize on Internally Generated Exploration Successes Through Disciplined Development
Activities; and
 
    
    Enhance Returns Through Operational Control.
 Overview of Second Quarter 2010
     17




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##### Table of Contents



Overview of Second Quarter 2010 Operational Results
 Williston Basin
  Frac
    
    
    IP
    
    
    30 DayWell Name
    
    County
    
    Objective
    
    ~WI%
    
    
    Stages
    
    
    (Boe/d)
    
    
    Average (Boe/d)**Michael Owan 26-35 #1H
    
    Williams
    
    Bakken
    
    
    87
    %
    
    
    33
    
    
    
    2,931
    
    
    
    NASedlacek Trust 33-4 #1H
    
    McKenzie
    
    Bakken
    
    
    48
    %*
    
    
    30
    
    
    
    2,695
    
    
    
    NARogney 17-8 #1H
    
    Roosevelt
    
    Bakken
    
    
    100
    %
    
    
    30
    
    
    
    909
    
    
    
    NARoss Alger 6-7 #1H
    
    Mountrail
    
    Bakken
    
    
    47
    %
    
    
    32
    
    
    
    3,070
    
    
    
    1,465Owan 29-32 #1H
    
    Williams
    
    Bakken
    
    
    78
    %
    
    
    31
    
    
    
    2,302
    
    
    
    868Abe 30-31 #1H
    
    Williams
    
    Bakken
    
    
    97
    %
    
    
    31
    
    
    
    1,847
    
    
    
    731Jack Cvancara 19-18 #1H
    
    Mountrail
    
    Bakken
    
    
    83
    %
    
    
    36
    
    
    
    5,035
    
    
    
    1,800Tjelde 29-32 #1H
    
    McKenzie
    
    Bakken
    
    
    77
    %
    
    
    30
    
    
    
    3,171
    
    
    
    931Abelmann State 21-16 #1H
    
    McKenzie
    
    Bakken
    
    
    64
    %
    
    
    31
    
    
    
    3,301
    
    
    
    1,044Mortenson 5-32 #1H
    
    Williams
    
    Bakken
    
    
    77
    %
    
    
    23
    
    
    
    2,314
    
    
    
    584Arnson 13-24 #1H
    
    Williams
    
    Bakken
    
    
    93
    %
    
    
    30
    
    
    
    1,339
    
    
    
    480Sorenson 29-32 #1H
    
    Mountrail
    
    Bakken
    
    
    95
    %
    
    
    27
    
    
    
    5,133
    
    
    
    1,909Jack Erickson 6-31 #1H
    
    Williams
    
    Bakken
    
    
    21
    %*
    
    
    30
    
    
    
    2,652
    
    
    
    833Averages
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,823
    
    
    
    1,065
 *
    
    Rough Rider drilling participation agreement well where our working interest is anticipated to increase upon payout.**
    
    Excludes any days well was down for remediation.  18




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##### Table of Contents



Subsequent Events
  2010 Budget
    
    
    2010 BudgetRevised April
    
    
    Revised August2010
    
    
    2010(In thousands)Drilling
    
    $
    229.1
    
    
    $
    275.5Field Level Infrastructure
    
    
    37.8
    
    
    
    32.8Land and Seismic
    
    
    27.0
    
    
    
    41.8Acreage Acquisitions
    
    
    
    
    
    
    53.9Exploration and Development Capital Budget
    
    $
    293.9
    
    
    $
    404.0
 Results for the Three and Six Months Ended June 30, 2010
 Comparison of the three month and six month periods ended June 30, 2010 and 2009.
 Production volumes
 Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil (MBbls)(1)
    
    
    503
    
    
    
    207
    %
    
    
    164
    
    
    
    822
    
    
    
    143
    %
    
    
    338Natural gas (MMcf)
    
    
    1,173
    
    
    
    (20
    %)
    
    
    1,460
    
    
    
    2,182
    
    
    
    (34
    %)
    
    
    3,302Total (MBoe)(2)
    
    
    698
    
    
    
    71
    %
    
    
    407
    
    
    
    1,186
    
    
    
    34
    %
    
    
    888Average daily production (Boe/d)(3)
    
    
    7,756
    
    
    
    71
    %
    
    
    4,526
    
    
    
    6,588
    
    
    
    34
    %
    
    
    4,933
 
 (1)
    
    Includes approximately 5,089 barrels of crude oil produced in the Williston Basin
during the second quarter 2010 and added to crude oil inventory during the second quarter
2010. Includes approximately 10,101 barrels of crude oil produced in the Williston Basin
during the first half of 2010. Ending inventory as of the first and second quarters of
2009 was not material.(2)
    
    Boe is defined as one barrel equivalent of crude oil, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.(3)
    
    Average daily production is calculated using 30 days per calendar month.   19




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##### Table of Contents



Sales Volumes (Production volumes less the Incremental Change in Inventory)
 Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil (MBbls)(1)
    
    
    497
    
    
    
    203
    %
    
    
    164
    
    
    
    812
    
    
    
    140
    %
    
    
    338Natural gas (MMcf)
    
    
    1,173
    
    
    
    (20
    %)
    
    
    1,460
    
    
    
    2,182
    
    
    
    (34
    %)
    
    
    3,302Total (MBoe)(2)
    
    
    693
    
    
    
    70
    %
    
    
    407
    
    
    
    1,176
    
    
    
    32
    %
    
    
    888Average daily production (Boe/d)(3)
    
    
    7,700
    
    
    
    70
    %
    
    
    4,526
    
    
    
    6,532
    
    
    
    32
    %
    
    
    4,933
 
 (1)
    
    Excludes approximately 5,089 barrels of crude oil produced in the Williston Basin
during the second quarter 2010 and added to crude oil inventory at the end of the second
quarter 2010. Excludes approximately 10,101 barrels of crude oil produced in the Williston
Basin during the first half of 2010. Ending inventory as of the first and second quarters
of 2009 was not material.(2)
    
    Boe is defined as one barrel equivalent of crude oil, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.(3)
    
    Average daily production is calculated using 30 days per calendar month.   20




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##### Table of Contents



Revenues, Commodity Prices and Hedging
  Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil revenue:Crude oil revenue
    
    $
    34,423
    
    
    
    325
    %
    
    $
    8,105
    
    
    $
    57,293
    
    
    
    308
    %
    
    $
    14,055Crude oil derivative settlement gains (losses)
    
    
    (132
    )
    
    
    (41
    %)
    
    
    (222
    )
    
    
    (228
    )
    
    NM
    
    
    
    860Crude oil revenue including derivative settlements
    
    $
    34,291
    
    
    
    335
    %
    
    $
    7,883
    
    
    $
    57,065
    
    
    
    283
    %
    
    $
    14,915Crude oil derivative unrealized gains (losses)
    
    
    5,088
    
    
    NM
    
    
    
    (3,034
    )
    
    
    5,563
    
    
    NM
    
    
    
    (4,341
    )Crude oil revenue including derivative settlements
and unrealized gains (losses)
    
    $
    39,379
    
    
    
    712
    %
    
    $
    4,849
    
    
    $
    62,628
    
    
    
    492
    %
    
    $
    10,574Natural gas revenue:Natural gas revenue
    
    $
    6,141
    
    
    
    20
    %
    
    $
    5,104
    
    
    $
    12,201
    
    
    
    (6
    %)
    
    $
    12,963Natural gas derivative settlement gains (losses)
    
    
    993
    
    
    
    (34
    %)
    
    
    1,508
    
    
    
    1,671
    
    
    
    (79
    %)
    
    
    7,947Natural gas revenue including derivative settlements
    
    $
    7,134
    
    
    
    8
    %
    
    $
    6,612
    
    
    $
    13,872
    
    
    
    (34
    %)
    
    $
    20,910Natural gas derivative unrealized gains (losses)
    
    
    (1,587
    )
    
    
    (62
    %)
    
    
    (979
    )
    
    
    990
    
    
    NM
    
    
    
    (2,550
    )Natural gas revenue including derivative
settlements and unrealized gains (losses)
    
    $
    5,547
    
    
    
    (2
    %)
    
    $
    5,633
    
    
    $
    14,862
    
    
    
    (19
    %)
    
    $
    18,360Crude oil and natural gas revenue:Crude oil and natural gas revenue
    
    $
    40,564
    
    
    
    207
    %
    
    $
    13,209
    
    
    $
    69,494
    
    
    
    157
    %
    
    $
    27,018Crude oil and natural gas derivative settlement
gains (losses)
    
    
    861
    
    
    
    (33
    %)
    
    
    1,286
    
    
    
    1,443
    
    
    
    (84
    %)
    
    
    8,807Crude oil and natural gas revenue including
derivative settlement gains (losses)
    
    
    41,425
    
    
    
    186
    %
    
    
    14,495
    
    
    
    70,937
    
    
    
    98
    %
    
    
    35,825Crude oil and natural gas derivative unrealized
gains (losses)
    
    
    3,501
    
    
    NM
    
    
    
    (4,013
    )
    
    
    6,553
    
    
    NM
    
    
    
    (6,891
    )Crude oil and natural gas revenue including
derivative settlements and unrealized gains
(losses)
    
    
    44,926
    
    
    
    329
    %
    
    
    10,482
    
    
    
    77,490
    
    
    
    168
    %
    
    
    28,934Other revenue
    
    
    4
    
    
    
    (88
    %)
    
    
    32
    
    
    
    13
    
    
    
    (80
    %)
    
    
    66Total revenue
    
    $
    44,930
    
    
    
    327
    %
    
    $
    10,514
    
    
    $
    77,503
    
    
    
    167
    %
    
    $
    29,000
  21




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Average crude oil prices:Crude oil price (per Bbl)
    
    $
    69.19
    
    
    
    40
    %
    
    $
    49.41
    
    
    $
    70.55
    
    
    
    69
    %
    
    $
    41.63Crude oil price including
derivative settlement gains
(losses) (per Bbl)
    
    
    68.93
    
    
    
    43
    %
    
    
    48.06
    
    
    
    70.27
    
    
    
    59
    %
    
    
    44.18Crude oil price including
derivative settlements and
unrealized gains (losses) (per Bbl)
    
    $
    79.16
    
    
    
    168
    %
    
    $
    29.56
    
    
    $
    77.12
    
    
    
    146
    %
    
    $
    31.32Average natural gas prices:Natural gas price (per Mcf)
    
    $
    5.24
    
    
    
    50
    %
    
    $
    3.50
    
    
    $
    5.59
    
    
    
    42
    %
    
    $
    3.93Natural gas price including
derivative settlement gains
(losses) (per Mcf)
    
    
    6.08
    
    
    
    34
    %
    
    
    4.53
    
    
    
    6.36
    
    
    
    0
    %
    
    
    6.33Natural gas price including
derivative settlements and
unrealized gains (losses) (per Mcf)
    
    $
    4.73
    
    
    
    23
    %
    
    $
    3.86
    
    
    $
    6.81
    
    
    
    22
    %
    
    $
    5.56Average equivalent prices:Crude oil equivalent price (per Boe)
    
    $
    58.53
    
    
    
    81
    %
    
    $
    32.40
    
    
    $
    59.09
    
    
    
    94
    %
    
    $
    30.42Crude oil equivalent price
including derivative settlement
gains (losses) (per Boe)
    
    
    59.78
    
    
    
    68
    %
    
    
    35.58
    
    
    
    60.32
    
    
    
    50
    %
    
    
    40.32Crude oil equivalent price
including derivative settlements
and unrealized gains (losses) (per
Boe)
    
    $
    64.83
    
    
    
    152
    %
    
    $
    25.74
    
    
    $
    65.89
    
    
    
    102
    %
    
    $
    32.58
 For the three
    
    
    For the sixmonth periods
    
    
    month periodsended June 30,
    
    
    ended June 30,2010 and 2009
    
    
    2010 and 2009Change in revenue from the sale of crude oilVolume variance impact
    
    $
    16,476
    
    
    $
    19,753Price variance impact
    
    
    9,842
    
    
    
    23,485Cash settlement of hedging contracts
    
    
    90
    
    
    
    (1,088
    )Unrealized hedge gain or loss
    
    
    8,122
    
    
    
    9,904Total change
    
    $
    34,530
    
    
    $
    52,054Change in revenue from the sale of natural gasVolume variance impact
    
    $
    (999
    )
    
    $
    (4,389
    )Price variance impact
    
    
    2,036
    
    
    
    3,627Cash settlement of hedging contracts
    
    
    (515
    )
    
    
    (6,276
    )Unrealized hedge gain or loss
    
    
    (608
    )
    
    
    3,540Total change
    
    $
    (86
    )
    
    $
    (3,498
    )Change in revenue from the sale of crude oil and natural gasVolume variance impact
    
    $
    15,477
    
    
    $
    15,364Price variance impact
    
    
    11,878
    
    
    
    27,112Cash settlement of hedging contracts
    
    
    (425
    )
    
    
    (7,364
    )Unrealized hedge gain or loss
    
    
    7,514
    
    
    
    13,444Total change
    
    $
    34,444
    
    
    $
    48,556
  22




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##### Table of Contents




    
    an increase in crude oil production resulting from our drilling activities in the
Williston Basin, which was partially offset by a decrease in our natural gas volumes due to
the natural decline of our wells, drove a $15.5 million increase in crude oil and natural
gas revenues;
 
    
    a 81% increase in pre-hedge per Boe sales prices resulted in a $11.9 million increase in
revenues;
 
    
    a $3.5 million unrealized derivative gain in second quarter 2010 versus a $4.0 million
unrealized derivative loss in second quarter 2009 increased revenues by $7.5 million; and
 
    
    a $0.9 million gain from the settlement of derivative contracts in the second quarter
2009 versus a $1.3 million gain from the settlement of derivative contracts in second
quarter 2009 decreased revenues by $0.4 million.
  
    
    a 94% increase in pre-hedge per Boe sales prices resulted in a $27.1 million increase in
revenues;
 
    
    an increase in crude oil production resulting from our drilling activities in the
Williston Basin, which was partially offset by a decrease in our natural gas volumes due to
the natural decline of our wells, drove a $15.4 million increase in crude oil and natural
gas revenues;
 
    
    a $6.6 million unrealized derivative gain in first six months 2010 versus a $6.8 million
unrealized derivative loss in first six months 2009 increased revenues by $13.4 million;
and
 
    
    a $1.4 million gain from the settlement of derivative contracts in the first six months
2010 versus a $8.8 million gain from the settlement of derivative contracts in first six
months 2009 decreased revenues by $7.4 million.
 Hedging.
  23




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil collarsVolumes (Bbls)
    
    
    211,000
    
    
    
    1,011
    %
    
    
    19,000
    
    
    
    356,000
    
    
    
    627
    %
    
    
    49,000Average floor price ($  per Bbl)
    
    $
    61.55
    
    
    
    3
    %
    
    $
    59.63
    
    
    $
    60.03
    
    
    
    (16
    %)
    
    $
    71.58Average ceiling price ($  per Bbl)
    
    $
    90.16
    
    
    
    15
    %
    
    $
    78.70
    
    
    $
    88.95
    
    
    
    (8
    %)
    
    $
    96.96Gain (loss) upon settlement ($ in thousands)
    
    $
    (132
    )
    
    NM
    
    
    $
    45
    
    
    $
    (228
    )
    
    NM
    
    
    $
    1,127Crude oil swapsVolumes (Bbls)
    
    
    
    
    
    NM
    
    
    
    30,000
    
    
    
    
    
    
    NM
    
    
    
    30,000Average swap price ($  per Bbl)
    
    $
    
    
    
    NM
    
    
    $
    50.75
    
    
    $
    
    
    
    NM
    
    
    $
    50.75Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    NM
    
    
    $
    (267
    )
    
    $
    
    
    
    NM
    
    
    $
    (267
    )Total crude oilGain (loss) upon settlement ($ in thousands)
    
    $
    (132
    )
    
    
    (40
    %)
    
    $
    (222
    )
    
    $
    (228
    )
    
    NM
    
    
    $
    860Natural gas collarsVolumes (MMbtu)
    
    
    690,000
    
    
    
    176
    %
    
    
    250,000
    
    
    
    1,500,000
    
    
    
    23
    %
    
    
    1,220,000Average floor price ($  per MMbtu)
    
    $
    5.51
    
    
    
    (20
    %)
    
    $
    6.89
    
    
    $
    5.87
    
    
    
    (24
    %)
    
    $
    7.74Average ceiling price ($  per MMbtu)
    
    $
    7.02
    
    
    
    (14
    %)
    
    $
    8.19
    
    
    $
    7.43
    
    
    
    (21
    %)
    
    $
    9.42Gain (loss) upon settlement ($ in thousands)
    
    $
    993
    
    
    
    47
    %
    
    $
    676
    
    
    $
    1,671
    
    
    
    (76
    %)
    
    $
    6,931Natural gas swapsVolumes (MMbtu)
    
    
    
    
    
    NM
    
    
    
    882,000
    
    
    
    
    
    
    NM
    
    
    
    1,062,000Average swap price ($  per MMbtu)
    
    $
    
    
    
    NM
    
    
    $
    4.438
    
    
    $
    
    
    
    NM
    
    
    $
    4.572Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    NM
    
    
    $
    832
    
    
    $
    
    
    
    NM
    
    
    $
    1,016Total natural gasGain (loss) upon settlement ($ in thousands)
    
    $
    993
    
    
    
    (34
    %)
    
    $
    1,508
    
    
    $
    1,671
    
    
    
    (79
    %)
    
    $
    7,947
 Other revenue
 Operating costs and expenses
 Production costs.
 Unit-of-Production
    
    
    Amount(Per Boe)
    
    
    (In thousands)Three months ended June 30,
    
    
    Three months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Production costs:Operating & maintenance
    
    $
    4.06
    
    
    
    (42
    %)
    
    $
    7.02
    
    
    $
    2,821
    
    
    
    (1
    %)
    
    $
    2,853Expensed workovers
    
    
    1.88
    
    
    
    74
    %
    
    
    1.08
    
    
    
    1,300
    
    
    
    192
    %
    
    
    445Ad valorem taxes
    
    
    0.36
    
    
    
    (45
    %)
    
    
    0.66
    
    
    
    250
    
    
    
    (9
    %)
    
    
    275Lease operating expenses
    
    $
    6.30
    
    
    
    (28
    %)
    
    $
    8.76
    
    
    $
    4,371
    
    
    
    22
    %
    
    $
    3,573Production taxes
    
    
    5.63
    
    
    
    176
    %
    
    
    2.04
    
    
    
    3,900
    
    
    
    369
    %
    
    
    831Production costs
    
    $
    11.93
    
    
    
    10
    %
    
    $
    10.80
    
    
    $
    8,271
    
    
    
    88
    %
    
    $
    4,404
  24




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##### Table of Contents




    
    production taxes increased $3.59 per Boe, or 176%, due to higher commodity sales prices
and higher crude oil sales volumes in North Dakota, which are subject to a 11.5% tax rate;
 
    
    expensed workovers increased $0.80 per Boe, or 74%, with the majority of the increase
due to several workovers of our conventional Gulf Coast and Anadarko Basin natural gas
wells; and
 
    
    operating and maintenance expenses decreased $2.96 per Boe, or 42%, primarily due to
higher production volumes and lower compressor rental and saltwater disposal expenses.
 Unit-of-Production
    
    
    Amount(Per Boe)
    
    
    (In thousands)Six months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Production costs:Operating & maintenance
    
    $
    4.63
    
    
    
    (28
    %)
    
    $
    6.42
    
    
    $
    5,445
    
    
    
    (4
    %)
    
    $
    5,697Expensed workovers
    
    
    2.36
    
    
    
    87
    %
    
    
    1.26
    
    
    
    2,775
    
    
    
    147
    %
    
    
    1,125Ad valorem taxes
    
    
    0.43
    
    
    
    (28
    %)
    
    
    0.60
    
    
    
    500
    
    
    
    (9
    %)
    
    
    550Lease operating expenses
    
    $
    7.42
    
    
    
    (10
    %)
    
    $
    8.28
    
    
    $
    8,720
    
    
    
    18
    %
    
    $
    7,372Production taxes
    
    
    5.45
    
    
    
    193
    %
    
    
    1.86
    
    
    
    6,408
    
    
    
    290
    %
    
    
    1,645Production costs
    
    $
    12.87
    
    
    
    27
    %
    
    $
    10.14
    
    
    $
    15,128
    
    
    
    68
    %
    
    $
    9,017
  
    
    production taxes increased $3.59 per Boe, or 193%, due to higher commodity sales prices
and higher crude oil sales volumes in North Dakota, which are subject to a 11.5% tax rate;
 
    
    expensed workovers increased $1.10 per Boe, or 87%, with the majority of the increase
due to several workovers of our conventional Gulf Coast and Anadarko Basin natural gas
wells; and
 
    
    operating and maintenance expenses decreased $1.79 per Boe, or 28%, primarily due to
higher production volumes and lower saltwater disposal and equipment rental expenses.
 General and administrative expenses.
 Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands, except per unit measurements)General and administrative costs
    
    $
    5,332
    
    
    
    30
    %
    
    $
    4,087
    
    
    $
    11,247
    
    
    
    45
    %
    
    $
    7,759Capitalized general and administrative costs
    
    
    (2,621
    )
    
    
    44
    %
    
    
    (1,823
    )
    
    
    (5,450
    )
    
    
    62
    %
    
    
    (3,373
    )General and administrative expenses
    
    $
    2,711
    
    
    
    20
    %
    
    $
    2,264
    
    
    $
    5,797
    
    
    
    32
    %
    
    $
    4,386General and administrative expense ($  per Boe)
    
    $
    3.91
    
    
    
    (30
    %)
    
    $
    5.58
    
    
    $
    4.93
    
    
    
    0
    %
    
    $
    4.92
   25




---



##### Table of Contents



Depletion of crude oil and natural gas properties
 Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands, except per unit measurements)Depletion of crude oil and natural gas properties
    
    $
    14,247
    
    
    
    129
    %
    
    $
    6,233
    
    
    $
    23,458
    
    
    
    46
    %
    
    $
    16,066Depletion of crude oil and natural gas properties ($  per Boe)
    
    $
    20.56
    
    
    
    34
    %
    
    $
    15.30
    
    
    $
    19.95
    
    
    
    10
    %
    
    $
    18.12
   Impairment of crude oil and natural gas properties
   Inventory Valuation.
  26




---



##### Table of Contents



Net interest expense.
 Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands)Interest on Senior Notes
    
    $
    3,850
    
    
    
    0
    %
    
    $
    3,850
    
    
    $
    7,700
    
    
    
    0
    %
    
    $
    7,700Interest on Senior Credit Facility
    
    
    
    
    
    
    (100
    %)
    
    
    1,021
    
    
    
    
    
    
    
    (100
    %)
    
    
    2,026Commitment fees
    
    
    163
    
    
    
    579
    %
    
    
    24
    
    
    
    326
    
    
    
    624
    %
    
    
    45Dividend on mandatorily redeemable preferred stock
    
    
    120
    
    
    
    (21
    %)
    
    
    151
    
    
    
    269
    
    
    
    (10
    %)
    
    
    300Amortization of deferred loan and debt issuance cost
    
    
    481
    
    
    
    57
    %
    
    
    306
    
    
    
    963
    
    
    
    66
    %
    
    
    581Other general interest expense
    
    
    101
    
    
    NM
    
    
    
    (1
    )
    
    
    101
    
    
    
    531
    %
    
    
    16Capitalized interest expense
    
    
    (1,784
    )
    
    
    62
    %
    
    
    (1,100
    )
    
    
    (3,524
    )
    
    
    54
    %
    
    
    (2,290
    )Net interest expense
    
    $
    2,931
    
    
    
    (31
    %)
    
    $
    4,251
    
    
    $
    5,835
    
    
    
    (30
    %)
    
    $
    8,378Weighted average debt outstanding
    
    $
    167,881
    
    
    
    (44
    %)
    
    $
    301,640
    
    
    $
    168,985
    
    
    
    (45
    %)
    
    $
    308,333Average interest rate on outstanding indebtedness (a)
    
    
    10.1
    %
    
    
    
    
    
    
    6.7
    %
    
    
    10.0
    %
    
    
    
    
    
    
    6.6
    %
 
 a)
    
    Calculated as the sum of the interest expense on our outstanding indebtedness, commitment
fees that we pay on our unused borrowing capacity and the dividend on our mandatorily
redeemable preferred stock divided by our weighted average debt and preferred stock
outstanding for the period.   Other income (expense).
  Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands)Other income (expense):Total other income (expense)
    
    $
    1,181
    
    
    NM
    
    
    $
    (33
    )
    
    $
    1,866
    
    
    
    2,176
    %
    
    $
    82
  Income taxes.
  27




---



##### Table of Contents



Capital Expenditures
  
    
    cost of acquiring and maintaining our lease acreage position and our seismic resources;
 
    
    cost of drilling and completing new crude oil and natural gas wells;
 
    
    cost of installing new production infrastructure;
 
    
    cost of maintaining, repairing and enhancing existing crude oil and natural gas wells;
 
    
    cost related to plugging and abandoning unproductive or uneconomic wells; and
 
    
    indirect costs related to our exploration activities, including payroll and other
expenses attributable to our exploration professional staff.
   
    
    commodity prices;
 
    
    production from our existing producing wells;
 
    
    the results of our current exploration and development drilling efforts;
 
    
    economic conditions at the time of drilling;
 
    
    industry conditions at the time of drilling, including the availability of drilling and
completion equipment;
 
    
    our liquidity and the availability of external sources of financing; and
 
    
    the availability of more economically attractive prospects.
       28




---



##### Table of Contents



Amount2010
    
    
    Spent Through
    
    
    AmountBudget (a)
    
    
    June 30, 2010
    
    
    Remaining (b)(In millions)Drilling
    
    $
    275.5
    
    
    $
    114.9
    
    
    $
    160.6Field level infrastructure
    
    
    32.8
    
    
    
    
    
    
    
    32.8Land and seismic
    
    
    41.8
    
    
    
    29.5
    
    
    
    12.3Acreage acquisitions
    
    
    53.9
    
    
    
    
    
    
    
    53.9Exploration and development capital budget
    
    $
    404.0
    
    
    $
    144.4
    
    
    $
    259.6
 
 (a)
    
    Capital budget announced August 2010.(b)
    
    Calculated based on the 2010 exploration and development capital budget less amounts spent
through June 30, 2010. Liquidity and Capital Resources
 Sources of Capital
  9 5/8% Senior Notes Due 2014
   
    
    rank equally in right of payment with all our existing and future senior indebtedness;
 
    
    rank senior to all of our future subordinated indebtedness; and
 
    
    are effectively junior in right of payment to all of our and the Guarantors existing and
future secured indebtedness, including debt of our Senior Credit Facility.
   Senior Credit Facility
   29




---



##### Table of Contents



Percent of
    
    EurodollarBorrowing Base
    
    Rate
    
    
    Base RateUtilized
    
    Advances
    
    
    Advances(1)< 25%
    
    
    2.50
    %
    
    
    1.50
    %25% and < 50%
    
    
    2.75
    %
    
    
    1.75
    %50% and < 75%
    
    
    3.00
    %
    
    
    2.00
    %75% and < 90%
    
    
    3.25
    %
    
    
    2.25
    %> 90%
    
    
    3.50
    %
    
    
    2.50
    %
 
 (1)
    
    Base rate is defined as for any day a fluctuating rate per annum equal to the highest of the
following, in each case, to the extent determinable by the Administrative Agent: (a) the
Federal Funds Rate plus 1/2 of 1%, (b) the Eurodollar Rate with respect to Interest Periods of
one month determined as of approximately 11:00 a.m. (London time) on such day plus 1.50% and
(c) the rate of interest in effect for such day as publicly announced from time to time by
Bank of America as its prime rate. The prime rate is a rate set by Bank of America based
upon various factors including Bank of Americas costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some loans, which
may be priced at, above, or below such announced rate. Any change in such rate announced by
Bank of America shall take effect at the opening of business on the day specified in the
public announcement of such change.  Percent ofBorrowing Base
    
    AnnualUtilized
    
    Commitment Fee< 25%
    
    
    0.500
    %25% and < 50%
    
    
    0.500
    %50% and < 75%
    
    
    0.500
    %75% and < 90%
    
    
    0.500
    %> 90%
    
    
    0.500
    %
   30




---



##### Table of Contents



Mandatorily Redeemable Preferred Stock
  Access to Capital Markets
  Off Balance Sheet Arrangements
  Analysis of Changes in Cash and Cash Equivalents
  Six months ended June 30,2010
    
    
    %Change
    
    
    2009(In thousands)Net income (loss)
    
    $
    29,788
    
    
    NM
    
    
    $
    (126,031
    )Non-cash items
    
    
    16,952
    
    
    
    (88
    %)
    
    
    139,718Changes in working capital and other items
    
    
    20,180
    
    
    
    793
    %
    
    
    2,260Cash flows provided by operating activities
    
    $
    66,920
    
    
    
    320
    %
    
    $
    15,947Cash flows used by investing activities
    
    
    (293,792
    )
    
    
    546
    %
    
    
    (45,498
    )Cash flows provided by financing activities
    
    
    268,913
    
    
    
    367
    %
    
    
    57,594Net increase in cash and cash equivalents
    
    $
    42,041
    
    
    
    50
    %
    
    $
    28,043
 Analysis of net cash provided by operating activities
    31




---



##### Table of Contents



Analysis of changes in cash flows used in investing activities
 Six months ended June 30,2010
    
    
    %Change
    
    
    2009(In thousands)Capital expenditures for crude oil and natural gas activities:Drilling
    
    $
    114,930
    
    
    
    334
    %
    
    $
    26,492Land and seismic
    
    
    29,539
    
    
    NM
    
    
    
    (5,687
    )Capitalized cost
    
    
    8,974
    
    
    
    58
    %
    
    
    5,663Capitalized asset retirement obligation
    
    
    257
    
    
    
    (7
    %)
    
    
    275Total
    
    $
    153,700
    
    
    
    475
    %
    
    $
    26,743Reconciling Items:Asset sale proceeds including ARO liability reduction
    
    $
    (13,706
    )
    
    NM
    
    
    $
    Change in accrued drilling costs
    
    
    (29,849
    )
    
    NM
    
    
    $
    13,906Change in short term investments
    
    
    172,342
    
    
    
    3,171
    %
    
    
    5,268Change in other property and equipment
    
    
    5,375
    
    
    NM
    
    
    
    Change in inventory
    
    
    3,806
    
    
    NM
    
    
    
    Other
    
    
    2,124
    
    
    NM
    
    
    
    (419
    )Total Reconciling Items
    
    
    140,092
    
    
    
    647
    %
    
    
    18,755Net cash used in investing activities
    
    $
    293,792
    
    
    
    546
    %
    
    $
    45,498
  
    
    drilling expenditures increased by $88.4 million;
 
    
    land and seismic expenditures increased by $35.2 million;
 
    
    capitalized costs increased by $3.3 million;
 
    
    the sale of our West Texas assets reduced cash used in investing activities by $13.7
million;
 
    
    the change in accrued drilling costs decreased cash used in investing activities by $43.8
million;
 
    
    the change in short term investments increased cash used in investing activities by
$167.1 million;
 
    
    the change in other property and equipment increased cash used in investing activities by
$5.4 million; and
 
    
    the change in inventory increased cash used in investing activities by $3.8 million.
 Analysis of changes in cash flows from financing activities
  Common Stock Transactions
  Shares Issued
    
    
    Net Proceeds(In thousands)2010 common stock transactions:Common stock offering (April)
    
    
    16,100,000
    
    
    $
    277,547Exercise of employee stock options
    
    
    379,412
    
    
    $
    1,8542009 common stock transactions:Common stock offering (May)
    
    
    36,292,117
    
    
    $
    93,407Exercise of employee stock options
    
    
    500
    
    
    $
    1
  32




---



##### Table of Contents



Other Matters
 Derivative Instruments
  Effects of Inflation and Changes in Prices
  Environmental and Other Regulatory Matters
  Forward-looking Information
   33




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Management Opinion Concerning Derivative Instruments
  Derivative Instruments and Hedging Activities
         34




---



##### Table of Contents



Crude
    
    
    Purchased
    
    
    Writtenoil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Crude oil Costless Collars07/01/10 - 12/31/10
    
    
    60,000
    
    
    $
    48.70
    
    
    $
    80.0007/01/10 - 12/31/10
    
    
    48,000
    
    
    $
    57.50
    
    
    $
    82.1507/01/10 - 12/31/10
    
    
    18,000
    
    
    $
    60.00
    
    
    $
    86.5001/01/11 - 12/31/11
    
    
    84,000
    
    
    $
    65.00
    
    
    $
    88.2507/01/10 - 09/30/10
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    87.2510/01/10 - 12/31/10
    
    
    3,000
    
    
    $
    70.00
    
    
    $
    88.5007/01/10 - 09/30/10
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    91.4007/01/10 - 12/31/10
    
    
    30,000
    
    
    $
    60.00
    
    
    $
    88.8001/01/11 - 12/31/11
    
    
    60,000
    
    
    $
    60.00
    
    
    $
    97.2501/01/11 - 12/31/11
    
    
    60,000
    
    
    $
    65.00
    
    
    $
    108.0001/01/11 - 06/30/11
    
    
    18,000
    
    
    $
    65.00
    
    
    $
    97.5007/01/10 - 12/31/10
    
    
    18,000
    
    
    $
    60.00
    
    
    $
    96.0007/01/10 - 12/31/10
    
    
    12,000
    
    
    $
    60.00
    
    
    $
    100.0007/01/10 - 12/31/10
    
    
    12,000
    
    
    $
    65.00
    
    
    $
    107.7001/01/11 - 12/31/11
    
    
    48,000
    
    
    $
    70.00
    
    
    $
    106.8007/01/10 - 12/31/10
    
    
    24,000
    
    
    $
    70.00
    
    
    $
    101.7507/01/10 - 08/31/10
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    99.0001/01/11 - 12/31/11
    
    
    48,000
    
    
    $
    75.00
    
    
    $
    102.6007/01/11 - 12/31/11
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    103.0007/01/10 - 12/31/10
    
    
    30,000
    
    
    $
    65.00
    
    
    $
    94.2501/01/11 - 06/30/11
    
    
    24,000
    
    
    $
    70.00
    
    
    $
    92.5007/01/11 - 09/30/11
    
    
    9,000
    
    
    $
    70.00
    
    
    $
    95.0010/01/11 - 12/31/11
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    96.3501/01/11 - 02/28/11
    
    
    10,000
    
    
    $
    70.00
    
    
    $
    92.0007/01/10 - 12/31/10
    
    
    18,000
    
    
    $
    70.00
    
    
    $
    91.5001/01/11 - 07/31/11
    
    
    21,000
    
    
    $
    70.00
    
    
    $
    94.8007/01/10 - 11/30/10
    
    
    15,000
    
    
    $
    70.00
    
    
    $
    95.5001/01/11 - 03/31/11
    
    
    9,000
    
    
    $
    75.00
    
    
    $
    93.5007/01/11 - 12/31/11
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    95.1507/01/10 - 12/31/10
    
    
    30,000
    
    
    $
    75.00
    
    
    $
    101.0001/01/11 - 12/31/11
    
    
    36,000
    
    
    $
    75.00
    
    
    $
    104.3007/01/10 - 07/31/10
    
    
    10,000
    
    
    $
    75.00
    
    
    $
    100.5001/01/12 - 06/30/12
    
    
    60,000
    
    
    $
    75.00
    
    
    $
    106.9008/01/10 - 10/31/10
    
    
    15,000
    
    
    $
    75.00
    
    
    $
    101.0001/01/11 - 02/28/11
    
    
    8,000
    
    
    $
    75.00
    
    
    $
    103.5003/01/11 - 04/30/11
    
    
    16,000
    
    
    $
    75.00
    
    
    $
    104.5001/01/11 - 12/31/11
    
    
    36,000
    
    
    $
    65.00
    
    
    $
    100.0008/01/10 - 07/31/12
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    97.2008/01/10 - 07/31/12
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    98.5508/01/10 - 07/31/12
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    100.0008/01/10 - 07/31/12
    
    
    365,500
    
    
    $
    65.00
    
    
    $
    100.40
 Crude
    
    
    Purchasedoil
    
    
    PutSettlement Period
    
    (Bbls)
    
    
    (Nymex)Crude oil Floors01/01/11 - 06/30/12
    
    
    273,500
    
    
    $
    65.0001/01/11 - 06/30/12
    
    
    273,500
    
    
    $
    65.00
  35




---



##### Table of Contents



Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars07/01/10 - 09/30/10
    
    
    210,000
    
    
    $
    5.75
    
    
    $
    7.3010/01/10 - 03/31/11
    
    
    240,000
    
    
    $
    6.50
    
    
    $
    8.2507/01/10 - 09/30/10
    
    
    120,000
    
    
    $
    5.75
    
    
    $
    7.0007/01/10 - 12/31/10
    
    
    420,000
    
    
    $
    5.15
    
    
    $
    7.0007/01/10 - 09/30/10
    
    
    150,000
    
    
    $
    5.50
    
    
    $
    6.6510/01/10 - 03/31/11
    
    
    420,000
    
    
    $
    6.40
    
    
    $
    7.8001/01/11 - 12/31/11
    
    
    360,000
    
    
    $
    5.75
    
    
    $
    7.6501/01/11 - 12/31/11
    
    
    480,000
    
    
    $
    5.75
    
    
    $
    7.4004/01/11 - 12/31/11
    
    
    360,000
    
    
    $
    5.00
    
    
    $
    6.55
  Crude
    
    
    Purchased
    
    
    Writtenoil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Crude oil Costless Collars03/01/11 - 08/31/11
    
    
    46,000
    
    
    $
    65.00
    
    
    $
    94.8009/01/11 - 12/31/11
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    97.4001/01/12 - 06/30/12
    
    
    182,000
    
    
    $
    65.00
    
    
    $
    99.2509/01/11 - 12/31/11
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    99.0003/01/11 - 08/31/11
    
    
    46,000
    
    
    $
    65.00
    
    
    $
    96.7501/01/12 - 06/30/12
    
    
    91,000
    
    
    $
    65.00
    
    
    $
    101.0001/01/12 - 06/30/12
    
    
    182,000
    
    
    $
    65.00
    
    
    $
    100.7501/01/12 - 06/30/12
    
    
    91,000
    
    
    $
    65.00
    
    
    $
    102.7507/01/12 - 07/31/12
    
    
    62,000
    
    
    $
    65.00
    
    
    $
    102.2505/01/11 - 12/31/11
    
    
    122,500
    
    
    $
    65.00
    
    
    $
    100.0007/01/12 - 07/31/12
    
    
    31,000
    
    
    $
    65.00
    
    
    $
    105.2505/01/11 - 12/31/11
    
    
    122,500
    
    
    $
    65.00
    
    
    $
    106.5011/01/10 - 02/28/11
    
    
    60,000
    
    
    $
    65.00
    
    
    $
    98.75
  36




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   37




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We are subject to various governmental regulations and environmental risks that may cause us to
incur substantial costs.
     38




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##### Table of Contents



Derivatives regulation included in current financial reform legislation could impede our ability to
manage business and financial risks by restricting our use of derivative instruments as hedges
against fluctuating commodity prices.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Average PricePeriod
    
    Shares Purchased
    
    
    Paid per ShareMay 2010
    
    
    2,117
    
    
    $
    18.05June 2010
    
    
    2,082
    
    
    $
    14.44TOTAL
    
    
    4,199
    
    
    $
    16.26
  39




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 3.1
    
    
    Certificate of Incorporation (filed as Exhibit 3.1 to Brighams Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by reference)3.2
    
    
    Certificates of Amendment to Certificate of Incorporation (filed as Exhibit 3.1.1 to
Brighams Registration Statement on Form S-3 (Registration No. 333-37558), and incorporated
herein by reference)3.3
    
    
    Bylaws, as amended through May 28, 2009 (incorporated by reference to Exhibit 3.5 to
Brighams Current Report on Form 8-K filed May 28, 2009)3.4
    
    
    Certificate of Amendment to Certificate of Incorporation of Brigham Exploration Company dated
June 14, 2006 (filed as Exhibit 3.4 to Brighams Annual Report on Form 10-K for the year ended
December 31, 2008 and incorporated herein by reference)3.5
    
    
    Certificate of Amendment to Certificate of Incorporation of Brigham Exploration Company dated
October 7, 2009 (filed as Exhibit 3.5 to Brighams Current Report on Form 8-K (dated October
13, 2009) and incorporated herein by reference)4.1
    
    
    Form of Common Stock Certificate (filed as Exhibit 4.1 to Brighams Registration Statement on
Form S-1 (Registration No. 333-22491) and incorporated herein by reference)4.2
    
    
    Certificate of Designations of Series A Preferred Stock (Par Value $.01 Per Share) of Brigham
Exploration Company filed October 31, 2000 (filed as Exhibit 4.1 to Brighams Current Report
on Form 8-K, as amended (filed November 8, 2000) and incorporated herein by reference)4.3
    
    
    Certificate of Amendment of Certificate of Designations of Series A Preferred Stock (Par
Value $.01 Per Share) of Brigham Exploration Company, filed March 2, 2001 (filed as Exhibit
4.2.1 to Brighams Annual Report on Form 10-K for the year ended December 31, 2000 (filed
March 23, 2001) and incorporated herein by reference)4.4
    
    
    Certificate of Designations of Series B Preferred Stock (Par Value $.01 Per Share) of Brigham
Exploration Company filed December 20, 2002 (filed as Exhibit 4.4 to Brighams Annual Report
on Form 10-K for the year ended December 31, 2002 (filed March 31, 2003) and incorporated
herein by reference)4.5
    
    
    Certificate of Elimination of Certificate of Designations of Series B Preferred Stock of
Brigham Exploration Company, dated June 4, 2004, (filed as Exhibit 99.2 to Brighams Current
Report on Form 8-K (filed July 20, 2004) and incorporated herein by reference)4.6
    
    
    Indenture, dated April 20, 2006, among Brigham Exploration Company, the Guarantors named
therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to Brighams Current
Report on Form 8-K (filed April 24, 2006) and incorporated herein by reference)4.7
    
    
    Notations of Guarantees, dated April 20, 2006, among Brigham Exploration Company, the
Guarantors named therein and Wells Fargo Bank, N.A., as trustee, (filed as Exhibit 4.2 to
Brighams Current Report on Form 8-K (filed April 24, 2006) and incorporated herein by
reference)
  40




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##### Table of Contents



4.8
    
    
    Rule 144A 9 5/8% Senior Notes due 2014, dated April 20, 2006 (filed as Exhibit 4.3 to
Brighams Current Report on Form 8-K (filed April 24, 2006) and incorporated herein by
reference)4.9
    
    
    Reg S 9 5/8% Senior Notes due 2014, dated April 20, 2006 (filed as Exhibit 4.4 to Brighams
Current Report on Form 8-K (filed April 24, 2006) and incorporated herein by reference)4.10
    
    
    Notations of Guarantees dated as of April 9, 2007, among Brigham Exploration Company, the
Guarantors named therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.2 to
Brighams Current Report on Form 8-K (filed April 13, 2007) and incorporated in by reference)4.11
    
    
    Rule 144A 9 5/8% Senior Notes due 2014 (filed as Exhibit 4.3 to Brighams Current Report on
Form 8-K (filed April 13, 2007) and incorporated in by reference)4.12
    
    
    Reg S 9 5/8% Senior Notes due 2014 (filed as Exhibit 4.4 to Brighams Current Report on Form
8-K (filed April 13, 2007) and incorporated herein by reference)4.13
    
    
    Rights Agreement, dated as of December 10, 2008, between Brigham Exploration Company and
American Stock Transfer & Trust Company, LLC, as Rights Agent (filed as Exhibit 4.1 to
Brighams Current Report on Form 8-K (filed December 11, 2008) and incorporated herein by
reference)4.14
    
    
    Certificate of Designations of Series C Junior Participating Preferred Stock of Brigham
Exploration Company effective as of December 10, 2008 (filed as Exhibit 3.1 to Brighams
Current Report on Form 8-K (filed December 11, 2008) and incorporated herein by reference)4.15
    
    
    Certificate of Elimination of Certificate of Designations of Series C Junior Preferred Stock
of Brigham Exploration Company effective March 9, 2010 (filed as Exhibit 3.6 to Brighams
Current Report on Form 8-K (filed March 15, 2010) and incorporated herein by reference)10.46
    
    
    1997 Incentive Plan, as amended through March 9, 2010 (filed as Exhibit 10.46 to Brighams
Current Report on Form 8-K (filed March 15, 2010) and incorporated herein by reference)10.47
    
    
    Sixth Amendment and Consent to the Fourth Amended and Restated Credit Agreement dated as of
June 29, 2005 between the Company and the banks named therein (filed as Exhibit 10.47 to
Brighams Current Report on Form 8-K (filed June 3, 2010) and incorporated herein by
reference)31.1
    
    
    Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193431.2
    
    
    Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193432.1
    
    
    Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. § 135032.2
    
    
    Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. § 1350
 *
    
    Management contract or compensatory plan.  41




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##### Table of Contents



SIGNATURES
  BRIGHAM EXPLORATION COMPANYBy:
    /s/  BEN M. BRIGHAMBen M. BrighamChief Executive Officer, President
and Chairman of the BoardBy:
    /s/  EUGENE B. SHEPHERD, JR.Eugene B. Shepherd, Jr.Executive Vice President and
Chief Financial Officer  42