##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 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: 000-22433
 Brigham Exploration Company
  Delaware
    
    1311
    
    75-2692967(State of other jurisdiction 
of incorporation or organization)
    
    (Primary Standard Industrial
Classification Code Number)
    
    (I.R.S. Employer
Identification Number)
 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730
 (512) 427-3300
  þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Small Reporting Company o(Do not check if a smaller reporting company)
  o þ
 Class
    
    OutstandingCommon Stock, par value
$.01 per share as of July 29, 2008
    
    46,323,976




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##### 



Brigham Exploration Company
 Second Quarter 2008 Form 10-Q Report
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    1Consolidated Statements of Operations  Three and six months ended June 30, 2008 and 2007
    
    
    2Consolidated Statement of Stockholders Equity  Six months ended June 30, 2008
    
    
    3Consolidated Statements of Cash Flows  Six months ended June 30, 2008 and 2007
    
    
    4Notes to the Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    32ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    34ITEM 1.A. RISK FACTORS
    
    
    34ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    34ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
    
    
    34ITEM 5. OTHER INFORMATION
    
    
    35ITEM 6. EXHIBITS
    
    
    35SIGNATURES
    
    
    36Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,013
    
    
    $
    13,863Accounts receivable
    
    
    25,653
    
    
    
    14,609Derivative assets
    
    
    
    
    
    
    1,416Other current assets
    
    
    4,022
    
    
    
    2,617Total current assets
    
    
    40,688
    
    
    
    32,505Oil and natural gas properties, using the full cost method includingProved, net
    
    
    484,879
    
    
    
    448,663Unproved
    
    
    89,129
    
    
    
    61,544574,008
    
    
    
    510,207Other property and equipment, net
    
    
    1,082
    
    
    
    1,034Deferred loan fees, net
    
    
    3,466
    
    
    
    3,687Other noncurrent assets
    
    
    1,705
    
    
    
    995Total assets
    
    $
    620,949
    
    
    $
    548,428LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,916
    
    
    $
    12,301Royalties payable
    
    
    9,310
    
    
    
    5,978Accrued drilling costs
    
    
    18,713
    
    
    
    14,841Participant advances received
    
    
    1,514
    
    
    
    2,095Derivative liabilities
    
    
    15,874
    
    
    
    1,812Other current liabilities
    
    
    4,533
    
    
    
    4,691Total current liabilities
    
    
    67,860
    
    
    
    41,718Senior Notes
    
    
    158,611
    
    
    
    158,492Senior credit facility
    
    
    48,600
    
    
    
    10,000Series 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 June 30, 2008 and December 31, 2007
    
    
    10,101
    
    
    
    10,101Deferred income taxes
    
    
    43,554
    
    
    
    41,625Other taxes payable
    
    
    2,162
    
    
    
    2,162Other noncurrent liabilities
    
    
    6,188
    
    
    
    5,303Commitments and contingencies (Note 3)Stockholders equity:Common stock, $.01 par value, 90 million shares authorized, 45,488,705 and 45,304,139 shares issued and
45,363,423 and 45,197,303 shares outstanding at June 30, 2008 and December 31, 2007, respectively
    
    
    455
    
    
    
    453Additional paid-in capital
    
    
    209,583
    
    
    
    207,526Treasury stock, at cost; 125,282 and 106,836 shares at June 30, 2008 and December 31, 2007, respectively
    
    
    (996
    )
    
    
    (854
    )Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    115Retained earnings
    
    
    74,831
    
    
    
    71,787Total stockholders equity
    
    
    283,873
    
    
    
    279,027Total liabilities and stockholders equity
    
    $
    620,949
    
    
    $
    548,428
   1




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Oil and natural gas sales
    
    $
    38,871
    
    
    $
    34,283
    
    
    $
    69,381
    
    
    $
    62,769Gain (loss) on derivatives, net
    
    
    (13,907
    )
    
    
    2,264
    
    
    
    (19,363
    )
    
    
    (1,228
    )Other revenue
    
    
    62
    
    
    
    29
    
    
    
    79
    
    
    
    5625,026
    
    
    
    36,576
    
    
    
    50,097
    
    
    
    61,597Costs and expenses:Lease operating
    
    
    2,548
    
    
    
    3,325
    
    
    
    5,534
    
    
    
    5,894Production taxes
    
    
    1,441
    
    
    
    551
    
    
    
    2,724
    
    
    
    622General and administrative
    
    
    2,596
    
    
    
    2,281
    
    
    
    5,189
    
    
    
    4,459Depletion of oil and natural gas properties
    
    
    12,405
    
    
    
    16,612
    
    
    
    24,848
    
    
    
    30,571Impairment of oil and natural gas properties
    
    
    
    
    
    
    6,505
    
    
    
    
    
    
    
    6,505Depreciation and amortization
    
    
    158
    
    
    
    158
    
    
    
    305
    
    
    
    321Accretion of discount on asset retirement obligations
    
    
    89
    
    
    
    94
    
    
    
    180
    
    
    
    21119,237
    
    
    
    29,526
    
    
    
    38,780
    
    
    
    48,583Operating income
    
    
    5,789
    
    
    
    7,050
    
    
    
    11,317
    
    
    
    13,014Other income (expense):Interest income
    
    
    39
    
    
    
    134
    
    
    
    114
    
    
    
    265Interest expense, net
    
    
    (3,482
    )
    
    
    (3,678
    )
    
    
    (6,901
    )
    
    
    (7,095
    )Other income (expense)
    
    
    96
    
    
    
    712
    
    
    
    403
    
    
    
    902(3,347
    )
    
    
    (2,832
    )
    
    
    (6,384
    )
    
    
    (5,928
    )Income before income taxes
    
    
    2,442
    
    
    
    4,218
    
    
    
    4,933
    
    
    
    7,086Income tax expense:Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    (925
    )
    
    
    (1,908
    )
    
    
    (1,889
    )
    
    
    (2,903
    )(925
    )
    
    
    (1,908
    )
    
    
    (1,889
    )
    
    
    (2,903
    )Net income
    
    $
    1,517
    
    
    $
    2,310
    
    
    $
    3,044
    
    
    $
    4,183Net income per share available to common stockholders:Basic
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.09Diluted
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.09Weighted average shares outstanding:Basic
    
    
    45,332
    
    
    
    45,080
    
    
    
    45,296
    
    
    
    45,067Diluted
    
    
    46,444
    
    
    
    45,455
    
    
    
    46,171
    
    
    
    45,478
   2




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##### Table of Contents



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, 2007
    
    
    45,304
    
    
    $
    453
    
    
    $
    207,526
    
    
    $
    (854
    )
    
    $
    115
    
    
    $
    71,787
    
    
    $
    279,027Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,044
    
    
    
    3,044Net (gains) losses
included in net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    
    
    
    
    (177
    )Tax benefit (provision)
related to hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    62Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,929Exercises of employee
stock options
    
    
    127
    
    
    
    1
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Vesting of restricted stock
    
    
    58
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,507Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    
    
    
    
    
    
    
    
    (142
    )Balance, June 30, 2008
    
    
    45,489
    
    
    $
    455
    
    
    $
    209,583
    
    
    $
    (996
    )
    
    $
    
    
    
    $
    74,831
    
    
    $
    283,873
   3




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    3,044
    
    
    $
    4,183Adjustments to reconcile net income to cash provided by operating
activities:Depletion of oil and natural gas properties
    
    
    24,848
    
    
    
    30,571Impairment of oil and natural gas properties
    
    
    
    
    
    
    6,505Depreciation and amortization
    
    
    305
    
    
    
    321Stock based compensation
    
    
    818
    
    
    
    838Amortization of deferred loan fees and debt issuance costs
    
    
    528
    
    
    
    461Market value adjustment for derivative instruments
    
    
    15,944
    
    
    
    2,658Accretion of discount on asset retirement obligations
    
    
    180
    
    
    
    211Deferred income taxes
    
    
    1,889
    
    
    
    2,903Other noncash items
    
    
    4
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (11,044
    )
    
    
    (2,932
    )Other current assets
    
    
    (1,303
    )
    
    
    816Accounts payable
    
    
    5,615
    
    
    
    (2,585
    )Royalties payable
    
    
    3,332
    
    
    
    2,232Participant advances received
    
    
    (581
    )
    
    
    (785
    )Other current liabilities
    
    
    (158
    )
    
    
    1,478Other noncurrent assets
    
    
    (330
    )
    
    
    514Other noncurrent liabilities
    
    
    (51
    )
    
    
    (113
    )Net cash provided by operating activities
    
    
    43,040
    
    
    
    47,276Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (83,956
    )
    
    
    (72,919
    )Additions to other property and equipment
    
    
    (357
    )
    
    
    (563
    )Decrease (increase) in drilling advances paid
    
    
    (399
    )
    
    
    (8
    )Net cash used by investing activities
    
    
    (84,712
    )
    
    
    (73,490
    )Cash flows from financing activities:Proceeds from senior notes offering
    
    
    
    
    
    
    34,825Increase in senior credit facility
    
    
    38,600
    
    
    
    42,700Repayment of senior credit facility
    
    
    
    
    
    
    (42,500
    )Deferred loan fees paid and equity costs
    
    
    (188
    )
    
    
    (917
    )Proceeds from exercise of employee stock options
    
    
    552
    
    
    
    223Repurchases of common stock
    
    
    (142
    )
    
    
    (134
    )Net cash provided by financing activities
    
    
    38,822
    
    
    
    34,197Net increase (decrease) in cash and cash equivalents
    
    
    (2,850
    )
    
    
    7,983Cash and cash equivalents, beginning of year
    
    
    13,863
    
    
    
    4,300Cash and cash equivalents, end of period
    
    $
    11,013
    
    
    $
    12,283
   4




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##### Table of Contents



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




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average common shares
outstanding  basic
    
    
    45,332
    
    
    
    45,080
    
    
    
    45,296
    
    
    
    45,067Plus: Potential common sharesStock options and restricted stock
    
    
    1,112
    
    
    
    375
    
    
    
    875
    
    
    
    411Weighted average common shares
outstanding  diluted
    
    
    46,444
    
    
    
    45,455
    
    
    
    46,171
    
    
    
    45,478Stock options excluded from diluted
EPS due to the 
anti-dilutive effect
    
    
    327
    
    
    
    2,617
    
    
    
    485
    
    
    
    2,547
 5. Income Taxes
  June 30,
    
    
    June 30,2008
    
    
    2007Current income taxes:Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Deferred income taxes:Federal
    
    
    1,707
    
    
    
    2,761State
    
    
    182
    
    
    
    142$
    1,889
    
    
    $
    2,903
   (In thousands)Increases (decreases) resulting from adoption of FIN 48
    
    $
    2,162Increases (decreases) resulting from tax positions taken in the current period
    
    
    Decreases relating to settlements with taxing authorities
    
    
    Reductions resulting from the lapse of applicable statutes of limitations
    
    
    Unrecognized tax benefits at June 30, 2008
    
    $
    2,162
   6




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  6. Derivative Instruments and Hedging Activities
  Natural Gas and Crude Oil Derivative Contracts   Cash flow hedges
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Natural GasAverage price per Mcf realized excluding gas hedging results
    
    $
    11.93
    
    
    $
    7.80
    
    
    $
    10.29
    
    
    $
    7.58Average price per Mcf including gas hedging settlement results
    
    $
    11.03
    
    
    $
    7.80
    
    
    $
    9.99
    
    
    $
    7.78Increase (decrease) in revenue, in thousands
    
    $
    (1,756
    )
    
    $
    6
    
    
    $
    (1,232
    )
    
    $
    1,317Average price per Mcf including gas hedging settlement
results and any unrealized gains (losses)
    
    $
    7.61
    
    
    $
    8.49
    
    
    $
    7.14
    
    
    $
    7.44Increase (decrease) in revenue, in thousands
    
    $
    (8,409
    )
    
    $
    2,405
    
    
    $
    (13,041
    )
    
    $
    (847
    )OilAverage price per Bbl realized excluding oil hedging results
    
    $
    122.22
    
    
    $
    62.25
    
    
    $
    109.46
    
    
    $
    58.44Average price per Bbl including oil hedging settlement results
    
    $
    109.71
    
    
    $
    62.25
    
    
    $
    100.53
    
    
    $
    58.91Increase (decrease) in revenue, in thousands
    
    $
    (1,601
    )
    
    $
    
    
    
    $
    (2,187
    )
    
    $
    113Average price per Bbl including oil hedging settlement
results and any unrealized gains (losses)
    
    $
    79.25
    
    
    $
    61.05
    
    
    $
    83.64
    
    
    $
    56.85Increase (decrease) in revenue, in thousands
    
    $
    (5,498
    )
    
    $
    (141
    )
    
    $
    (6,322
    )
    
    $
    (381
    )
  7




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Natural
    
    
    
    
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexNatural Gas Costless Collars07/01/08   07/31/08
    
    
    30,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.2507/01/08   09/30/08
    
    
    210,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.7507/01/08   09/30/08
    
    
    90,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    8.3507/01/08   09/30/08
    
    
    270,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.6807/01/08   10/31/08
    
    
    200,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    10.4007/01/08   07/31/08
    
    
    50,000
    
    
    
    
    
    
    $
    7.50
    
    
    $
    10.2007/01/08   07/31/08
    
    
    20,000
    
    
    
    
    
    
    $
    8.50
    
    
    $
    10.4007/01/08   09/30/08
    
    
    60,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.5307/01/08   09/30/08
    
    
    90,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.6208/01/08   12/31/08
    
    
    400,000
    
    
    
    
    
    
    $
    9.75
    
    
    $
    11.5004/01/09    09/30/09
    
    
    120,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.8010/01/08   03/31/09
    
    
    180,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    10.2010/01/08   03/31/09
    
    
    300,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    11.2010/01/08   03/31/09
    
    
    300,000
    
    
    
    
    
    
    $
    7.75
    
    
    $
    9.8201/01/09    03/31/09
    
    
    220,000
    
    
    
    
    
    
    $
    10.25
    
    
    $
    12.2504/01/09    09/30/09
    
    
    420,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    10.7004/01/09    09/30/09
    
    
    300,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.73Oil Costless Collars07/01/08   10/31/08
    
    
    
    
    
    
    12,000
    
    
    $
    65.70
    
    
    $
    90.0007/01/08   12/31/08
    
    
    
    
    
    
    12,000
    
    
    $
    57.50
    
    
    $
    75.5007/01/08   12/31/08
    
    
    
    
    
    
    12,000
    
    
    $
    85.00
    
    
    $
    117.0007/01/08   12/31/08
    
    
    
    
    
    
    12,000
    
    
    $
    57.50
    
    
    $
    76.0007/01/08   10/31/08
    
    
    
    
    
    
    24,000
    
    
    $
    90.00
    
    
    $
    120.0007/01/08   08/31/08
    
    
    
    
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6011/01/08   12/31/08
    
    
    
    
    
    
    8,000
    
    
    $
    87.75
    
    
    $
    120.0011/01/08   06/30/09
    
    
    
    
    
    
    24,000
    
    
    $
    62.00
    
    
    $
    81.7501/01/09  03/31/09
    
    
    
    
    
    
    21,000
    
    
    $
    86.50
    
    
    $
    120.00
 Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMBTU)
    
    
    Nymex
    
    
    Nymex
    
    
    NymexNatural Gas Three
Way Costless Collars10/01/08   03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
  8




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 7. Fair Values
  Fair Value Measurements at June 30, 2008 UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    for Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2007
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Current derivative liabilities
    
    $
    (1,812
    )
    
    $
    
    
    
    $
    (15,874
    )
    
    $
    Other non-current liabilities
    
    
    (256
    )
    
    
    
    
    
    
    (880
    )
    
    
    Current derivative assets
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    Other non-current assets
    
    
    25
    
    
    
    
    
    
    
    6
    
    
    
    $
    (627
    )
    
    $
    
    
    
    $
    (16,748
    )
    
    $
    
 8. Oil and Gas Properties
      9




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9. Senior Notes
    10. Asset Retirement Obligations
   Six Months EndedJune 30,2008
    
    
    2007Beginning asset retirement obligations
    
    $
    5,047
    
    
    $
    5,002Liabilities incurred for new wells placed on production
    
    
    132
    
    
    
    228Liabilities settled
    
    
    (50
    )
    
    
    (40
    )Accretion of discount on asset retirement obligations
    
    
    180
    
    
    
    211$
    5,309
    
    
    $
    5,401
 11. Stock Based Compensation
   10




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  2008
    
    
    2007Risk-free interest rate
    
    
    3.0
    %
    
    
    4.6
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    47
    %
    
    
    49
    %Expected dividend yield
    
    
    
    
    
    
    Weighted average fair value per share of stock compensation
    
    $
    4.70
    
    
    $
    2.97
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Pre-tax stock based compensation expense
    
    $
    744
    
    
    $
    758
    
    
    $
    1,507
    
    
    $
    1528Capitalized stock based compensation
    
    
    (340
    )
    
    
    (341
    )
    
    
    (689
    )
    
    
    (690
    )Tax benefit
    
    
    (141
    )
    
    
    (146
    )
    
    
    (286
    )
    
    
    (293
    )Stock based compensation expense, net
    
    $
    263
    
    
    $
    271
    
    
    $
    532
    
    
    $
    545
  11




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Stock Based Plan Descriptions and Share Information
    2008
    
    
    2007Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding at the beginning of the
year
    
    
    3,046,166
    
    
    $
    7.14
    
    
    
    3,243,566
    
    
    $
    7.08Granted
    
    
    18,000
    
    
    $
    10.56
    
    
    
    35,000
    
    
    $
    6.17Forfeited or cancelled
    
    
    (64,800
    )
    
    $
    7.83
    
    
    
    (124,300
    )
    
    $
    8.23Exercised
    
    
    (126,566
    )
    
    $
    4.36
    
    
    
    (55,000
    )
    
    $
    4.06Options outstanding at the end of the quarter
    
    
    2,872,800
    
    
    $
    7.27
    
    
    
    3,099,266
    
    
    $
    7.07Options exercisable at the end of the quarter
    
    
    1,760,000
    
    
    $
    6.79
    
    
    
    1,439,866
    
    
    $
    6.18
   Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-
    
    
    
    
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Average
    
    
    Weighted-
    
    
    Exercisable at
    
    
    Average
    
    
    Weighted-June 30,
    
    
    Remaining
    
    
    Average
    
    
    June 30,
    
    
    Remaining
    
    
    AverageExercise Price
    
    2008
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    2008
    
    
    Contractual Life
    
    
    Exercise Price$3.05 to $3.41
    
    
    137,200
    
    
    0.5 years
    
    $
    3.35
    
    
    
    137,200
    
    
    0.5 years
    
    $
    3.353.66 to 5.08
    
    
    353,700
    
    
    1.2 years
    
    $
    4.31
    
    
    
    351,700
    
    
    1.2 years
    
    $
    4.316.10 to 6.73
    
    
    1,226,000
    
    
    3.4 years
    
    $
    6.50
    
    
    
    708,800
    
    
    2.7 years
    
    $
    6.627.22 to 8.84
    
    
    792,900
    
    
    3.7 years
    
    $
    8.47
    
    
    
    412,300
    
    
    3.2 years
    
    $
    8.658.93 to 12.31
    
    
    363,000
    
    
    4.3 years
    
    $
    11.62
    
    
    
    150,000
    
    
    4.2 years
    
    $
    11.45$3.05 to $12.31
    
    
    2,872,800
    
    
    3.2 years
    
    $
    7.27
    
    
    
    1,760,000
    
    
    2.5 years
    
    $
    6.79
   12




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Restricted Stock
   2008
    
    
    2007Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceRestricted shares outstanding at the
beginning 
of the year
    
    
    653,623
    
    
    $
    7.16
    
    
    
    391,367
    
    
    $
    8.60Shares granted
    
    
    109,000
    
    
    $
    8.40
    
    
    
    105,000
    
    
    $
    7.13Lapse of restrictions
    
    
    (58,000
    )
    
    $
    5.39
    
    
    
    (55,000
    )
    
    $
    8.12Forfeitures
    
    
    (29,940
    )
    
    $
    6.58
    
    
    
    (25,320
    )
    
    $
    5.23Shares outstanding at the end of the quarter
    
    
    674,683
    
    
    $
    7.54
    
    
    
    416,047
    
    
    $
    8.71
 12. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    1,517
    
    
    $
    2,310
    
    
    $
    3,044
    
    
    $
    4,183Net (gains) losses included in net income
    
    
    
    
    
    
    (69
    )
    
    
    (177
    )
    
    
    (1,163
    )Tax benefits (provisions) related to
cash flow hedges
    
    
    
    
    
    
    24
    
    
    
    62
    
    
    
    407Other Comprehensive Income, net
    
    $
    1,517
    
    
    $
    2,265
    
    
    $
    2,929
    
    
    $
    3,427
 13. New Accounting Pronouncements
   13




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       14




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Overview
    
    
    Focus on Core Provinces and Trends;
 
    
    Internally Generate Inventory of High Quality Exploratory Prospects;
 
    
    Leverage Our Operational Expertise;
 
    
    Evaluate and Selectively Pursue New Potential Plays;
 
    
    Capitalize on Exploration Successes Through Development of Our Field Discoveries;
 
    
    Continue to Actively Drill Our Multi-Year Prospect Inventory; and
 
    
    Enhance Returns Through Operational Control.
 Overview of Second Quarter and First Six Months 2008 Financial Results
   15




---



##### Table of Contents



th th
    Overview of Second Quarter 2008 Operational Results
 Rocky Mountain Province
 Williston Basin
  th
    Powder River Basin
 th
  16




---



##### Table of Contents



Onshore Gulf Coast Province
 Vicksburg Trend
   Southern Louisiana Trend
      Second Quarter and First Six Months 2008 Results
 Comparison of the three month and six month periods ended June 30, 2008 and 2007.
 Production volumes
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Oil (MBbls)
    
    
    128
    
    
    
    8
    %
    
    
    118
    
    
    
    245
    
    
    
    3
    %
    
    
    239Natural gas (MMcf)
    
    
    1,947
    
    
    
    (44
    %)
    
    
    3,457
    
    
    
    4,139
    
    
    
    (36
    %)
    
    
    6,439Total (MMcfe)(1)
    
    
    2,715
    
    
    
    (35
    %)
    
    
    4,163
    
    
    
    5,609
    
    
    
    (29
    %)
    
    
    7,875Average daily production (MMcfe/d)(2)
    
    
    30.2
    
    
    
    
    
    
    
    46.3
    
    
    
    31.2
    
    
    
    
    
    
    
    43.8
 (1)
    
    MMcfe is defined as one million cubic feet equivalent of natural gas, determined using
the ratio of six MMcf of natural gas to one MBbl of crude oil, condensate or natural gas
liquids.(2)
    
    Average daily production calculated using 30 days per calendar month.   17




---



##### Table of Contents



Revenue, Commodity Prices and Hedging
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Oil revenue:Oil revenue
    
    $
    15,640
    
    
    
    113
    %
    
    $
    7,328
    
    
    $
    26,797
    
    
    
    92
    %
    
    $
    13,991Oil derivative settlement 
gains (losses)
    
    
    (1,601
    )
    
    NM
    
    
    
    
    
    
    
    (2,187
    )
    
    NM
    
    
    
    113Oil revenue including oil derivative settlements
    
    $
    14,039
    
    
    
    92
    %
    
    $
    7,328
    
    
    $
    24,610
    
    
    
    74
    %
    
    $
    14,104Oil derivative unrealized 
gains (losses)
    
    
    (3,897
    )
    
    
    2,664
    %
    
    
    (141
    )
    
    
    (4,135
    )
    
    
    737
    %
    
    
    (494
    )Oil revenue including derivative settlements
and unrealized 
gains (losses)
    
    $
    10,142
    
    
    
    41
    %
    
    $
    7,187
    
    
    $
    20,475
    
    
    
    50
    %
    
    $
    13,610Natural gas revenue:Natural gas revenue
    
    $
    23,231
    
    
    
    (14
    %)
    
    $
    26,955
    
    
    $
    42,584
    
    
    
    (13
    %)
    
    $
    48,778Natural gas derivative settlement gains (losses)
    
    
    (1,756
    )
    
    NM
    
    
    
    6
    
    
    
    (1,232
    )
    
    NM
    
    
    
    1,317Natural gas revenue including derivative
settlements
    
    $
    21,475
    
    
    
    (20
    %)
    
    $
    26,961
    
    
    $
    41,352
    
    
    
    (17
    %)
    
    $
    50,095Natural gas derivative unrealized gains (losses)
    
    
    (6,653
    )
    
    NM
    
    
    
    2,399
    
    
    
    (11,809
    )
    
    
    446
    %
    
    
    (2,164
    )Natural gas revenue including derivative
settlements and unrealized gains (losses)
    
    $
    14,822
    
    
    
    (50
    %)
    
    $
    29,360
    
    
    $
    29,543
    
    
    
    (38
    %)
    
    $
    47,931Oil and natural gas revenue:Oil and natural gas revenue
    
    $
    38,871
    
    
    
    13
    %
    
    $
    34,283
    
    
    $
    69,381
    
    
    
    11
    %
    
    $
    62,769Oil and natural gas derivative settlement gains
(losses)
    
    
    (3,357
    )
    
    NM
    
    
    
    6
    
    
    
    (3,419
    )
    
    NM
    
    
    
    1,430Oil and natural gas revenue including
derivative settlement gains (losses)
    
    
    35,514
    
    
    
    4
    %
    
    
    34,289
    
    
    
    65,962
    
    
    
    3
    %
    
    
    64,199Oil and natural gas derivative unrealized gains
(losses)
    
    
    (10,550
    )
    
    NM
    
    
    
    2,258
    
    
    
    (15,944
    )
    
    
    500
    %
    
    
    (2,658
    )Oil and natural gas revenue including
derivative settlements and unrealized gains
(losses)
    
    
    24,964
    
    
    
    (32
    %)
    
    
    36,547
    
    
    
    50,018
    
    
    
    (19
    %)
    
    
    61,541Other revenue
    
    
    62
    
    
    
    114
    %
    
    
    29
    
    
    
    79
    
    
    
    41
    %
    
    
    56Total revenue
    
    $
    25,026
    
    
    
    (32
    %)
    
    $
    36,576
    
    
    $
    50,097
    
    
    
    (19
    %)
    
    $
    61,597
  18




---



##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Average oil prices:Oil price (per Bbl)
    
    $
    122.22
    
    
    
    96
    %
    
    $
    62.25
    
    
    $
    109.46
    
    
    
    87
    %
    
    $
    58.44Oil price including derivative
settlement gains (losses) 
(per Bbl)
    
    
    109.71
    
    
    
    76
    %
    
    
    62.25
    
    
    
    100.53
    
    
    
    71
    %
    
    
    58.91Oil price including derivative
settlements and unrealized gains
(losses) (per Bbl)
    
    $
    79.25
    
    
    
    30
    %
    
    $
    61.05
    
    
    $
    83.64
    
    
    
    47
    %
    
    $
    56.85Average natural gas prices:Natural gas price (per Mcf)
    
    $
    11.93
    
    
    
    53
    %
    
    $
    7.80
    
    
    $
    10.29
    
    
    
    36
    %
    
    $
    7.58Natural gas price including derivative
settlement gains (losses) (per Mcf)
    
    
    11.03
    
    
    
    41
    %
    
    
    7.80
    
    
    
    9.99
    
    
    
    28
    %
    
    
    7.78Natural gas price including derivative
settlements and unrealized gains
(losses) 
(per Mcf)
    
    $
    7.61
    
    
    
    (10
    %)
    
    $
    8.49
    
    
    $
    7.14
    
    
    
    (4
    %)
    
    $
    7.44Average equivalent prices:Natural gas equivalent price 
(per Mcfe)
    
    $
    14.32
    
    
    
    74
    %
    
    $
    8.24
    
    
    $
    12.37
    
    
    
    55
    %
    
    $
    7.97Natural gas equivalent price including
derivative settlement gains (losses)
(per Mcfe)
    
    
    13.08
    
    
    
    59
    %
    
    
    8.24
    
    
    
    11.76
    
    
    
    44
    %
    
    
    8.15Natural gas equivalent price including
derivative settlements and unrealized
gains (losses) (per Mcfe)
    
    $
    9.19
    
    
    
    5
    %
    
    $
    8.78
    
    
    $
    8.92
    
    
    
    14
    %
    
    $
    7.81
 For the three
    
    
    For the sixmonth periods
    
    
    month periodsended June 30,
    
    
    ended June 30,2008 and 2007
    
    
    2008 and 2007Change in revenue from the sale of oilVolume variance impact
    
    $
    638
    
    
    $
    315Price variance impact
    
    
    7,674
    
    
    
    12,491Cash settlement of hedging contracts
    
    
    (1,601
    )
    
    
    (2,300
    )Unrealized hedge gain or loss
    
    
    (3,756
    )
    
    
    (3,641
    )Total change
    
    $
    2,955
    
    
    $
    6,865Change in revenue from the sale of natural gasVolume variance impact
    
    $
    (11,771
    )
    
    $
    (17,402
    )Price variance impact
    
    
    8,047
    
    
    
    11,208Cash settlement of hedging contracts
    
    
    (1,762
    )
    
    
    (2,549
    )Unrealized hedge gain or loss
    
    
    (9,052
    )
    
    
    (9,645
    )Total change
    
    $
    (14,538
    )
    
    $
    (18,388
    )Change in revenue from the sale of oil and natural gasVolume variance impact
    
    $
    (11,133
    )
    
    $
    (17,087
    )Price variance impact
    
    
    15,721
    
    
    
    23,699Cash settlement of hedging contracts
    
    
    (3,363
    )
    
    
    (4,849
    )Unrealized hedge gain or loss
    
    
    (12,808
    )
    
    
    (13,286
    )Total change
    
    $
    (11,583
    )
    
    $
    (11,523
    )
  19




---



##### Table of Contents




    
    a 74% increase in the sales price we received for our oil and natural gas resulted in a
$15.7 million increase in revenues;
 
    
    a 35% decrease in production volumes for the quarter resulted in a $11.1 million decrease
in oil and natural gas revenues;
 
    
    a $3.4 million loss from the settlement of derivative contracts in the second quarter 2008
versus a slight gain from the settlement of derivative contracts in second quarter 2007
decreased revenues by $3.4 million; and
 
    
    a $10.6 million unrealized derivative loss in second quarter 2008 versus a $2.3 million
unrealized derivative gain in second quarter 2007 decreased revenues
by $12.8 million.
  
    
    a 55% increase in the sales price we received for our oil and natural gas resulted in a
$23.7 million increase in oil and natural gas revenues;
 
    
    a 29% decrease in production volumes resulted in a $17.1 million decrease in oil and
natural gas revenues;
 
    
    a $3.4 million loss from the settlement of derivative
contracts in the first half of 2008
versus a $1.4 million derivative settlement gain in the first half of 2007 decreased revenue
by $4.8 million, and
 
    
    a $15.9 million unrealized derivative loss in first six months of 2008 versus a $2.7
million unrealized derivative loss in the first half of 2007
decreased revenues by $13.3
million.
 Hedging.
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Oil collarsVolumes (Bbls)
    
    
    47,000
    
    
    
    (36
    %)
    
    
    73,000
    
    
    
    92,500
    
    
    
    (38
    %)
    
    
    149,000Average floor price ($  per Bbl)
    
    $
    68.18
    
    
    
    21
    %
    
    $
    56.29
    
    
    $
    64.98
    
    
    
    16
    %
    
    $
    56.02Average ceiling price ($  per Bbl)
    
    $
    90.91
    
    
    
    11
    %
    
    $
    81.84
    
    
    $
    88.29
    
    
    
    10
    %
    
    $
    80.42Gain (loss) upon settlement 
($ in thousands)
    
    $
    (1,601
    )
    
    NM
    
    
    $
    
    
    
    $
    (2,187
    )
    
    NM
    
    
    $
    113Total oilGain (loss) upon settlement 
($ in thousands)
    
    $
    (1,601
    )
    
    NM
    
    
    $
    
    
    
    $
    (2,187
    )
    
    NM
    
    
    $
    113Natural gas collarsVolumes (MMbtu)
    
    
    1,370,000
    
    
    
    (31
    %)
    
    
    1,990,000
    
    
    
    2,890,000
    
    
    
    (24
    %)
    
    
    3,795,000Average floor price 
($  per MMbtu)
    
    $
    7.14
    
    
    
    0
    %
    
    $
    7.11
    
    
    $
    7.52
    
    
    
    3
    %
    
    $
    7.33Average ceiling price 
($  per MMbtu)
    
    $
    9.54
    
    
    
    (11
    %)
    
    $
    10.70
    
    
    $
    11.06
    
    
    
    (17
    %)
    
    $
    13.29Gain (loss) upon settlement 
($ in thousands)
    
    $
    (1,756
    )
    
    NM
    
    
    $
    6
    
    
    $
    (1,232
    )
    
    NM
    
    
    $
    1,317Total gasGain (loss) upon settlement 
($ in thousands)
    
    $
    (1,756
    )
    
    NM
    
    
    $
    6
    
    
    $
    (1,232
    )
    
    NM
    
    
    $
    1,317
  20




---



##### Table of Contents



Other revenue
 Operating costs and expenses
 Production costs.
 Unit-of-Production
    
    
    Amount(Per Mcfe)
    
    
    (In thousands)Three months ended June 30,
    
    
    Three months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Production costs:Operating & maintenance
    
    $
    0.75
    
    
    
    27
    %
    
    $
    0.59
    
    
    $
    2,036
    
    
    
    (16
    %)
    
    $
    2,434Expensed workovers
    
    
    0.15
    
    
    
    36
    %
    
    
    0.11
    
    
    
    410
    
    
    
    (12
    %)
    
    
    466Ad valorem taxes
    
    
    0.04
    
    
    
    (60
    %)
    
    
    0.10
    
    
    
    102
    
    
    
    (76
    %)
    
    
    425Lease operating expenses
    
    $
    0.94
    
    
    
    18
    %
    
    $
    0.80
    
    
    $
    2,548
    
    
    
    (23
    %)
    
    $
    3,325Production taxes
    
    
    0.53
    
    
    
    308
    %
    
    
    0.13
    
    
    
    1,441
    
    
    
    162
    %
    
    
    551Production costs
    
    $
    1.47
    
    
    
    58
    %
    
    $
    0.93
    
    
    $
    3,989
    
    
    
    3
    %
    
    $
    3,876
  
    
    production taxes increased $0.40 per Mcfe, due to recording production tax credits on our
Vicksburg and Mills Ranch wells in the second quarter 2007 rather than deferring recording
credits until receipt of regulatory approval;
 
    
    O&M expense increased $0.16 per Mcfe, or 27%, due to declining production from our wells
with fixed costs; and
 
    
    ad valorem taxes decreased $0.06 per Mcfe, or 60%, due to an anticipated decrease in
property value assessments during 2008.
 Unit-of-Production
    
    
    Amount(Per Mcfe)
    
    
    (In thousands)Six months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007Production costs:Operating & maintenance
    
    $
    0.69
    
    
    
    15
    %
    
    $
    0.60
    
    
    $
    3,858
    
    
    
    (19
    %)
    
    $
    4,738Expensed workovers
    
    
    0.22
    
    
    
    450
    %
    
    
    0.04
    
    
    
    1,224
    
    
    
    278
    %
    
    
    324Ad valorem taxes
    
    
    0.08
    
    
    
    (27
    %)
    
    
    0.11
    
    
    
    452
    
    
    
    (46
    %)
    
    
    832Lease operating expenses
    
    $
    0.99
    
    
    
    32
    %
    
    $
    0.75
    
    
    $
    5,534
    
    
    
    (6
    %)
    
    $
    5,894Production taxes
    
    
    0.49
    
    
    
    513
    %
    
    
    0.08
    
    
    
    2,724
    
    
    
    338
    %
    
    
    622Production costs
    
    $
    1.48
    
    
    
    78
    %
    
    $
    0.83
    
    
    $
    8,258
    
    
    
    27
    %
    
    $
    6,516
  21




---



##### Table of Contents




    
    production taxes increased $0.41 per Mcfe due to a
$2.3 million decrease in production tax abatements in the first
six months of 2008 versus the first six months of 2007;
 
    
    O&M expense increased $0.09 per Mcfe, or 15%, due to declining production from our wells
with fixed costs;
 
    
    expensed workovers increased $0.18 per Mcfe due to the unanticipated workover of two of our
wells during the first quarter 2008; and
 
    
    ad valorem taxes decreased $0.03 per Mcfe, or 27%, due to an anticipated decrease in
property value assessments during 2008.
 General and administrative expenses.
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007(In thousands, except per unit measurements)General and administrative costs
    
    $
    4,799
    
    
    
    12
    %
    
    $
    4,298
    
    
    $
    9,755
    
    
    
    14
    %
    
    $
    8,527Capitalized general and administrative costs
    
    
    (2,203
    )
    
    
    9
    %
    
    
    (2,017
    )
    
    
    (4,566
    )
    
    
    12
    %
    
    
    (4,068
    )General and administrative expenses
    
    $
    2,596
    
    
    
    14
    %
    
    $
    2,281
    
    
    $
    5,189
    
    
    
    16
    %
    
    $
    4,459General and administrative expense ($  per Mcfe)
    
    $
    0.96
    
    
    
    75
    %
    
    $
    0.55
    
    
    $
    0.93
    
    
    
    63
    %
    
    $
    0.57
   Depletion of oil and natural gas properties
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007(In thousands, except per unit measurements)Depletion of oil and natural gas properties
    
    $
    12,405
    
    
    
    (25
    %)
    
    $
    16,612
    
    
    $
    24,848
    
    
    
    (19
    %)
    
    $
    30,571Depletion of oil and natural gas
properties ($  per Mcfe)
    
    $
    4.57
    
    
    
    15
    %
    
    $
    3.99
    
    
    $
    4.43
    
    
    
    14
    %
    
    $
    3.88
  22




---



##### Table of Contents



Impairment of oil and natural gas properties
    Net interest expense.
  23




---



##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007(In thousands)Interest on Senior Notes
    
    $
    3,850
    
    
    
    2
    %
    
    $
    3,775
    
    
    $
    7,700
    
    
    
    14
    %
    
    $
    6,783Interest on senior credit facility
    
    
    347
    
    
    
    (41
    %)
    
    
    585
    
    
    
    500
    
    
    
    (63
    %)
    
    
    1,348Commitment fees
    
    
    69
    
    
    
    33
    %
    
    
    52
    
    
    
    134
    
    
    
    34
    %
    
    
    100Dividend on mandatorily redeemable preferred stock
    
    
    151
    
    
    
    0
    %
    
    
    151
    
    
    
    302
    
    
    
    1
    %
    
    
    300Amortization of deferred loan and debt issuance cost
    
    
    252
    
    
    
    6
    %
    
    
    238
    
    
    
    498
    
    
    
    12
    %
    
    
    443Other general interest expense
    
    
    
    
    
    NM
    
    
    
    
    
    
    
    
    
    
    
    (100
    %)
    
    
    1Capitalized interest expense
    
    
    (1,187
    )
    
    
    6
    %
    
    
    (1,123
    )
    
    
    (2,233
    )
    
    
    19
    %
    
    
    (1,880
    )Net interest expense
    
    $
    3,482
    
    
    
    (5
    %)
    
    $
    3,678
    
    
    $
    6,901
    
    
    
    (3
    %)
    
    $
    7,095Weighted average debt outstanding
    
    $
    205,536
    
    
    
    2.2
    %
    
    $
    201,164
    
    
    $
    194,178
    
    
    
    1.4
    %
    
    $
    191,552Average interest rate on outstanding indebtedness (a)
    
    
    8.6
    %
    
    
    
    
    
    
    9.2
    %
    
    
    8.9
    %
    
    
    
    
    
    
    9.0
    %
 
 a)
    
    Calculated as the sum of the interest expense on our outstanding indebtedness,
commitment fees that we pay on our unused borrowing capacity and the dividend on our
mandatorily redeemable preferred stock divided by our weighted average debt and
preferred stock outstanding for the period.   Other income (expense).
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    % Change
    
    
    2007
    
    
    2008
    
    
    % Change
    
    
    2007(In thousands)Other income (expense):Non-cash gain (loss)
    
    
    
    
    
    NM
    
    
    
    
    
    
    
    
    
    
    
    (100
    %)
    
    
    40Cash income (expense)
    
    
    96
    
    
    
    (87
    %)
    
    
    712
    
    
    
    403
    
    
    
    (53
    %)
    
    
    862Total other income
    
    $
    96
    
    
    
    (87
    %)
    
    $
    712
    
    
    $
    403
    
    
    
    (55
    %)
    
    $
    902
  Income taxes.
  24




---



##### Table of Contents



Capital Expenditures
  
    
    cost of acquiring and maintaining our lease acreage position and our seismic resources;
 
    
    cost of drilling and completing new oil and natural gas wells;
 
    
    cost of installing new production infrastructure;
 
    
    cost of maintaining, repairing and enhancing existing 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.
  Amount2008
    
    
    Spent Through
    
    
    AmountBudget
    
    
    June 30, 2008
    
    
    Remaining (a)(In thousands)Drilling
    
    $
    140,633
    
    
    $
    62,689
    
    
    $
    77,944Net land and seismic
    
    
    34,191
    
    
    
    19,029
    
    
    
    15,162Capitalized costs (b)
    
    
    13,636
    
    
    
    6,799
    
    
    
    6,837Asset retirement obligation
    
    
    491
    
    
    
    132
    
    
    
    359Total oil and gas capital expenditures (c)
    
    $
    188,951
    
    
    $
    88,649
    
    
    $
    100,302
 
 (a)
    
    Calculated based on the revised 2008 capital expenditure budget announced in July
2008 less amount spent through June 30, 2008.(b)
    
    Capitalized costs include capitalized interest expense, general and
administrative expense and stock compensation expense.(c)
    
    Excludes other property capital expenditures. Determination of Capital Expenditure Budget
   
    
    changes in commodity prices;
 
    
    variances in forecasted production and the resulting production of our newly drilled
wells;
 
    
    variances in our production levels from our existing oil and gas properties;
 
    
    variances in a prospects risked reserve size;
 
    
    variances in drilling and completion costs, service costs and the availability of
drilling equipment;
 
    
    variances in the availability and timing of drilling and completion services;
 
    
    economic and industry conditions at the time of drilling; and
 
    
    the availability of more economically attractive prospects.
  25




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Capital
  9 5/8% Senior Notes Due 2014
   
    
    rank equally in right of payment with all our existing and future senior
indebtedness;
 
    
    rank senior to all of our future subordinated indebtedness; and
 
    
    are effectively junior in right of payment to all of our and the guarantors
existing and future secured indebtedness, including debt of our senior credit
agreement.
   Senior Credit Agreement
    26




---



##### Table of Contents



Percent of
    
    EurodollarBorrowing Base
    
    Rate
    
    Base RateUtilized
    
    Advances
    
    Advances(1)<50%
    
    1.250%
    
    0.000%50% and < 75%
    
    1.500%
    
    0.000%75% and < 90%
    
    1.750%
    
    0.250%90% and greater
    
    2.000%
    
    0.500%
 
 (1)
    
    Base rate is defined as for any day a fluctuating rate per annum equal to the higher of: (a)
the Federal Funds Rate plus 1/2 of 1% or (b) the rate of interest in effect for such day as
publicly announced from time to time by Bank of America as its prime rate. The prime rate
is a rate set by Bank of America based upon various factors including Bank of Americas costs
and desired return, general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below such announced rate. Any
change in such rate announced by Bank of America shall take effect at the opening of business
on the day specified in the public announcement of such change.  Percent ofBorrowing Base
    
    QuarterlyUtilized
    
    Commitment Fee<50%
    
    0.250%50% and < 75%
    
    0.250%75% and < 90%
    
    0.375%90%  100%
    
    0.375%
   Mandatorily Redeemable Preferred Stock
  Access to Capital Markets
   27




---



##### Table of Contents



Off Balance Sheet Arrangements
  Analysis of Changes in Cash and Cash Equivalents
  Six months ended June 30,2008
    
    
    % Change
    
    
    2007(In thousands)Net income
    
    $
    3,044
    
    
    
    (27
    %)
    
    $
    4,183Non-cash items
    
    
    44,516
    
    
    
    0
    %
    
    
    44,468Changes in working capital and other items
    
    
    (4,520
    )
    
    
    229
    %
    
    
    (1,375
    )Cash flows provided by operating activities
    
    $
    43,040
    
    
    
    (9
    %)
    
    $
    47,276Cash flows used by investing activities
    
    
    (84,712
    )
    
    
    15
    %
    
    
    (73,490
    )Cash flows provided by financing activities
    
    
    38,822
    
    
    
    14
    %
    
    
    34,197Net increase in cash and cash equivalents
    
    $
    (2,850
    )
    
    NM
    
    
    $
    7,983
 Analysis of net cash provided by operating activities
   Analysis of changes in cash flows used in investing activities
 Six months ended June 30,2008
    
    
    % Change
    
    
    2007(In thousands)Capital expenditures for oil and natural gas activities:Drilling
    
    $
    62,689
    
    
    
    20
    %
    
    $
    52,227Land and seismic
    
    
    19,029
    
    
    
    251
    %
    
    
    5,424Capitalized cost
    
    
    6,799
    
    
    
    14
    %
    
    
    5,948Capitalized asset retirement obligation
    
    
    132
    
    
    
    (42
    %)
    
    
    228Total
    
    $
    88,649
    
    
    
    39
    %
    
    $
    63,827Reconciling Items:Change in accrued drilling costs
    
    $
    (3,872
    )
    
    NM
    
    
    $
    10,009Change in short-term investments
    
    
    
    
    
    NM
    
    
    
    Other
    
    
    (65
    )
    
    
    (81
    %)
    
    
    (346
    )Total Reconciling Items
    
    
    (3,937
    )
    
    NM
    
    
    
    9,663Net cash used in investing activities
    
    $
    84,712
    
    
    
    15
    %
    
    $
    73,490
  28




---



##### Table of Contents




    
    drilling capital expenditures increased $10.5 million because of an overall increase in our
level of drilling activity in the first six months of 2008 versus that in the corresponding
period last year;
    
    land and seismic expenditures increased by $13.6 million due to an increase in acreage
acquisitions, including our acquisition of significant acreage in the Bakken during the first
six months of 2008;
    
    capitalized costs increased by $0.9 million because of an increase in the level of our debt
outstanding; and
    
    the change in accrued drilling costs reduced cash used in investing activities by $13.9
million.
 Analysis of changes in cash flows from financing activities
  Common Stock Transactions
  Shares Issued
    
    
    Net Proceeds(In thousands, except share data)2008 common stock transactions:Exercise of employee stock options
    
    
    126,566
    
    
    $
    5522007 common stock transactions:Exercise of employee stock options
    
    
    55,000
    
    
    $
    223
  29




---



##### Table of Contents



Other Matters
 Derivative Instruments
  Effects of Inflation and Changes in Prices
  Environmental and Other Regulatory Matters
  New Accounting Pronouncements
     30




---



##### Table of Contents



Forward Looking Information
   31




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Management Opinion Concerning Derivative Instruments
  Derivative Instruments and Hedging Activities
        32




---



##### Table of Contents



Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars07/01/08  09/30/08
    
    
    210,000
    
    
    
    6.75
    
    
    
    9.7507/01/08  09/30/08
    
    
    270,000
    
    
    
    7.00
    
    
    
    9.6807/01/08  09/30/08
    
    
    60,000
    
    
    
    7.25
    
    
    
    9.5307/01/08  07/31/08
    
    
    30,000
    
    
    
    7.00
    
    
    
    9.2507/01/08  10/31/08
    
    
    200,000
    
    
    
    7.25
    
    
    
    10.4007/01/08  09/30/08
    
    
    90,000
    
    
    
    6.75
    
    
    
    9.6207/01/08  09/30/08
    
    
    90,000
    
    
    
    7.00
    
    
    
    8.3507/01/08  07/31/08
    
    
    50,000
    
    
    
    7.50
    
    
    
    10.2007/01/08  07/31/08
    
    
    20,000
    
    
    
    8.50
    
    
    
    10.4008/01/08  12/31/08
    
    
    400,000
    
    
    
    9.75
    
    
    
    11.5010/01/08  03/31/09
    
    
    300,000
    
    
    
    7.75
    
    
    
    9.8210/01/08  03/31/09
    
    
    180,000
    
    
    
    8.00
    
    
    
    10.2010/01/08  03/31/09
    
    
    300,000
    
    
    
    8.00
    
    
    
    11.2001/01/09  01/31/09
    
    
    80,000
    
    
    
    10.25
    
    
    
    12.2502/01/09  03/31/09
    
    
    140,000
    
    
    
    10.25
    
    
    
    12.2504/01/09  09/30/09
    
    
    300,000
    
    
    
    7.00
    
    
    
    9.7304/01/09  09/30/09
    
    
    120,000
    
    
    
    7.25
    
    
    
    9.8004/01/09  09/30/09
    
    
    420,000
    
    
    
    8.00
    
    
    
    10.70
 Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Three Way Costless Collars10/01/08  03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
 Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Oil Costless Collars07/01/08  08/31/08
    
    
    4,000
    
    
    
    65.00
    
    
    
    80.6007/01/08  12/31/08
    
    
    12,000
    
    
    
    85.00
    
    
    
    117.0007/01/08  10/31/08
    
    
    24,000
    
    
    
    90.00
    
    
    
    120.0007/01/08  12/31/08
    
    
    12,000
    
    
    
    57.50
    
    
    
    76.0007/01/08  10/31/08
    
    
    12,000
    
    
    
    65.70
    
    
    
    90.0007/01/08  12/31/08
    
    
    12,000
    
    
    
    57.50
    
    
    
    75.5011/01/08  06/30/09
    
    
    24,000
    
    
    
    62.00
    
    
    
    81.7511/01/08  12/31/08
    
    
    8,000
    
    
    
    87.75
    
    
    
    120.0001/01/09  03/31/09
    
    
    21,000
    
    
    
    86.50
    
    
    
    120.00
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   33




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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 PriceSecond
Quarter 2008
    
    Shares Purchased
    
    
    Paid per ShareMay 2008
    
    
    2,116
    
    
    $
    10.14
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    We held our Annual Stockholders meeting on Friday, May 23, 2008, in Austin, Texas at 9:00
a.m. local time.(b)
    
    Proxies were solicited by our Board of Directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There were no solicitations in opposition to the Board of
Directors nominees as listed in the proxy statement and all of such nominees were duly
elected.(c)
    
    Out of the total 46,129,710 shares of our common stock outstanding and entitled to vote,
42,743,876 shares were present in person or by proxy, representing approximately 93%. The
only matters voted on by our stockholders, as fully described in the definitive proxy
materials for the annual meeting, are set forth below. The results were as follows:
 1.
    
    To elect seven directors to serve until the Annual Meeting of Stockholders in 2009.
 Number of shares
    
    
    Number of sharesNumber of shares
    
    
    voting against
    
    
    withholdingvoting for election as
    
    
    election as
    
    
    authority to vote forNominee
    
    director
    
    
    director
    
    
    election as directorBen M. Bud Brigham
    
    
    41,135,581
    
    
    
    
    
    
    
    1,608,295David T. Brigham
    
    
    41,026,431
    
    
    
    
    
    
    
    1,717,445Harold D. Carter
    
    
    29,486,341
    
    
    
    
    
    
    
    13,257,535Stephen C. Hurley
    
    
    41,151,696
    
    
    
    
    
    
    
    1,592,180Stephen P. Reynolds
    
    
    41,135,135
    
    
    
    
    
    
    
    1,608,741Hobart A. Smith
    
    
    38,470,202
    
    
    
    
    
    
    
    4,273,674Scott W. Tinker, Ph.D.
    
    
    41,147,696
    
    
    
    
    
    
    
    1,596,180
  34




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##### Table of Contents



2.
    
    To approve the appointment of KPMG LLP for the year ending December 31, 2008.
 For
    
    
    42,236,584Against
    
    
    428,583Abstained
    
    
    78,708
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 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
  35




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##### Table of Contents



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

Chief Financial Officer  36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    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
  37