##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 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 78730
 (512) 427-3300
  þ o
  o o
  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 November 3, 2010
    
    116,879,973




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##### 



Brigham Exploration Company
 Third Quarter 2010 Form 10-Q Report
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets  September 30, 2010 and December 31, 2009
    
    
    1Consolidated Statements of Operations  Three and nine months ended September 30, 2010 and 2009
    
    
    2Consolidated Statement of Stockholders Equity  Nine months ended September 30, 2010
    
    
    3Consolidated Statements of Cash Flows  Nine months ended September 30, 2010 and 2009
    
    
    4Notes to the Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    35ITEM 4. CONTROLS AND PROCEDURES
    
    
    39PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    40ITEM 1A. RISK FACTORS
    
    
    40ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    40ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    40ITEM 4. (REMOVED AND RESERVED)
    
    
    40ITEM 5. OTHER INFORMATION
    
    
    40ITEM 6. EXHIBITS
    
    
    41SIGNATURES
    
    
    43Exhibit 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)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    126,004
    
    
    $
    40,781Accounts receivable
    
    
    42,618
    
    
    
    21,194Short-term investments
    
    
    189,267
    
    
    
    80,093Inventory
    
    
    28,756
    
    
    
    14,087Other current assets
    
    
    6,113
    
    
    
    2,284Total current assets
    
    
    392,758
    
    
    
    158,439Oil and natural gas properties, using the full cost method including
Proved, net of accumulated depletion of $404,266 and $365,496
    
    
    420,251
    
    
    
    254,424Unproved
    
    
    181,179
    
    
    
    76,309601,430
    
    
    
    330,733Other property and equipment, net
    
    
    16,311
    
    
    
    3,025Deferred loan fees
    
    
    8,622
    
    
    
    5,213Other noncurrent assets
    
    
    3,410
    
    
    
    846Total assets
    
    $
    1,022,531
    
    
    $
    498,256LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    39,825
    
    
    $
    19,251Royalties payable
    
    
    27,604
    
    
    
    8,268Accrued drilling costs
    
    
    57,103
    
    
    
    15,498Participant advances received
    
    
    2,762
    
    
    
    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
    
    
    
    
    
    
    10,101Senior Notes
    
    
    5,594
    
    
    
    Other current liabilities
    
    
    5,730
    
    
    
    7,706Total current liabilities
    
    
    138,618
    
    
    
    67,773Senior Notes
    
    
    300,000
    
    
    
    158,968Other noncurrent liabilities
    
    
    9,225
    
    
    
    7,232Commitments and contingencies (Note 4)Stockholders equity:Common stock, $.01 par value, 180 million shares authorized, 116,299,942 and 99,593,075 shares issued and
116,027,460 and 99,351,825 shares outstanding at September 30, 2010 and December 31, 2009, respectively
    
    
    1,163
    
    
    
    996Additional paid-in capital
    
    
    762,535
    
    
    
    479,077Treasury stock, at cost; 272,482 and 241,250 shares at September 30, 2010 and December 31, 2009, respectively
    
    
    (2,604
    )
    
    
    (2,133
    )Accumulated other comprehensive income (loss)
    
    
    (2,066
    )
    
    
    (205
    )Retained earnings (deficit)
    
    
    (184,340
    )
    
    
    (213,452
    )Total stockholders equity
    
    
    574,688
    
    
    
    264,283Total liabilities and stockholders equity
    
    $
    1,022,531
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Oil and natural gas sales
    
    $
    43,663
    
    
    $
    18,747
    
    
    $
    113,157
    
    
    $
    45,765Gain (loss) on derivatives, net
    
    
    (7,057
    )
    
    
    1,114
    
    
    
    939
    
    
    
    3,030Other revenue
    
    
    4
    
    
    
    6
    
    
    
    17
    
    
    
    7236,610
    
    
    
    19,867
    
    
    
    114,113
    
    
    
    48,867Costs and expenses:Lease operating
    
    
    3,964
    
    
    
    3,279
    
    
    
    12,684
    
    
    
    10,651Production taxes
    
    
    4,250
    
    
    
    1,551
    
    
    
    10,658
    
    
    
    3,196General and administrative
    
    
    3,255
    
    
    
    2,082
    
    
    
    9,052
    
    
    
    6,468Depletion of oil and natural gas properties
    
    
    15,312
    
    
    
    7,835
    
    
    
    38,770
    
    
    
    23,901Impairment of oil and natural gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,781Depreciation and amortization
    
    
    362
    
    
    
    234
    
    
    
    856
    
    
    
    550Accretion of discount on asset retirement obligations
    
    
    103
    
    
    
    107
    
    
    
    312
    
    
    
    313Loss on inventory valuation
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    2,19627,246
    
    
    
    15,117
    
    
    
    72,332
    
    
    
    162,056Operating income (loss)
    
    
    9,364
    
    
    
    4,750
    
    
    
    41,781
    
    
    
    (113,189
    )Other income (expense):Interest income
    
    
    1,716
    
    
    
    157
    
    
    
    3,056
    
    
    
    361Interest expense, net
    
    
    (2,058
    )
    
    
    (4,521
    )
    
    
    (7,893
    )
    
    
    (12,899
    )Loss on redemption of Senior Notes
    
    
    (10,948
    )
    
    
    
    
    
    
    (10,948
    )
    
    
    Other income (expense)
    
    
    1,250
    
    
    
    400
    
    
    
    3,116
    
    
    
    482(10,040
    )
    
    
    (3,964
    )
    
    
    (12,669
    )
    
    
    (12,056
    )Income (loss) before income taxes
    
    
    (676
    )
    
    
    786
    
    
    
    29,112
    
    
    
    (125,245
    )Income tax expense:Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    (295
    )
    
    
    
    
    
    
    (295
    )
    
    
    
    (295
    )
    
    
    
    
    
    
    (295
    )Net income (loss)
    
    $
    (676
    )
    
    $
    491
    
    
    $
    29,112
    
    
    $
    (125,540
    )Net income (loss) per share available to common stockholders:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.27
    
    
    $
    (2.00
    )Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.26
    
    
    $
    (2.00
    )Weighted average shares outstanding:Basic
    
    
    115,921
    
    
    
    82,085
    
    
    
    109,657
    
    
    
    62,633Diluted
    
    
    115,921
    
    
    
    82,756
    
    
    
    111,562
    
    
    
    62,633
   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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,112
    
    
    
    29,112Unrealized gains (losses) on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,861
    )
    
    
    
    
    
    
    (1,861
    )Tax benefit (provisions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,251Issuance of common stock
    
    
    16,100
    
    
    
    161
    
    
    
    277,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277,547Exercises of employee stock options
    
    
    487
    
    
    
    5
    
    
    
    2,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,484Vesting of restricted stock
    
    
    120
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    3,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,594Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (471
    )
    
    
    
    
    
    
    
    
    
    
    (471
    )Balance, September 30, 2010
    
    
    116,300
    
    
    $
    1,163
    
    
    $
    762,535
    
    
    $
    (2,604
    )
    
    $
    (2,066
    )
    
    $
    (184,340
    )
    
    $
    574,688
   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)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    29,112
    
    
    $
    (125,540
    )Adjustments to reconcile net income (loss) to cash provided by operating activities:Depletion of oil and natural gas properties
    
    
    38,770
    
    
    
    23,901Impairment of oil and natural gas properties
    
    
    
    
    
    
    114,781Depreciation and amortization
    
    
    856
    
    
    
    550Stock based compensation
    
    
    1,933
    
    
    
    1,360Amortization of deferred loan fees and debt issuance costs
    
    
    1,475
    
    
    
    1,127Loss on early redemption of Senior Notes
    
    
    10,948
    
    
    
    Market value and other adjustments for derivative instruments
    
    
    1,262
    
    
    
    6,037Accretion of discount on asset retirement obligations
    
    
    312
    
    
    
    313Deferred income taxes
    
    
    
    
    
    
    295Other noncash items
    
    
    
    
    
    
    35Changes in operating assets and liabilities:Accounts receivable
    
    
    (21,424
    )
    
    
    9,339Other current assets
    
    
    (2,218
    )
    
    
    (1,123
    )Accounts payable
    
    
    20,574
    
    
    
    (6,287
    )Royalties payable
    
    
    19,336
    
    
    
    (1,273
    )Participant advances received
    
    
    (4,187
    )
    
    
    3,513Other current liabilities
    
    
    (2,067
    )
    
    
    4,199Other noncurrent assets and liabilities
    
    
    (1,461
    )
    
    
    (16
    )Net cash provided by operating activities
    
    
    93,221
    
    
    
    31,211Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (279,406
    )
    
    
    (51,113
    )Decrease (increase) in restricted cash
    
    
    
    
    
    
    (9,464
    )Changes to inventory
    
    
    (14,805
    )
    
    
    Decrease (increase) in short term investments
    
    
    (111,035
    )
    
    
    (8,852
    )Additions to other property and equipment
    
    
    (14,142
    )
    
    
    (1,334
    )Proceeds from the sale of assets
    
    
    12,544
    
    
    
    Decrease (increase) in drilling advances paid
    
    
    (1,397
    )
    
    
    171Net cash provided (used) by investing activities
    
    
    (408,241
    )
    
    
    (70,592
    )Cash flows from financing activities:Proceeds from issuance of common stock, net of issuance costs
    
    
    277,547
    
    
    
    93,407Redemption of Series A mandatorily redeemable preferred stock
    
    
    (10,101
    )
    
    
    Proceeds from Senior Notes offering
    
    
    300,000
    
    
    
    Redemption of Senior Notes
    
    
    (162,789
    )
    
    
    Repayment of senior credit facility
    
    
    
    
    
    
    (35,000
    )Deferred loan fees paid and equity costs
    
    
    (6,427
    )
    
    
    (3,389
    )Proceeds from exercise of employee stock options
    
    
    2,484
    
    
    
    474Repurchases of common stock
    
    
    (471
    )
    
    
    (276
    )Net cash provided (used) by financing activities
    
    
    400,243
    
    
    
    55,216Net increase (decrease) in cash and cash equivalents
    
    
    85,223
    
    
    
    15,835Cash and cash equivalents, beginning of year
    
    
    40,781
    
    
    
    40,043Cash and cash equivalents, end of period
    
    $
    126,004
    
    
    $
    55,878
   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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average common shares outstanding  basic
    
    
    115,921
    
    
    
    82,085
    
    
    
    109,657
    
    
    
    62,633Plus: Potential common shares
Stock options and restricted stock
    
    
    
    
    
    
    671
    
    
    
    1,905
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    115,921
    
    
    
    82,756
    
    
    
    111,562
    
    
    
    62,633Stock options excluded from diluted EPS due to the anti-dilutive effect
    
    
    5,178
    
    
    
    2,688
    
    
    
    1,125
    
    
    
    4,779
 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 Collars10/01/10 - 12/31/10
    
    
    210,000
    
    
    
    
    
    
    $
    5.15
    
    
    $
    7.0010/01/10 - 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
    
    
    $
    6.55Oil Costless Collars10/01/10 - 12/31/10
    
    
    
    
    
    
    30,000
    
    
    $
    48.70
    
    
    $
    80.0010/01/10 - 12/31/10
    
    
    
    
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    86.5010/01/10 - 12/31/10
    
    
    
    
    
    
    15,000
    
    
    $
    60.00
    
    
    $
    88.8010/01/10 - 12/31/10
    
    
    
    
    
    
    12,000
    
    
    $
    70.00
    
    
    $
    101.7510/01/10 - 12/31/10
    
    
    
    
    
    
    9,000
    
    
    $
    70.00
    
    
    $
    91.5010/01/10 - 12/31/10
    
    
    
    
    
    
    6,000
    
    
    $
    60.00
    
    
    $
    100.0010/01/10 - 12/31/10
    
    
    
    
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    96.0010/01/10 - 11/30/10
    
    
    
    
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    95.5010/01/10 - 12/31/10
    
    
    
    
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    82.1510/01/10 - 12/31/10
    
    
    
    
    
    
    15,000
    
    
    $
    65.00
    
    
    $
    94.2510/01/10 - 12/31/10
    
    
    
    
    
    
    6,000
    
    
    $
    65.00
    
    
    $
    107.7010/01/10 - 12/31/10
    
    
    
    
    
    
    15,000
    
    
    $
    75.00
    
    
    $
    101.0010/01/10 - 10/31/10
    
    
    
    
    
    
    5,000
    
    
    $
    75.00
    
    
    $
    101.0010/01/10 - 07/31/12
    
    
    
    
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    97.2010/01/10 - 07/31/12
    
    
    
    
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    98.5510/01/10 - 07/31/12
    
    
    
    
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    100.4010/01/10 - 07/31/12
    
    
    
    
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    100.0010/01/10 - 12/31/10
    
    
    
    
    
    
    3,000
    
    
    $
    70.00
    
    
    $
    88.5011/01/10 - 02/28/11
    
    
    
    
    
    
    60,000
    
    
    $
    65.00
    
    
    $
    98.7501/01/11 - 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
    
    
    $
    104.3001/01/11 - 12/31/11
    
    
    
    
    
    
    182,500
    
    
    $
    65.00
    
    
    $
    100.0003/01/11 - 04/30/11
    
    
    
    
    
    
    16,000
    
    
    $
    75.00
    
    
    $
    104.5003/01/11 - 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
    
    
    $
    100.0005/01/11 - 12/31/11
    
    
    
    
    
    
    122,500
    
    
    $
    65.00
    
    
    $
    106.5007/01/11 - 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
    
    
    $
    95.1509/01/11 - 12/31/11
    
    
    
    
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    99.0009/01/11 - 12/31/11
    
    
    
    
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    97.4010/01/11 - 12/31/11
    
    
    
    
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    96.35
  7




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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
    
    
    NymexOil Costless Collars cont.01/01/12 - 06/30/12
    
    
    
    
    
    
    60,000
    
    
    $
    75.00
    
    
    $
    106.9001/01/12 - 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
    
    
    $
    102.7501/01/12 - 06/30/12
    
    
    
    
    
    
    136,500
    
    
    $
    65.00
    
    
    $
    107.2501/01/12 - 07/31/12
    
    
    
    
    
    
    106,500
    
    
    $
    65.00
    
    
    $
    110.0007/01/12 - 07/31/12
    
    
    
    
    
    
    62,000
    
    
    $
    65.00
    
    
    $
    102.2507/01/12 - 07/31/12
    
    
    
    
    
    
    31,000
    
    
    $
    65.00
    
    
    $
    105.2507/01/12 - 09/30/12
    
    
    
    
    
    
    92,000
    
    
    $
    65.00
    
    
    $
    109.4008/01/12 - 09/30/12
    
    
    
    
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    110.2508/01/12 - 09/30/12
    
    
    
    
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    112.0010/01/12 - 10/31/12
    
    
    
    
    
    
    62,000
    
    
    $
    65.00
    
    
    $
    112.65
 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
  Natural
    
    
    Crude
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexCrude Oil Calls01/01/11 - 06/30/11
    
    
    
    
    
    
    90,500
    
    
    
    
    
    
    $
    95.0001/01/11 -
06/30/11
    
    
    
    
    
    
    90,500
    
    
    
    
    
    
    $
    97.50Crude Oil Puts07/01/11 - 06/30/12
    
    
    
    
    
    
    91,500
    
    
    $
    65.0007/01/11 - 06/30/12
    
    
    
    
    
    
    91,500
    
    
    $
    65.00
 Additional Disclosures about Derivative Instruments and Hedging Activities
  Sept 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
    
    $
    3,969
    
    
    $
    1,152Natural gas and crude oil contracts
    
    Other non-current assets
    
    
    1,388
    
    
    
    186Total Derivative Assets
    
    
    
    $
    5,357
    
    
    $
    1,338Derivative Liabilities:Natural gas and crude oil contracts
    
    Other current liabilities
    
    $
    (2,496
    )
    
    $
    (2,404
    )Natural gas and crude oil contracts
    
    Other non-current liabilities
    
    
    (3,391
    )
    
    
    (909
    )Total Derivative Liabilities
    
    
    
    $
    (5,887
    )
    
    $
    (3,313
    )
  8




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedSept 30, 2010
    
    
    Sept 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
    
    $
    1,689
    
    
    $
    374Crude oil contracts
    
    Gain (loss) on derivatives, net
    
    
    (8,746
    )
    
    
    740Total Derivative Gain (loss)
    
    
    
    $
    (7,057
    )
    
    $
    1,114
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSept 30, 2010
    
    
    Sept 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
    
    $
    4,349
    
    
    $
    5,770Crude oil contracts
    
    Gain (loss) on derivatives, net
    
    
    (3,410
    )
    
    
    (2,740
    )Total Derivative Gain (loss)
    
    
    
    $
    939
    
    
    $
    3,030
  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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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Fair Value Measurements at September 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other current liabilities
    
    $
    (2,496
    )
    
    $
    
    
    
    $
    (2,496
    )
    
    $
    Other non-current liabilities
    
    
    (3,391
    )
    
    
    
    
    
    
    (3,391
    )
    
    
    Other current assets
    
    
    3,969
    
    
    
    
    
    
    
    3,969
    
    
    
    Other non-current assets
    
    
    1,388
    
    
    
    
    
    
    
    1,388
    
    
    
    $
    (530
    )
    
    $
    
    
    
    $
    (530
    )
    
    $
    
 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 September 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Other non-current liabilities
    
    
    (5,834
    )
    
    
    
    
    
    
    
    
    
    
    (5,834
    )$
    (5,834
    )
    
    $
    
    
    
    $
    
    
    
    $
    (5,834
    )
 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 September 30, 2010 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Investments
    
    
    189,267
    
    
    
    189,267
    
    
    
    
    
    
    
    $
    189,267
    
    
    $
    189,267
    
    
    $
    
    
    
    $
    
 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
    
    $
    1,923
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    1,923
    
    
    $
    1Corporate bonds and notes
    
    
    122,491
    
    
    
    (1,362
    )
    
    
    19,450
    
    
    
    (262
    )
    
    
    141,941
    
    
    
    (1,624
    )Government securities
    
    
    30,403
    
    
    
    (443
    )
    
    
    15,000
    
    
    
    
    
    
    
    45,403
    
    
    
    (443
    )Total
    
    $
    154,817
    
    
    $
    (1,804
    )
    
    $
    34,450
    
    
    $
    (262
    )
    
    $
    189,267
    
    
    $
    (2,066
    )
   September 30, 2010
    
    
    December 31, 2009(in thousands)
    
    
    (in thousands)Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueSenior Notes
    
    $
    305,594
    
    
    $
    305,895
    
    
    $
    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




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 13. Asset Retirement Obligations
   Nine Months EndedSeptember 30,2010
    
    
    2009Beginning asset retirement obligations
    
    $
    6,323
    
    
    $
    5,592Liabilities incurred for new wells placed on production
    
    
    548
    
    
    
    303Liabilities settled
    
    
    (141
    )
    
    
    (15
    )Accretion of discount on asset retirement obligations
    
    
    312
    
    
    
    313Revisions to estimates due to sale of oil and gas properties
    
    
    (1,208
    )
    
    
    $
    5,834
    
    
    $
    6,193
 14. Stock Based Compensation
   2010
    
    
    2009Risk-free interest rate
    
    
    2.47
    %
    
    
    2.65
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    81
    %
    
    
    78
    %Expected dividend yield
    
    
    
    
    
    
    Weighted average fair value per share of stock compensation
    
    $
    12.39
    
    
    $
    3.14
   14




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Pre-tax stock based compensation expense
    
    $
    1,698
    
    
    $
    1,060
    
    
    $
    3,594
    
    
    $
    2,526Capitalized stock based compensation
    
    
    (804
    )
    
    
    (497
    )
    
    
    (1,662
    )
    
    
    (1,166
    )Tax benefit
    
    
    (313
    )
    
    
    (197
    )
    
    
    (676
    )
    
    
    (476
    )Stock based compensation expense, net
    
    $
    581
    
    
    $
    366
    
    
    $
    1,256
    
    
    $
    884
 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
    
    
    969,500
    
    
    $
    18.88
    
    
    
    2,686,975
    
    
    $
    4.35Forfeited or cancelled
    
    
    (16,800
    )
    
    $
    3.92
    
    
    
    (1,549,675
    )
    
    $
    8.30Exercised
    
    
    (487,107
    )
    
    $
    5.03
    
    
    
    (99,800
    )
    
    $
    4.73Options outstanding at the end of the quarter
    
    
    4,635,730
    
    
    $
    8.03
    
    
    
    4,166,151
    
    
    $
    4.86Options exercisable at the end of the quarter
    
    
    805,650
    
    
    $
    5.65
    
    
    
    694,876
    
    
    $
    5.95
   15




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-
    
    
    
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Average
    
    Weighted-
    
    
    Exercisable at
    
    
    Average
    
    Weighted-September 30,
    
    
    Remaining
    
    Average
    
    
    September 30,
    
    
    Remaining
    
    AverageExercise Price
    
    2010
    
    
    Contractual Life
    
    Exercise Price
    
    
    2010
    
    
    Contractual Life
    
    Exercise Price$2.20 to $3.11
    
    
    1,132,000
    
    
    8.5 years
    
    $
    2.24
    
    
    
    180,000
    
    
    8.5 years
    
    $
    2.253.66 to 5.08
    
    
    416,600
    
    
    5.0 years
    
    $
    5.08
    
    
    
    53,400
    
    
    5.0 years
    
    $
    5.085.96 to 6.46
    
    
    1,736,780
    
    
    8.1 years
    
    $
    5.98
    
    
    
    424,400
    
    
    6.7 years
    
    $
    6.037.22 to 8.84
    
    
    143,850
    
    
    3.2 years
    
    $
    7.62
    
    
    
    73,850
    
    
    2.2 years
    
    $
    7.678.93 to 13.86
    
    
    237,000
    
    
    6.7 years
    
    $
    11.66
    
    
    
    74,000
    
    
    3.8 years
    
    $
    10.1514.43 to 16.85
    
    
    57,000
    
    
    9.7 years
    
    $
    15.20
    
    
    
    
    
    
    
    
    $
    18.36 to 19.12
    
    
    912,500
    
    
    9.6 years
    
    $
    19.11
    
    
    
    
    
    
    
    
    $
    $2.20 to $19.12
    
    
    4,635,730
    
    
    8.0 years
    
    $
    8.03
    
    
    
    805,650
    
    
    6.1 years
    
    $
    5.65
   Restricted Stock
   2010
    
    
    2009Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    PriceRestricted shares outstanding at the beginning of the year
    
    
    556,990
    
    
    $
    7.04
    
    
    
    593,260
    
    
    $
    7.58Shares granted
    
    
    105,363
    
    
    $
    14.45
    
    
    
    247,074
    
    
    $
    2.62Shares forfeited
    
    
    (600
    )
    
    $
    5.26
    
    
    
    (1,000
    )
    
    $
    9.49Lapse of restrictions
    
    
    (119,760
    )
    
    $
    7.31
    
    
    
    (226,008
    )
    
    $
    4.27Shares outstanding at the end of the quarter
    
    
    541,993
    
    
    $
    8.43
    
    
    
    613,326
    
    
    $
    6.80
  16




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 15. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    (676
    )
    
    $
    491
    
    
    $
    29,112
    
    
    $
    (125,540
    )Unrealized gains (losses) on investments
    
    
    220
    
    
    
    
    
    
    
    (1,861
    )
    
    
    Other comprehensive income (loss), net
    
    $
    (456
    )
    
    $
    491
    
    
    $
    27,251
    
    
    $
    (125,540
    )
 16. Subsequent Events
  17. Related Party Transactions
    17




---



##### 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 Third Quarter 2010 Financial Results
     18




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##### Table of Contents



Overview of Third Quarter 2010 and Recent Fourth Quarter 2010 Operational Results
 Williston Basin
  Frac
    
    
    IP
    
    
    30 DayWell Name
    
    County
    
    Objective
    
    ~WI%
    
    
    Stages
    
    
    (Boe/d)
    
    
    Average (Boe/d)**Brad Olson 9-16 #2H
    
    Williams
    
    Bakken
    
    
    56
    %*
    
    
    32
    
    
    
    2,717
    
    
    NASmith Farms 23-14 #1H
    
    Williams
    
    Bakken
    
    
    82
    %
    
    
    32
    
    
    
    2,417
    
    
    NAAbelmann 23-14 #1H
    
    McKenzie
    
    Bakken
    
    
    53
    %
    
    
    33
    
    
    
    4,169
    
    
    NAClifford Bakke 26-35 #1H
    
    Mountrail
    
    Bakken
    
    
    43
    %
    
    
    38
    
    
    
    5,061
    
    
    NABoots 13-24 #1H
    
    Williams
    
    Bakken
    
    
    74
    %
    
    
    31
    
    
    
    1,946
    
    
    
    662Larsen 3-10 #1H
    
    Williams
    
    Bakken
    
    
    72
    %
    
    
    31
    
    
    
    3,090
    
    
    
    1,034Domaskin 30-31 #1H
    
    Mountrail
    
    Bakken
    
    
    65
    %
    
    
    38
    
    
    
    4,675
    
    
    NAState 36-1 #2H
    
    Williams
    
    Three Forks
    
    
    30
    %*
    
    
    31
    
    
    
    2,356
    
    
    NASukut 28-33 #1H
    
    Williams
    
    Bakken
    
    
    42
    %*
    
    
    32
    
    
    
    1,959
    
    
    
    801Abe Owan 21-16 #1H
    
    Williams
    
    Bakken
    
    
    57
    %
    
    
    37
    
    
    
    2,213
    
    
    
    796Weisz 11-14 #1H
    
    Williams
    
    Bakken
    
    
    52
    %
    
    
    37
    
    
    
    2,278
    
    
    
    1,014Wright 4-33 #1H
    
    Mountrail
    
    Bakken
    
    
    88
    %
    
    
    38
    
    
    
    3,660
    
    
    
    1,322Michael Owan 26-35 #1H
    
    Williams
    
    Bakken
    
    
    87
    %
    
    
    33
    
    
    
    2,931
    
    
    
    889Sedlacek Trust 33-4 #1H
    
    McKenzie
    
    Bakken
    
    
    48
    %*
    
    
    30
    
    
    
    2,695
    
    
    
    826Rogney 17-8 #1H
    
    Roosevelt
    
    Bakken
    
    
    100
    %
    
    
    30
    
    
    
    909
    
    
    
    355Averages
    
    
    
    
    
    
    
    
    2,872
    
    
    
    855
 *
    
    Rough Rider drilling participation agreement well where our working interest is anticipated to
increase upon payout.**
    
    Excludes any days well was down for remediation.  19




---



##### Table of Contents



Results for the Three and Nine Months Ended September 30, 2010
 Comparison of the three month and nine month periods ended September 30, 2010 and 2009.
 Production volumes
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil (MBbls)(1)
    
    
    572
    
    
    
    144
    %
    
    
    235
    
    
    
    1,394
    
    
    
    144
    %
    
    
    572Natural gas (MMcf)
    
    
    1,163
    
    
    
    (17
    %)
    
    
    1,401
    
    
    
    3,344
    
    
    
    (29
    %)
    
    
    4,703Total (MBoe)(2)
    
    
    766
    
    
    
    64
    %
    
    
    468
    
    
    
    1,952
    
    
    
    44
    %
    
    
    1,356Average daily production (Boe/d)(3)
    
    
    8,509
    
    
    
    64
    %
    
    
    5,200
    
    
    
    7,228
    
    
    
    44
    %
    
    
    5,022
 
 (1)
    
    Includes approximately 7,395 barrels of crude oil produced in the Williston Basin
during the third quarter 2010 and added to crude oil inventory during the third quarter
2010. Includes approximately 17,496 barrels of crude oil produced in the Williston Basin
during the first nine months 2010. Ending inventory as of the first nine months 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.  Sales Volumes (Production volumes less the Incremental Change in Inventory)
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Crude oil (MBbls)(1)
    
    
    565
    
    
    
    140
    %
    
    
    235
    
    
    
    1,377
    
    
    
    141
    %
    
    
    572Natural gas (MMcf)
    
    
    1,163
    
    
    
    (17
    %)
    
    
    1,401
    
    
    
    3,344
    
    
    
    (29
    %)
    
    
    4,703Total (MBoe)(2)
    
    
    758
    
    
    
    62
    %
    
    
    468
    
    
    
    1,934
    
    
    
    43
    %
    
    
    1,356Average daily production (Boe/d)(3)
    
    
    8,427
    
    
    
    62
    %
    
    
    5,200
    
    
    
    7,163
    
    
    
    43
    %
    
    
    5,022
 
 (1)
    
    Excludes approximately 7,395 barrels of crude oil produced in the Williston Basin
during the third quarter 2010 and added to crude oil inventory at the end of the third
quarter 2010. Excludes approximately 17,496 barrels of crude oil produced in the Williston
Basin during the first nine months 2010. Ending inventory as of the first nine months 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 September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Oil revenue:Oil revenue
    
    $
    37,868
    
    
    
    170
    %
    
    $
    14,010
    
    
    $
    95,161
    
    
    
    239
    %
    
    $
    28,065Oil derivative settlement gains (losses)
    
    
    
    
    
    
    (100
    %)
    
    
    (538
    )
    
    
    (228
    )
    
    NM
    
    
    
    322Oil revenue including derivative settlements
    
    $
    37,868
    
    
    
    181
    %
    
    $
    13,472
    
    
    $
    94,933
    
    
    
    234
    %
    
    $
    28,387Oil derivative unrealized gains (losses)
    
    
    (8,746
    )
    
    NM
    
    
    
    1,278
    
    
    
    (3,183
    )
    
    
    4
    %
    
    
    (3,063
    )Oil revenue including derivative settlements and unrealized gains (losses)
    
    $
    29,122
    
    
    
    97
    %
    
    $
    14,750
    
    
    $
    91,750
    
    
    
    262
    %
    
    $
    25,324Natural gas revenue:Natural gas revenue
    
    $
    5,795
    
    
    
    22
    %
    
    $
    4,737
    
    
    $
    17,996
    
    
    
    2
    %
    
    $
    17,700Natural gas derivative settlement gains (losses)
    
    
    757
    
    
    
    (5
    %)
    
    
    798
    
    
    
    2,428
    
    
    
    (72
    %)
    
    
    8,745Natural gas revenue including derivative settlements
    
    $
    6,552
    
    
    
    18
    %
    
    $
    5,535
    
    
    $
    20,424
    
    
    
    (23
    %)
    
    $
    26,445Natural gas derivative unrealized gains (losses)
    
    
    932
    
    
    NM
    
    
    
    (424
    )
    
    
    1,922
    
    
    NM
    
    
    
    (2,974
    )Natural gas revenue including derivative settlements and unrealized gains
(losses)
    
    $
    7,484
    
    
    
    46
    %
    
    $
    5,111
    
    
    $
    22,346
    
    
    
    (5
    %)
    
    $
    23,471Oil and natural gas revenue:Oil and natural gas revenue
    
    $
    43,663
    
    
    
    133
    %
    
    $
    18,747
    
    
    $
    113,157
    
    
    
    147
    %
    
    $
    45,765Oil and natural gas derivative settlement gains (losses)
    
    
    757
    
    
    
    191
    %
    
    
    260
    
    
    
    2,200
    
    
    
    (76
    %)
    
    
    9,067Oil and natural gas revenue including derivative settlements
    
    
    44,420
    
    
    
    134
    %
    
    
    19,007
    
    
    
    115,357
    
    
    
    110
    %
    
    
    54,832Oil and natural gas derivative unrealized gains (losses)
    
    
    (7,814
    )
    
    NM
    
    
    
    854
    
    
    
    (1,261
    )
    
    
    (79
    %)
    
    
    (6,037
    )Oil and natural gas revenue including derivative settlements and
unrealized gains (losses)
    
    
    36,606
    
    
    
    84
    %
    
    
    19,861
    
    
    
    114,096
    
    
    
    134
    %
    
    
    48,795Other revenue
    
    
    4
    
    
    
    (33
    %)
    
    
    6
    
    
    
    17
    
    
    
    (76
    %)
    
    
    72Total revenue
    
    $
    36,610
    
    
    
    84
    %
    
    $
    19,867
    
    
    $
    114,113
    
    
    
    134
    %
    
    $
    48,867
  21




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Average oil prices:Oil price (per Bbl)
    
    $
    67.07
    
    
    
    12
    %
    
    $
    59.74
    
    
    $
    69.12
    
    
    
    41
    %
    
    $
    49.06Oil price including derivative settlement gains (losses) (per Bbl)
    
    
    67.07
    
    
    
    17
    %
    
    
    57.45
    
    
    
    68.97
    
    
    
    39
    %
    
    
    49.62Oil price including derivative settlements and unrealized gains (losses)
(per Bbl)
    
    $
    51.58
    
    
    
    (18
    %)
    
    $
    62.90
    
    
    $
    66.64
    
    
    
    51
    %
    
    $
    44.27Average natural gas prices:Natural gas price (per Mcf)
    
    $
    4.98
    
    
    
    47
    %
    
    $
    3.38
    
    
    $
    5.38
    
    
    
    43
    %
    
    $
    3.76Natural gas price including derivative settlement gains (losses) (per Mcf)
    
    
    5.63
    
    
    
    43
    %
    
    
    3.95
    
    
    
    6.11
    
    
    
    9
    %
    
    
    5.62Natural gas price including derivative settlements and unrealized gains
(losses) (per Mcf)
    
    $
    6.44
    
    
    
    76
    %
    
    $
    3.65
    
    
    $
    6.68
    
    
    
    34
    %
    
    $
    4.99Average oil equivalent prices:Oil equivalent price (per Boe)
    
    $
    57.57
    
    
    
    44
    %
    
    $
    40.06
    
    
    $
    58.51
    
    
    
    73
    %
    
    $
    33.75Oil equivalent price including derivative settlement gains (losses) (per Boe)
    
    
    58.57
    
    
    
    44
    %
    
    
    40.61
    
    
    
    59.64
    
    
    
    47
    %
    
    
    40.44Oil equivalent price including derivative settlements and unrealized gains
(losses) (per Boe)
    
    $
    48.27
    
    
    
    14
    %
    
    $
    42.44
    
    
    $
    58.99
    
    
    
    64
    %
    
    $
    35.98
 For the three
    
    
    For the ninemonth periods
    
    
    month periodsended September 30,
    
    
    ended September 30,2010 and 2009
    
    
    2010 and 2009Change in revenue from the sale of oilVolume variance impact
    
    $
    19,720
    
    
    $
    39,477Price variance impact
    
    
    4,138
    
    
    
    27,619Cash settlement of hedging contracts
    
    
    538
    
    
    
    (550
    )Unrealized hedge gain or loss
    
    
    (10,024
    )
    
    
    (120
    )Total change
    
    $
    14,372
    
    
    $
    66,426Change in revenue from the sale of natural gasVolume variance impact
    
    $
    (807
    )
    
    $
    (5,125
    )Price variance impact
    
    
    1,865
    
    
    
    5,421Cash settlement of hedging contracts
    
    
    (41
    )
    
    
    (6,317
    )Unrealized hedge gain or loss
    
    
    1,356
    
    
    
    4,896Total change
    
    $
    2,373
    
    
    $
    (1,125
    )Change in revenue from the sale of oil and natural gasVolume variance impact
    
    $
    18,913
    
    
    $
    34,353Price variance impact
    
    
    6,003
    
    
    
    33,039Cash settlement of hedging contracts
    
    
    497
    
    
    
    (6,867
    )Unrealized hedge gain or loss
    
    
    (8,668
    )
    
    
    4,776Total change
    
    $
    16,745
    
    
    $
    65,301
  22




---



##### 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 $18.9 million increase in crude oil and natural
gas revenues;
 
    
    a 44% increase in pre-hedge per Boe sales prices resulted in a $6.0 million increase in
revenues;
 
    
    a $0.8 million gain from the settlement of derivative contracts in the third quarter
2010 versus a $0.3 million gain from the settlement of derivative contracts in third
quarter 2009 increased revenues by $0.5 million; and
 
    
    a $7.8 million unrealized derivative loss in third quarter 2010 versus a $0.9 million
unrealized derivative gain in third quarter 2009 decreased revenues by $8.7 million.
  
    
    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 $34.4 million increase in crude oil and natural
gas revenues;
 
    
    a 73% increase in pre-hedge per Boe sales prices resulted in a $33.0 million increase in
revenues;
 
    
    a $1.2 million unrealized derivative loss in first nine months 2010 versus a $6.0
million unrealized derivative loss in first nine months 2009 increased revenues by $4.8
million; and
 
    
    a $2.2 million gain from the settlement of derivative contracts in the first nine months
2010 versus a $9.1 million gain from the settlement of derivative contracts in first nine
months 2009 decreased revenues by $6.9 million.
 Hedging.
   23




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Oil collarsVolumes (Bbls)
    
    
    322,000
    
    
    
    250
    %
    
    
    92,000
    
    
    
    678,000
    
    
    
    381
    %
    
    
    141,000Average floor price ($  per Bo)
    
    $
    63.92
    
    
    
    13
    %
    
    $
    56.39
    
    
    $
    61.88
    
    
    
    0
    %
    
    $
    61.67Average ceiling price ($  per Bo)
    
    $
    94.60
    
    
    
    27
    %
    
    $
    74.78
    
    
    $
    91.64
    
    
    
    11
    %
    
    $
    82.49Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    (11
    )
    
    $
    (228
    )
    
    NM
    
    
    $
    1,115Oil swapsVolumes (Bbls)
    
    
    
    
    
    
    (100
    %)
    
    
    30,000
    
    
    
    
    
    
    
    (100
    %)
    
    
    60,000Average swap price ($  per Bo)
    
    $
    
    
    
    
    (100
    %)
    
    $
    50.75
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    50.75Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    (527
    )
    
    $
    
    
    
    
    (100
    %)
    
    $
    (793
    )Total oilGain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    (538
    )
    
    $
    (228
    )
    
    NM
    
    
    $
    322Natural gas collarsVolumes (MMbtu)
    
    
    690,000
    
    
    NM
    
    
    
    
    
    
    
    1,800,000
    
    
    
    80
    %
    
    
    1,000,000Average floor price ($  per MMbtu)
    
    $
    5.51
    
    
    NM
    
    
    $
    
    
    
    $
    5.50
    
    
    
    (30
    %)
    
    $
    7.81Average ceiling price ($  per MMbtu)
    
    $
    7.02
    
    
    NM
    
    
    $
    
    
    
    $
    7.02
    
    
    
    (25
    %)
    
    $
    9.32Gain (loss) upon settlement ($ in thousands)
    
    $
    757
    
    
    NM
    
    
    $
    
    
    
    $
    1,855
    
    
    
    (69
    %)
    
    $
    5,936Natural gas three waysVolumes (MMbtu)
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    390,000
    
    
    
    77
    %
    
    
    220,000Average floor price ($  per MMbtu)
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    6.96
    
    
    
    (6
    %)
    
    $
    7.44Average ceiling price ($  per MMbtu)
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    8.62
    
    
    
    (13
    %)
    
    $
    9.86Average price  written puts ($  per MMbtu)
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    4.58
    
    
    
    0
    %
    
    $
    4.58Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    573
    
    
    
    (42
    %)
    
    $
    996Natural gas swapsVolumes (MMbtu)
    
    
    
    
    
    
    (100
    %)
    
    
    1,126,000
    
    
    
    
    
    
    
    (100
    %)
    
    
    2,188,000Average swap price ($  per MMbtu)
    
    $
    
    
    
    
    (100
    %)
    
    $
    4.138
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    4.349Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    798
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    1,813Total gasGain (loss) upon settlement ($ in thousands)
    
    $
    757
    
    
    
    (5
    %)
    
    $
    798
    
    
    $
    2,428
    
    
    
    (72
    %)
    
    $
    8,745
 Other revenue
 Operating costs and expenses
 Production costs.
 Unit-of-Production
    
    
    Amount(Per Boe)
    
    
    (In thousands)Three months ended September 30,
    
    
    Three months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Production costs:Operating & maintenance
    
    $
    4.58
    
    
    
    (18
    %)
    
    $
    5.59
    
    
    $
    3,470
    
    
    
    33
    %
    
    $
    2,616Expensed workovers
    
    
    0.32
    
    
    
    (57
    %)
    
    
    0.75
    
    
    
    244
    
    
    
    (30
    %)
    
    
    351Ad valorem taxes
    
    
    0.33
    
    
    
    (51
    %)
    
    
    0.67
    
    
    
    250
    
    
    
    (20
    %)
    
    
    312Lease operating expenses
    
    $
    5.23
    
    
    
    (25
    %)
    
    $
    7.01
    
    
    $
    3,964
    
    
    
    21
    %
    
    $
    3,279Production taxes
    
    
    5.61
    
    
    
    69
    %
    
    
    3.31
    
    
    
    4,250
    
    
    
    174
    %
    
    
    1,551Production costs
    
    $
    10.84
    
    
    
    5
    %
    
    $
    10.32
    
    
    $
    8,214
    
    
    
    70
    %
    
    $
    4,830
  24




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##### Table of Contents




    
    production taxes increased $2.30 per Boe, or 69%, due to higher commodity sales prices
and higher crude oil sales volumes in North Dakota, which are subject to a 11.5% tax rate;
 
    
    operating and maintenance expenses decreased $1.01 per Boe, or 18%, primarily due to
higher production volumes; and
 
    
    expensed workovers decreased $0.43 per Boe, or 57%, due to a lower number of workovers.
 Unit-of-Production
    
    
    Amount(Per Boe)
    
    
    (In thousands)Nine months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009Production costs:Operating & maintenance
    
    $
    4.61
    
    
    
    (25
    %)
    
    $
    6.13
    
    
    $
    8,915
    
    
    
    7
    %
    
    $
    8,313Expensed workovers
    
    
    1.56
    
    
    
    43
    %
    
    
    1.09
    
    
    
    3,019
    
    
    
    105
    %
    
    
    1,476Ad valorem taxes
    
    
    0.39
    
    
    
    (38
    %)
    
    
    0.63
    
    
    
    750
    
    
    
    (13
    %)
    
    
    862Lease operating expenses
    
    $
    6.56
    
    
    
    (17
    %)
    
    $
    7.85
    
    
    $
    12,684
    
    
    
    19
    %
    
    $
    10,651Production taxes
    
    
    5.51
    
    
    
    133
    %
    
    
    2.36
    
    
    
    10,658
    
    
    
    233
    %
    
    
    3,196Production costs
    
    $
    12.07
    
    
    
    18
    %
    
    $
    10.21
    
    
    $
    23,342
    
    
    
    69
    %
    
    $
    13,847
  
    
    production taxes increased $3.15 per Boe, or 133%, 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 $0.47 per Boe, or 43%, 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 $1.52 per Boe, or 25%, primarily due to
higher production volumes.
 General and administrative expenses.
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands, except per unit measurements)General and administrative costs
    
    $
    6,255
    
    
    
    60
    %
    
    $
    3,901
    
    
    $
    17,503
    
    
    
    50
    %
    
    $
    11,660Capitalized general and administrative costs
    
    
    (3,000
    )
    
    
    65
    %
    
    
    (1,819
    )
    
    
    (8,451
    )
    
    
    63
    %
    
    
    (5,192
    )General and administrative expenses
    
    $
    3,255
    
    
    
    56
    %
    
    $
    2,082
    
    
    $
    9,052
    
    
    
    40
    %
    
    $
    6,468General and administrative expense ($  per Boe)
    
    $
    4.29
    
    
    
    (4
    %)
    
    $
    4.45
    
    
    $
    4.68
    
    
    
    (2
    %)
    
    $
    4.77
   25




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##### Table of Contents



Depletion of oil and natural gas properties
 Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands, except per unit measurements)Depletion of oil and natural gas properties
    
    $
    15,312
    
    
    
    95
    %
    
    $
    7,835
    
    
    $
    38,770
    
    
    
    62
    %
    
    $
    23,901Depletion of oil and natural gas properties ($  per Boe)
    
    $
    20.20
    
    
    
    21
    %
    
    $
    16.74
    
    
    $
    20.05
    
    
    
    14
    %
    
    $
    17.63
   Impairment of oil and natural gas properties
   Inventory Valuation.
 Net interest expense.
  26




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands)Interest on Senior Notes
    
    $
    3,977
    
    
    
    3
    %
    
    $
    3,850
    
    
    $
    11,677
    
    
    
    1
    %
    
    $
    11,550Interest on Senior Credit Facility
    
    
    
    
    
    
    (100
    %)
    
    
    1,063
    
    
    
    
    
    
    
    (100
    %)
    
    
    3,089Commitment fees
    
    
    161
    
    
    
    519
    %
    
    
    26
    
    
    
    487
    
    
    
    586
    %
    
    
    71Dividend on mandatorily redeemable preferred stock
    
    
    
    
    
    
    (100
    %)
    
    
    153
    
    
    
    269
    
    
    
    (41
    %)
    
    
    453Amortization of deferred loan and debt issuance cost
    
    
    435
    
    
    
    (8
    %)
    
    
    475
    
    
    
    1,398
    
    
    
    32
    %
    
    
    1,056Other general interest expense
    
    
    
    
    
    
    (100
    %)
    
    
    14
    
    
    
    101
    
    
    
    237
    %
    
    
    30Capitalized interest expense
    
    
    (2,515
    )
    
    
    137
    %
    
    
    (1,060
    )
    
    
    (6,039
    )
    
    
    80
    %
    
    
    (3,350
    )Net interest expense
    
    $
    2,058
    
    
    
    (54
    %)
    
    $
    4,521
    
    
    $
    7,893
    
    
    
    (39
    %)
    
    $
    12,899Weighted average debt outstanding
    
    $
    166,331
    
    
    
    (41
    %)
    
    $
    280,101
    
    
    $
    168,091
    
    
    
    (44
    %)
    
    $
    298,819Average interest rate on outstanding indebtedness (a)
    
    
    9.9
    %
    
    
    
    
    
    
    7.2
    %
    
    
    10.0
    %
    
    
    
    
    
    
    6.8
    %
 
 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 September 30,
    
    
    Nine months ended September 30,2010
    
    
    % Change
    
    
    2009
    
    
    2010
    
    
    % Change
    
    
    2009(In thousands)Other income (expense):Total other income
    
    $
    1,250
    
    
    
    213
    %
    
    $
    400
    
    
    $
    3,116
    
    
    
    546
    %
    
    $
    482
  Income taxes.
  27




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##### 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



AmountNovember

    
    
    Spent Through2010
    
    
    September 30,
    
    
    AmountBudget
    
    
    2010
    
    

Remaining
(a)(In millions)Drilling
    
    $
    315.8
    
    
    $
    198.0
    
    
    $
    117.8Field level infrastructure (b)
    
    
    36.0
    
    
    
    16.3
    
    
    
    19.7Land and seismic
    
    
    51.2
    
    
    
    40.1
    
    
    
    11.1Acreage acquisitions
    
    
    63.1
    
    
    
    63.1
    
    
    
    Exploration and development capital budget
    
    $
    466.1
    
    
    $
    317.5
    
    
    $
    148.6
 
 (a)
    
    Calculated based on the November 2010 exploration and development capital budget less amounts spent
through September 30, 2010.(b)
    
    Oil and natural gas pipeline capital expenditures are
recorded on our balance sheet in oil
and natural gas properties. Salt water disposal and fresh water pipelines are recorded on our
balance sheet in other property and equipment.  29




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Capital
  Senior Notes
    
    
    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.
  8 3/4%
 Senior Credit Facility
     30




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##### 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.   Off Balance Sheet Arrangements
   31




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##### Table of Contents



Analysis of Changes in Cash and Cash Equivalents
  Nine months ended September 30,2010
    
    
    %Change
    
    
    2009(In thousands)Net income (loss)
    
    $
    29,112
    
    
    NM
    
    
    $
    (125,540
    )Non-cash items
    
    
    55,556
    
    
    
    (63
    %)
    
    
    148,399Changes in working capital and other items
    
    
    8,553
    
    
    
    2
    %
    
    
    8,352Cash flows provided by operating activities
    
    $
    93,221
    
    
    
    199
    %
    
    $
    31,211Cash flows used by investing activities
    
    
    (408,241
    )
    
    
    478
    %
    
    
    (70,592
    )Cash flows provided by financing activities
    
    
    400,243
    
    
    
    625
    %
    
    
    55,216Net increase in cash and cash equivalents
    
    $
    85,223
    
    
    
    438
    %
    
    $
    15,835
 Analysis of net cash provided by operating activities
    32




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##### Table of Contents



Analysis of changes in cash flows used in investing activities
 Nine months ended September 30,2010
    
    
    %Change
    
    
    2009(In thousands)Capital expenditures for oil and natural gas activities:Drilling
    
    $
    197,970
    
    
    
    426
    %
    
    $
    37,610Field level infrastructure (a)
    
    
    16,259
    
    
    NM
    
    
    
    Land and
seismic and acreage acquisitions
    
    
    103,172
    
    
    NM
    
    
    
    (3,212
    )Capitalized cost
    
    
    14,489
    
    
    
    70
    %
    
    
    8,543Capitalized asset retirement obligation
    
    
    547
    
    
    
    81
    %
    
    
    302Total
    
    $
    332,437
    
    
    
    669
    %
    
    $
    43,243Reconciling Items:Asset sale proceeds including ARO liability reduction
    
    $
    (13,706
    )
    
    NM
    
    
    $
    Change in accrued drilling costs
    
    $
    (41,605
    )
    
    NM
    
    
    $
    9,338Change in drilling advances paid
    
    
    1,397
    
    
    NM
    
    
    
    (171
    )Change in restricted cash
    
    
    
    
    
    
    (100
    %)
    
    
    9,464Change in short term investments
    
    
    111,035
    
    
    
    1,154
    %
    
    
    8,852Change in other property and equipment (b)
    
    
    4,500
    
    
    NM
    
    
    
    Change in inventory
    
    
    14,805
    
    
    NM
    
    
    
    Other
    
    
    (622
    )
    
    
    364
    %
    
    
    (134
    )Total Reconciling Items
    
    
    75,804
    
    
    
    177
    %
    
    
    27,349Net cash used in investing activities
    
    $
    408,241
    
    
    
    478
    %
    
    $
    70,592
 (a)
    
    Oil and natural gas pipeline capital expenditures are recorded on our balance sheet in
oil and natural gas properties. Salt water disposal and fresh water pipelines are recorded
on our balance sheet in other property and equipment.(b)
    
    Excludes approximately $9.3 million in salt water disposal and fresh water pipelines
included in field level infrastructure.  
    
    drilling expenditures increased by $160.4 million;
 
    
    field level infrastructure increased by $16.3 million;
 
    
    land and seismic and acreage acquisition expenditures increased by $106.4 million;
 
    
    capitalized costs increased by $5.9 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 $50.9
million;
 
    
    the change in short term investments increased cash used in investing activities by
$102.2 million;
 
    
    the change in other property and equipment increased cash used in investing activities by
$4.5 million; and
 
    
    the change in inventory increased cash used in investing activities by $14.8 million.
 Analysis of changes in cash flows from financing activities
   33




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##### Table of Contents



Common Stock Transactions
  Shares Issued
    
    
    Net Proceeds(In thousands, except share data)2010 common stock transactions:Common stock offering (April)
    
    
    16,100,000
    
    
    $
    277,547Exercise of employee stock options
    
    
    487,107
    
    
    $
    2,4842009 common stock transactions:Common stock offering (May)
    
    
    36,292,117
    
    
    $
    93,523Exercise of employee stock options
    
    
    100,300
    
    
    $
    474
 Other Matters
 Derivative Instruments
  Effects of Inflation and Changes in Prices
  Environmental and Other Regulatory Matters
  Forward-looking Information
   34




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Management Opinion Concerning Derivative Instruments
  Derivative Instruments and Hedging Activities
         35




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##### Table of Contents



Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    

(Barrels)
    
    
    (Nymex)
    
    
    (Nymex)Crude Oil Costless Collars10/01/10 - 12/31/10
    
    
    30,000
    
    
    $
    48.70
    
    
    $
    80.0010/01/10 - 12/31/10
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    82.1510/01/10 - 12/31/10
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    86.5001/01/11 - 12/31/11
    
    
    84,000
    
    
    $
    65.00
    
    
    $
    88.2510/01/10 - 12/31/10
    
    
    3,000
    
    
    $
    70.00
    
    
    $
    88.5010/01/10 - 12/31/10
    
    
    15,000
    
    
    $
    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
    
    
    $
    97.5010/01/10 - 12/31/10
    
    
    9,000
    
    
    $
    60.00
    
    
    $
    96.0010/01/10 - 12/31/10
    
    
    6,000
    
    
    $
    60.00
    
    
    $
    100.0010/01/10 - 12/31/10
    
    
    6,000
    
    
    $
    65.00
    
    
    $
    107.7001/01/11 - 12/31/11
    
    
    48,000
    
    
    $
    70.00
    
    
    $
    106.8010/01/10 - 12/31/10
    
    
    12,000
    
    
    $
    70.00
    
    
    $
    101.7501/01/11 - 12/31/11
    
    
    48,000
    
    
    $
    75.00
    
    
    $
    102.6007/01/11 - 12/31/11
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    103.0010/01/10 - 12/31/10
    
    
    15,000
    
    
    $
    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
    
    
    $
    92.0010/01/10 - 12/31/10
    
    
    9,000
    
    
    $
    70.00
    
    
    $
    91.5001/01/11 - 07/31/11
    
    
    21,000
    
    
    $
    70.00
    
    
    $
    94.8010/01/10 - 11/30/10
    
    
    6,000
    
    
    $
    70.00
    
    
    $
    95.5001/01/11 - 03/31/11
    
    
    9,000
    
    
    $
    75.00
    
    
    $
    93.5007/01/11 - 12/31/11
    
    
    12,000
    
    
    $
    75.00
    
    
    $
    95.1510/01/10 - 12/31/10
    
    
    15,000
    
    
    $
    75.00
    
    
    $
    101.0001/01/11 - 12/31/11
    
    
    36,000
    
    
    $
    75.00
    
    
    $
    104.3001/01/12 - 06/30/12
    
    
    60,000
    
    
    $
    75.00
    
    
    $
    106.9010/01/10 - 10/31/10
    
    
    5,000
    
    
    $
    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
    
    
    $
    100.0010/01/10 - 07/31/12
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    97.2010/01/10 - 07/31/12
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    98.5510/01/10 - 07/31/12
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    100.0010/01/10 - 07/31/12
    
    
    335,000
    
    
    $
    65.00
    
    
    $
    100.4003/01/11 - 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
    
    
    $
    98.7501/01/11 - 12/31/11
    
    
    182,500
    
    
    $
    65.00
    
    
    $
    100.0001/01/12 - 06/30/12
    
    
    136,500
    
    
    $
    65.00
    
    
    $
    107.2507/01/12 - 09/30/12
    
    
    92,000
    
    
    $
    65.00
    
    
    $
    109.4008/01/12 - 09/30/12
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    110.2508/01/12 -
09/30/12
    
    
    61,000
    
    
    $
    65.00
    
    
    $
    112.0010/01/12 - 10/31/12
    
    
    62,000
    
    
    $
    65.00
    
    
    $
    112.6501/01/12 - 07/31/12
    
    
    106,500
    
    
    $
    65.00
    
    
    $
    110.00
  36




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##### Table of Contents



Crude
    
    
    PurchasedOil
    
    
    PutSettlement Period
    

(Barrels)
    
    
    (Nymex)Crude Oil Floors01/01/11 - 06/30/12
    
    
    273,500
    
    
    $
    65.0001/01/11 - 06/30/12
    
    
    273,500
    
    
    $
    65.00
 Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars10/01/10 - 03/31/11
    
    
    240,000
    
    
    $
    6.50
    
    
    $
    8.2510/01/10 - 12/31/10
    
    
    210,000
    
    
    $
    5.15
    
    
    $
    7.0010/01/10 - 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
  37




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##### Table of Contents



Crude
    
    
    WrittenOil
    
    
    CallSettlement Period
    

(Barrels)
    
    
    (Nymex)Crude
Oil Calls*01/01/11 - 06/30/11
    
    
    90,500
    
    
    $
    95.0001/01/11 - 06/30/11
    
    
    90,500
    
    
    $
    97.50
 *
    
    Written calls convert floors included within hedges
outstanding as of September 30, 2010 to collars.
 Crude
    
    
    PurchasedOil
    
    
    PutSettlement Period
    

(Barrels)
    
    
    (Nymex)Crude Oil Floors07/01/11 - 06/30/12
    
    
    91,500
    
    
    $
    65.0007/01/11 - 06/30/12
    
    
    91,500
    
    
    $
    65.00
  38




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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
   39




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 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 ShareSeptember 2010
    
    
    11,736
    
    
    $
    16.955TOTAL
    
    
    11,736
    
    
    $
    16.955
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
   40




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##### Table of Contents



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 Elimination of Certificate of Designations of Series A Preferred Stock (Par
Value $.01 Per Share) of Brigham Exploration Company filed August 9, 2010 (filed as Exhibit
3.7 to Brighams Current Report on Form 8-K (filed August 10, 2010) and incorporated herein by
reference4.5
    
    
    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)4.6
    
    
    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)4.7
    
    
    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)4.8
    
    
    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)4.9
    
    
    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)4.10
    
    
    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)4.11
    
    
    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)
  41




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##### Table of Contents



4.12
    
    
    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)4.13
    
    
    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)4.14
    
    
    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)4.15
    
    
    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)4.16
    
    
    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)4.17
    
    
    First Supplemental Indenture, dated September 27, 2010, among the Company, the Guarantors and
Wells Fargo Bank, National Association, as Trustee (filed as Exhibit 4.16 to Brighams Current
Report on Form 8-K (filed October 1, 2010) and incorporated herein by reference)4.18
    
    
    Indenture, dated September 27, 2010, among the Company, the Guarantors and Wells Fargo Bank,
National Association, as Trustee (filed as Exhibit 4.17 to Brighams Current Report on Form
8-K (filed October 1, 2010) and incorporated herein by reference)4.19
    
    
    Rule 144A 8 3/4% Senior Note due 2018 and Notation of Guarantee (filed as Exhibit 4.18 to
Brighams Current Report on Form 8-K (filed October 1, 2010) and incorporated herein by
reference)4.20
    
    
    Regulation S 8 3/4% Senior Note due 2018 and Notation of Guarantee (filed as Exhibit 4.19 to
Brighams Current Report on Form 8-K (filed October 1, 2010) and incorporated herein by
reference)4.21
    
    
    Registration Rights Agreement, dated September 27, 2010, among the Company, the Guarantors
and the Initial Purchasers (filed as Exhibit 4.20 to Brighams Current Report on Form 8-K
(filed October 1, 2010) and incorporated herein by reference)10.48
    
    
    Seventh 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 10.48 to
Brighams Current Report on Form 8-K (filed September 13, 2010) and incorporated herein by
reference)10.49
    
    
    Purchase Agreement dated September 16, 2010 among the Company, the Guarantors and the
Initial Purchasers. (filed as Exhibit 10.49 to Brighams Current Report on Form 8-K (filed
September 20, 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
  42




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##### Table of Contents



SIGNATURES
  BRIGHAM EXPLORATION COMPANYBy:
    
    /s/ BEN M. BRIGHAMBen M. Brigham
Chief Executive Officer, President
and Chairman of the BoardBy:
    
    /s/ EUGENE B. SHEPHERD, JR.Eugene B. Shepherd, Jr.
Executive Vice President and
Chief Financial Officer
  43