----

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**FORM      10**
**Q**

**x      **
** QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15 (d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**OR**

**o      **
** TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**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**

| Large                Accelerated Filer  ̈  |   | Accelerated                Filer þ |   | Non-Accelerated                Filer  ̈ |
|----------------------------------------------------------|--------|-----------------------------------------|--------|--------------------------------------------------|

|   | **Class**                                                                    |   | **Outstanding** |   |
|--------|------------------------------------------------------------------------------|--------|-----------------|--------|
|   | Common                Stock, par value $.01 per share as of November 6, 2006 |   | 45,527,508      |   |

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**Brigham      Exploration Company**

**Third      Quarter 2006 Form 10-Q Report**

**TABLE      OF CONTENTS**

|                                              |   |                                                                                                                          |   | **Page** |
|---------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|--------|----------|
| **PART                I - FINANCIAL INFORMATION** |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                1.                            |   | FINANCIAL                STATEMENTS                                                                                           |   |     |   |
|                                              |   |                                                                                                                          |   |     |   |
|                                              |   | Consolidated                Balance Sheets - September 30, 2006 and December                31, 2005                          |   | 1        |   |
|                                              |   | Consolidated                Statements of Operations - Three and nine months                ended September 30, 2006 and 2005 |   | 2        |   |
|                                              |   | Consolidated                Statement of Stockholders’ Equity - Nine months                ended September 30, 2006     |   | 3        |   |
|                                              |   | Consolidated                Statements of Cash Flows - Nine months ended                September 30, 2006 and 2005           |   | 4        |   |
|                                              |   | Notes                to the Consolidated Financial                Statements                                                  |   | 5        |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                2.                            |   | MANAGEMENT'S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                RESULTS OF OPERATIONS           |   | 18       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                3.                            |   | QUANTITATIVE                AND QUALITATIVE DISCLOSURES ABOUT MARKET                RISK                                      |   | 35       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                4.                            |   | CONTROLS                AND PROCEDURES                                                                                        |   | 38       |   |
|                                              |   |                                                                                                                          |   |     |   |
| **PART                II - OTHER INFORMATION**    |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                1.                            |   | LEGAL                PROCEEDINGS                                                                                              |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                1.A.                          |   | RISK                FACTORS                                                                                                   |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                2.                            |   | UNREGISTERED                SALES OF EQUITY SECURITIES                AND USE OF PROCEEDS                                     |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                3.                            |   | DEFALTS                UPON SENIOR SECURITIES                                                                                 |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                4.                            |   | SUBMISSION                OF MATTERS TO A VOTE OF                SECURITYHOLDERS                                              |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                5.                            |   | OTHER                INFORMATION                                                                                              |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| ITEM                6.                            |   | EXHIBITS                                                                                                                      |   | 39       |   |
|                                              |   |                                                                                                                          |   |     |   |
| SIGNATURES                                        |   | 40                                                                                                                            |   |

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*Table            of Contents*

PA

**BRIGHAM      EXPLORATION COMPANY**

**CONSOLIDATED      BALANCE SHEETS**

**(In      thousands, except share data)**

**(Unaudited)**

|                                                                                                                                                                                                                                                                                         |   | **September                30,****2006** |    | **December                31,****2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|-----------------------------------------|--------|
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |
| **ASSETS**                                                                                                                                                                                                                                                                                   |
| Current                assets:                                                                                                                                                                                                                                                               |   |                                     |    |                                    |   |
| Cash                and cash equivalents                                                                                                                                                                                                                                                     |   | $                                        | 9,614   |                                    | $      | 3,975 |   |
| Accounts                receivable                                                                                                                                                                                                                                                           |   |                                     | 14,899  |                                    |   | 22,825 |   |
| Investments                                                                                                                                                                                                                                                                                  |   |                                     | 1,004   |                                    |   | - |   |
| Deferred                income taxes                                                                                                                                                                                                                                                         |   |                                     | -       |                                    |   | 482 |   |
| Derivative                assets                                                                                                                                                                                                                                                             |   |                                     | 5,630   |                                    |   | 34 |   |
| Other                current assets                                                                                                                                                                                                                                                          |   |                                     | 2,394   |                                    |   | 1,009 |   |
| Total                current assets                                                                                                                                                                                                                                                          |   |                                     | 33,541  |                                    |   | 28,325 |   |
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| Oil                and natural gas properties, net (full cost method)                                                                                                                                                                                                                        |   |                                     | 452,898 |                                    |   | 347,329 |   |
| Other                property and equipment, net                                                                                                                                                                                                                                             |   |                                     | 922     |                                    |   | 1,027 |   |
| Deferred                loan fees                                                                                                                                                                                                                                                            |   |                                     | 3,467   |                                    |   | 2,174 |   |
| Other                noncurrent assets                                                                                                                                                                                                                                                       |   |                                     | 1,800   |                                    |   | 1,572 |   |
| Total                assets                                                                                                                                                                                                                                                                  |   | $                                        | 492,628 |                                    | $      | 380,427 |   |
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                                                                                                                                                                                                      |
| Current                liabilities:                                                                                                                                                                                                                                                          |   |                                     |    |                                    |   |   |   |
| Accounts                payable                                                                                                                                                                                                                                                              |   | $                                        | 17,056  |                                    | $      | 12,128 |   |
| Royalties                payable                                                                                                                                                                                                                                                             |   |                                     | 5,301   |                                    |   | 6,886 |   |
| Accrued                drilling costs                                                                                                                                                                                                                                                        |   |                                     | 24,671  |                                    |   | 12,218 |   |
| Participant                advances received                                                                                                                                                                                                                                                 |   |                                     | 2,364   |                                    |   | 2,116 |   |
| Other                current liabilities                                                                                                                                                                                                                                                     |   |                                     | 10,183  |                                    |   | 4,119 |   |
| Total                current liabilities                                                                                                                                                                                                                                                     |   |                                     | 59,575  |                                    |   | 37,467 |   |
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| Senior                Notes                                                                                                                                                                                                                                                                  |   |                                     | 123,381 |                                    |   | - |   |
| Senior                credit facility                                                                                                                                                                                                                                                        |   |                                     | -       |                                    |   | 33,100 |   |
| Senior                subordinated notes                                                                                                                                                                                                                                                     |   |                                     | -       |                                    |   | 30,000 |   |
| Series                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 September 30, 2006 and December 31, 2005 |   |                                     | 10,101  |                                    |   | 10,101 |   |
| Deferred                income taxes                                                                                                                                                                                                                                                         |   |                                     | 32,922  |                                    |   | 23,563 |   |
| Other                noncurrent liabilities                                                                                                                                                                                                                                                  |   |                                     | 4,864   |                                    |   | 4,556 |   |
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| Commitments                and contingencies (Note 3)                                                                                                                                                                                                                                        |   |                                     |    |                                    |   |   |   |
|                                                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| Stockholders'                equity:                                                                                                                                                                                                                                                         |   |                                     |    |                                    |   |   |   |
| Common                stock, $.01 par value, 90 million shares authorized, 45,059,868 and                44,917,768 shares issued and 45,041,900 and 44,917,768 shares outstanding                at September 30, 2006 and December 31, 2005,                respectively              |   |                                     | 451     |                                    |   | 449 |   |
| Additional                paid-in capital                                                                                                                                                                                                                                                    |   |                                     | 202,274 |                                    |   | 202,127 |   |
| Treasury                stock, at cost; 17,968 shares at September 30, 2006                                                                                                                                                                                                                  |   |                                     | (211    | )                                       |   | - |   |
| Unearned                stock compensation                                                                                                                                                                                                                                                   |   |                                     | -       |                                    |   | (2,299 | ) |
| Accumulated                other comprehensive income (loss)                                                                                                                                                                                                                                 |   |                                     | 2,695   |                                    |   | (426 | ) |
| Retained                earnings                                                                                                                                                                                                                                                             |   |                                     | 56,576  |                                    |   | 41,789 |   |
| Total                stockholders’ equity                                                                                                                                                                                                                                              |   |                                     | 261,785 |                                    |   | 241,640 |   |
| Total                liabilities and stockholders' equity                                                                                                                                                                                                                                    |   | $                                        | 492,628 |                                    | $      | 380,427 |   |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**(In      thousands, except per share data)**

**(Unaudited)**

|                                                                  |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-----------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                  |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Revenues:                                                             |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Oil                and natural gas sales                              |   | $                                                                     | 26,088 |                                                                 | $      | 25,189 |   | $ | 78,018 |   | $ | 60,326 |   |
| Other                revenue                                          |   |                                                                  | 57     |                                                                 |   | 37 |   |   | 87 |   |   | 136 |   |
|                                                                  |   |                                                                  | 26,145 |                                                                 |   | 25,226 |   |   | 78,105 |   |   | 60,462 |   |
| Costs                and expenses:                                    |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Lease                operating                                        |   |                                                                  | 2,672  |                                                                 |   | 1,541 |   |   | 7,938 |   |   | 5,149 |   |
| Production                taxes                                       |   |                                                                  | 1,259  |                                                                 |   | 741 |   |   | 3,455 |   |   | 1,909 |   |
| General                and administrative                             |   |                                                                  | 1,985  |                                                                 |   | 1,317 |   |   | 5,936 |   |   | 3,719 |   |
| Depletion                of oil and natural gas properties            |   |                                                                  | 11,910 |                                                                 |   | 7,953 |   |   | 33,272 |   |   | 21,612 |   |
| Depreciation                and amortization                          |   |                                                                  | 140    |                                                                 |   | 183 |   |   | 376 |   |   | 543 |   |
| Accretion                of discount on asset retirement obligations  |   |                                                                  | 80     |                                                                 |   | 44 |   |   | 229 |   |   | 126 |   |
|                                                                  |   |                                                                  | 18,046 |                                                                 |   | 11,779 |   |   | 51,206 |   |   | 33,058 |   |
| Operating                income                                       |   |                                                                  | 8,099  |                                                                 |   | 13,447 |   |   | 26,899 |   |   | 27,404 |   |
|                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Other                income (expense):                                |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Interest                income                                        |   |                                                                  | 518    |                                                                 |   | 62 |   |   | 1,072 |   |   | 153 |   |
| Interest                expense, net                                  |   |                                                                  | (2,669 | )                                                                    |   | (1,138 | ) |   | (6,899 | ) |   | (2,645 | ) |
| Gain                (loss) on derivatives, net                        |   |                                                                  | 2,214  |                                                                 |   | (529 | ) |   | 2,505 |   |   | (995 | ) |
| Other                income (expense)                                 |   |                                                                  | 171    |                                                                 |   | 32 |   |   | 1,181 |   |   | 144 |   |
|                                                                  |   |                                                                  | 234    |                                                                 |   | (1,573 | ) |   | (2,141 | ) |   | (3,343 | ) |
| Income                before income taxes                             |   |                                                                  | 8,333  |                                                                 |   | 11,874 |   |   | 24,758 |   |   | 24,061 |   |
| Income                tax expense:                                    |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Current                                                               |   |                                                                  | -      |                                                                 |   | - |   |   | - |   |   | - |   |
| Deferred                                                              |   |                                                                  | (3,087 | )                                                                    |   | (4,196 | ) |   | (9,971 | ) |   | (8,525 | ) |
|                                                                  |   |                                                                  | (3,087 | )                                                                    |   | (4,196 | ) |   | (9,971 | ) |   | (8,525 | ) |
| Net                income                                             |   | $                                                                     | 5,246  |                                                                 | $      | 7,678 |   | $ | 14,787 |   | $ | 15,536 |   |
|                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Net                income per share available to common stockholders: |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Basic                                                                 |   | $                                                                     | 0.12   |                                                                 | $      | 0.18 |   | $ | 0.33 |   | $ | 0.37 |   |
| Diluted                                                               |   | $                                                                     | 0.12   |                                                                 | $      | 0.18 |   | $ | 0.33 |   | $ | 0.36 |   |
|                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Weighted                average shares outstanding:                   |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Basic                                                                 |   |                                                                  | 45,027 |                                                                 |   | 42,236 |   |   | 45,005 |   |   | 42,175 |   |
| Diluted                                                               |   |                                                                  | 45,294 |                                                                 |   | 43,528 |   |   | 45,451 |   |   | 43,244 |   |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**CONSOLIDATED      STATEMENT OF STOCKHOLDERS' EQUITY**

**(In      thousands)**

**(Unaudited)**

|                                                          |   | **Common                  Stock** |    | **Additional****Paid                  In** |   | **Treasury** |   | **Unearned****Stock** |    | **Accumulated****Other****Comprehensive** |   | **Retained**                       |   | **Total****Stockholders'** |    |
|---------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------------|--------|--------------|--------|-----------------------|---------|-------------------------------------------|--------|------------------------------------|--------|----------------------------|---------|
|                                                          |   | **Shares**                        |    | **Amounts**                                |   | **Capital**  |   | **Stock**             |    | **Compensation**                          |   | **Income                  (Loss)** |   | **Earnings**               |    | **Equity** |   |
| Balance,                  December 31, 2005                   |   |                              | 44,918  |                                       | $      | 449          |   | $                     | 202,127 |                                      | $      | —                            |   | $                          | (2,299  | ) | $ | (426 | ) | $ | 41,789 |   | $ | 241,640 |   |
| Comprehensive                  income:                        |   |                              |    |                                       |   |         |   |                  |    |                                      |   |                               |   |                       |    |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                   |   |                              | — |                                       |   | —      |   |                  | — |                                      |   | —                            |   |                       | — |   |   | — |   |   | 14,787 |   |   | 14,787 |   |
| Unrealized                  gain (losses) on cash flow hedges |   |                              | — |                                       |   | —      |   |                  | — |                                      |   | —                            |   |                       | — |   |   | 8,015 |   |   | — |   |   | 8,015 |   |
| Tax                  provisions related to cash flow hedges   |   |                              | — |                                       |   | —      |   |                  | — |                                      |   | —                            |   |                       | — |   |   | (1,681 | ) |   | — |   |   | (1,681 | ) |
| Net                  (gains) losses included in net income    |   |                              | — |                                       |   | —      |   |                  | — |                                      |   | —                            |   |                       | — |   |   | (3,213 | ) |   | — |   |   | (3,213 | ) |
| Comprehensive                  income                         |   |                              |    |                                       |   |         |   |                  |    |                                      |   |                               |   |                       |    |   |   |   |   |   |   |   |   | 17,908 |   |
| Adoption                  of SFAS No. 123R                    |   |                              | — |                                       |   | —      |   |                  | (2,299  | )                                         |   | —                            |   |                       | 2,299   |   |   | — |   |   | — |   |   | — |   |
| Issuance                  of common stock                     |   |                              | — |                                       |   | —      |   |                  | 37      |                                      |   | —                            |   |                       | — |   |   | — |   |   | — |   |   | 37 |   |
| Exercises                  of employee stock options          |   |                              | 77      |                                       |   | 1            |   |                  | 338     |                                      |   | —                            |   |                       | — |   |   | — |   |   | — |   |   | 339 |   |
| Vesting                  of restricted stock                  |   |                              | 65      |                                       |   | 1            |   |                  | (1      | )                                         |   | —                            |   |                       | — |   |   | — |   |   | — |   |   | — |   |
| Stock                  based compensation                     |   |                              | — |                                       |   | —      |   |                  | 2,072   |                                      |   | —                            |   |                       | — |   |   | — |   |   | — |   |   | 2,072 |   |
| Repurchases                  of common stock                  |   |                              | — |                                       |   | —      |   |                  | — |                                      |   | (211                               | )      |                       | — |   |   | — |   |   | — |   |   | (211 | ) |
| Balance,                  September 30, 2006                  |   |                              | 45,060  |                                       | $      | 451          |   | $                     | 202,274 |                                      | $      | (211                               | )      | $                          | -       |   | $ | 2,695 |   | $ | 56,576 |   | $ | 261,785 |   |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**(In      thousands)**

**(Unaudited)**

|                                                                                                              |   | **Nine                Months Ended****September                30,** |     |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|----------|
|                                                                                                              |   | **2006**                                                             |     | **2005** |   |
|                                                                                                              |   |                                                                 |     |   |   |
| Cash                flows from operating activities:                                                              |   |                                                                 |     |   |   |
| Net                income                                                                                         |   | $                                                                    | 14,787   |   | $ | 15,536 |   |
| Adjustments                to reconcile net income to cash provided by operating                activities:       |   |                                                                 |     |   |   |   |   |
| Depletion                of oil and natural gas properties                                                        |   |                                                                 | 33,272   |   |   | 21,612 |   |
| Depreciation                and amortization                                                                      |   |                                                                 | 376      |   |   | 543 |   |
| Stock                based compensation                                                                           |   |                                                                 | 1,134    |   |   | - |   |
| Write-off                of deferred loan costs                                                                   |   |                                                                 | 965      |   |   | - |   |
| Interest                paid through issuance of additional mandatorily redeemable preferred                stock |   |                                                                 | -        |   |   | 581 |   |
| Amortization                of deferred loan fees and debt issuance costs                                         |   |                                                                 | 508      |   |   | 373 |   |
| Market                value adjustment for derivative instruments                                                 |   |                                                                 | (2,926   | ) |   | 995 |   |
| Accretion                of discount on asset retirement obligations                                              |   |                                                                 | 229      |   |   | 126 |   |
| Deferred                income taxes                                                                              |   |                                                                 | 9,971    |   |   | 8,525 |   |
| Other                noncash items                                                                                |   |                                                                 | 64       |   |   | 103 |   |
| Changes                in operating assets and liabilities:                                                       |   |                                                                 |     |   |   |   |   |
| Accounts                receivable                                                                                |   |                                                                 | 7,926    |   |   | (1,320 | ) |
| Other                current assets                                                                               |   |                                                                 | (1,378   | ) |   | (459 | ) |
| Accounts                payable                                                                                   |   |                                                                 | 4,928    |   |   | (5,628 | ) |
| Royalties                payable                                                                                  |   |                                                                 | (1,585   | ) |   | 389 |   |
| Participant                advances received                                                                      |   |                                                                 | 248      |   |   | (1,835 | ) |
| Other                current liabilities                                                                          |   |                                                                 | 6,032    |   |   | 543 |   |
| Other                noncurrent assets and liabilities                                                            |   |                                                                 | (256     | ) |   | (22 | ) |
| Net                cash provided by operating activities                                                          |   |                                                                 | 74,295   |   |   | 40,062 |   |
|                                                                                                              |   |                                                                 |     |   |   |   |   |
| Cash                flows from investing activities:                                                              |   |                                                                 |     |   |   |   |   |
| Additions                to oil and natural gas properties                                                        |   |                                                                 | (125,054 | ) |   | (83,306 | ) |
| Purchases                of short term investments                                                                |   |                                                                 | (52,409  | ) |   | - |   |
| Sales                and redemptions of short term investments                                                    |   |                                                                 | 51,405   |   |   | - |   |
| Additions                to other property and equipment                                                          |   |                                                                 | (335     | ) |   | (184 | ) |
| Decrease                (increase) in drilling advances paid                                                      |   |                                                                 | 254      |   |   | 205 |   |
| Net                cash used by investing activities                                                              |   |                                                                 | (126,139 | ) |   | (83,285 | ) |
|                                                                                                              |   |                                                                 |     |   |   |   |   |
| Cash                flows from financing activities:                                                              |   |                                                                 |     |   |   |   |   |
| Proceeds                from senior notes offering                                                                |   |                                                                 | 123,286  |   |   | - |   |
| Increase                in senior credit facility                                                                 |   |                                                                 | 24,200   |   |   | 49,100 |   |
| Repayment                of senior credit facility                                                                |   |                                                                 | (57,300  | ) |   | (12,000 | ) |
| Increase                in senior subordinated notes                                                              |   |                                                                 | -        |   |   | 10,000 |   |
| Repayment                of senior subordinated notes                                                             |   |                                                                 | (30,000  | ) |   | - |   |
| Deferred                loan fees paid and equity costs                                                           |   |                                                                 | (2,868   | ) |   | (892 | ) |
| Proceeds                from issuance of stock, net of issuance costs                                             |   |                                                                 | 37       |   |   | - |   |
| Proceeds                from exercise of employee stock options                                                   |   |                                                                 | 339      |   |   | 797 |   |
| Repurchases                of common stock                                                                        |   |                                                                 | (211     | ) |   | (190 | ) |
| Net                cash provided by financing activities                                                          |   |                                                                 | 57,483   |   |   | 46,815 |   |
| Net                increase (decrease) in cash and cash equivalents                                               |   |                                                                 | 5,639    |   |   | 3,592 |   |
| Cash                and cash equivalents, beginning of year                                                       |   |                                                                 | 3,975    |   |   | 2,281 |   |
| Cash                and cash equivalents, end of period                                                           |   | $                                                                    | 9,614    |   | $ | 5,873 |   |

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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** |
|--------|-------------------------------------------------------------------------|

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                  |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                  |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Weighted                average common shares outstanding - basic                                     |   |                                                                  | 45,027 |                                                                 |   | 42,236 |   |   | 45,005 |   |   | 42,175 |   |
| Plus:                Potential common shares Stock                options and restricted stock        |   |                                                                  | 267    |                                                                 |   | 1,292 |   |   | 446 |   |   | 1,069 |   |
| Weighted                average common shares outstanding - diluted                                   |   |                                                                  | 45,294 |                                                                 |   | 43,528 |   |   | 45,451 |   |   | 43,244 |   |
|                                                                                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Stock                options excluded from diluted EPS due to the anti-dilutive                effect |   |                                                                  | 2,633  |                                                                 |   | — |   |   | 1,700 |   |   | 10 |   |

| **5.** | **Income                Taxes** |
|--------|---------------------------------|

|                                  |   | **September                30,****2006** |   |
|---------------------------------------|--------|------------------------------------------|--------|
| Current                income taxes:  |   |                                     |   |
| Federal                          |   | $                                        | -      |   |
| State                            |   |                                     | -      |   |
| Deferred                income taxes: |   |                                     |   |   |
| Federal                          |   |                                     | 8,630  |   |
| State                            |   |                                     | 1,341  |   |
|                                  |   | $                                        | 9,971  |   |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

| **6.** | **Senior                Notes** |
|--------|---------------------------------|

| **7.** | **Short-term                Investments** |
|--------|-------------------------------------------|

|                                              |   | **Cost** |   | **Unrealized****Holding****Gains                / (Losses)** |   | **Fair****Value** |   |
|---------------------------------------------------|--------|----------|--------|--------------------------------------------------------------|--------|-------------------|--------|
| **Available-for-Sale                Securities:** |   |     |   |                                                         |   |              |   |
| State                and municipal securities     |   | $        | 1,004  |                                                         | $      | -                 |   | $ | 1,004 |   |

| **8.** | **Derivative                Instruments and Hedging                Activities** |
|--------|---------------------------------------------------------------------------------|

|                                                                         |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                         |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| ***Natural                Gas***                                             |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Average                price per Mcf as reported (including hedging results) |   | $                                                                     | 7.07   |                                                                 | $      | 8.45 |   | $ | 7.17 |   | $ | 7.01 |   |
| Average                price per Mcf realized (excluding hedging results)    |   | $                                                                     | 6.48   |                                                                 | $      | 8.71 |   | $ | 6.78 |   | $ | 7.14 |   |
| Increase                (decrease) in revenue (in thousands)                 |   | $                                                                     | 1,549  |                                                                 | $      | (590 | ) | $ | 3,039 |   | $ | (831 | ) |
| ***Oil***                                                                    |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Average                price per Bbl as reported (including hedging results) |   | $                                                                     | 72.36  |                                                                 | $      | 58.51 |   | $ | 67.22 |   | $ | 49.87 |   |
| Average                price per Bbl realized (excluding hedging results)    |   | $                                                                     | 71.86  |                                                                 | $      | 60.44 |   | $ | 67.22 |   | $ | 53.32 |   |
| Increase                (decrease) in revenue (in thousands)                 |   | $                                                                     | 52     |                                                                 | $      | (208 | ) | $ | 2 |   | $ | (1,134 | ) |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                        |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                        |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| Increase                (decrease) in earnings due to ineffectiveness  |   | $                                                                     | 2,336  |                                                                 | $      | (477 | ) | $ | 3,213 |   | $ | (890 | ) |

***Natural      Gas and Crude Oil Derivative Contracts***

***Cash-flow      hedges***

|                                                        |   | **September                30,****2006** |   | **December                31,****2005** |   |
|-------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
| Fair                value of undesignated derivatives  |   | $                                        | (293   | )                                       | $      | (125 | ) |

|                                                                                                                         |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                                         |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| Increase                (decrease) in earnings due to changes in fair value of undesignated                derivatives  |   | $                                                                     | 115    |                                                                 | $      | (52 | ) | $ | (168 | ) | $ | (105 | ) |

|                                  |   |                         |   |                              |   | **Notional                Amount** |    |                 |   |
|---------------------------------------|--------|------------------------------|--------|-----------------------------------|--------|------------------------------------|---------|----------------------|--------|
| **Settlement                Period**  |   | **Derivative****Instrument** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)**      |    | **Oil****(Barrels)** |   | **Nymex****Reference****Price** |   |
| ***Costless                Collars*** |   |                         |   |                              |   |                               |    |                 |   |   |   |
| 10/01/06                - 10/31/06    |   | Purchased              put   |   | Cash              flow            |   |                               | 70,000  |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 70,000  |                 |   |   |   |   | 14.85 |   |
| 10/01/06                - 12/31/06    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 27,000 |   | $ | 50.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 27,000 |   |   | 77.50 |   |
| 10/01/06                - 10/31/06    |   | Purchased              put   |   | Cash              flow            |   |                               | 120,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 120,000 |                 |   |   |   |   | 16.65 |   |

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                  |   |                         |   |                              |   | **Notional                Amount** |    |                 |   |
|---------------------------------------|--------|------------------------------|--------|-----------------------------------|--------|------------------------------------|---------|----------------------|--------|
| **Settlement                Period**  |   | **Derivative****Instrument** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)**      |    | **Oil****(Barrels)** |   | **Nymex****Reference****Price** |   |
| ***Costless                Collars*** |   |                         |   |                              |   |                               |    |                 |   |   |   |
| 10/01/06                - 10/31/06    |   | Purchased              put   |   | Cash              flow            |   |                               | 100,000 |                 |   |   |   | $ | 5.50 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 100,000 |                 |   |   |   |   | 11.75 |   |
| 11/01/06                - 01/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 540,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 540,000 |                 |   |   |   |   | 23.25 |   |
| 11/01/06                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 450,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 450,000 |                 |   |   |   |   | 21.20 |   |
| 11/01/06                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 375,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 375,000 |                 |   |   |   |   | 15.75 |   |
| 11/01/06                - 06/30/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 32,000 |   | $ | 59.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 32,000 |   |   | 90.00 |   |
| 01/01/07                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 24,000 |   | $ | 50.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 24,000 |   |   | 78.25 |   |
| 02/01/07                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   |   | 25.75 |   |
| 04/01/07                - 09/30/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 30,000 |   | $ | 50.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 30,000 |   |   | 81.50 |   |
| 04/01/07                - 09/30/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 12,000 |   | $ | 56.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 12,000 |   |   | 92.50 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   | $ | 7.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   |   | 15.45 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   | $ | 7.25 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   |   | 15.25 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   | $ | 7.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 280,000 |                 |   |   |   |   | 14.85 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 700,000 |                 |   |   |   | $ | 7.50 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 700,000 |                 |   |   |   |   | 11.00 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 350,000 |                 |   |   |   | $ | 7.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 350,000 |                 |   |   |   |   | 11.60 |   |
| 07/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 10,000 |   | $ | 58.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 10,000 |   |   | 90.50 |   |
| 10/01/07                - 12/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 9,000 |   | $ | 59.20 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 9,000 |   |   | 90.00 |   |
| 10/01/07                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 18,000 |   | $ | 56.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 18,000 |   |   | 89.95 |   |
| 11/01/07                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               | 250,000 |                 |   |   |   | $ | 8.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 250,000 |                 |   |   |   |   | 13.40 |   |
| 01/01/08                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 7,500 |   | $ | 57.60 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 7,500 |   |   | 90.00 |   |
| 04/01/07                - 08/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 60,000  |                 |   |   |   | $ | 7.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 60,000  |                 |   |   |   |   | 10.00 |   |
| 11/01/07                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   | $ | 8.85 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   |   | 15.00 |   |
| 11/01/07                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   | $ | 9.30 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 300,000 |                 |   |   |   |   | 15.00 |   |
| 10/01/06                - 02/28/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 20,000 |   | $ | 70.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 20,000 |   |   | 85.20 |   |
| 11/01/07                - 03/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 10,000 |   | $ | 68.40 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 10,000 |   |   | 90.00 |   |
| 04/01/08                - 10/31/08    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 21,000 |   | $ | 65.70 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 21,000 |   |   | 90.00 |   |
| 06/01/07                - 09/30/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 6,000 |   | $ | 65.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 6,000 |   |   | 80.00 |   |

----

*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                            |   |                         |   |                              |   | **Notional                Amount** |   |                 |   |
|-------------------------------------------------|--------|------------------------------|--------|-----------------------------------|--------|------------------------------------|--------|----------------------|--------|
| **Settlement                Period**            |   | **Derivative****Instrument** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)**      |   | **Oil****(Barrels)** |   | **Nymex****Reference****Price** |   |
| ***Costless                Collars***           |   |                         |   |                              |   |                               |   |                 |   |   |   |
| 10/01/07                - 03/31/08              |   | Purchased              put   |   | Cash              flow            |   |                               |   |                 |   | 6,000 |   | $ | 65.00 |   |
|                                            |   | Written              call    |   | Cash              flow            |   |                               |   |                 |   | 6,000 |   |   | 80.25 |   |
| ***Three                Way Costless Collars*** |   |                         |   |                              |        |                               |   |                 |   |   |   |   |   |   |   |   |
| 10/01/06                - 10/31/06              |   | Purchased              put   |   | Cash              flow            |   |                               | 60,000 |                 |   |   |   | $ | 7.50 |   |
|                                            |   | Written              call    |   | Cash              flow            |   |                               | 60,000 |                 |   |   |   |   | 9.15 |   |
|                                            |   | Written              put     |   | Undesignated                      |   |                               | 60,000 |                 |   |   |   |   | 6.25 |   |
| 10/01/06                - 10/31/06              |   | Purchased              put   |   | Cash              flow            |   |                               | 70,000 |                 |   |   |   | $ | 8.50 |   |
|                                            |   | Written              call    |   | Cash              flow            |   |                               | 70,000 |                 |   |   |   |   | 9.96 |   |
|                                            |   | Written              put     |   | Undesignated                      |   |                               | 70,000 |                 |   |   |   |   | 7.00 |   |

|                                  |   |                         |   |                              |   | **Notional                Amount** |    |                 |   |
|---------------------------------------|--------|------------------------------|--------|-----------------------------------|--------|------------------------------------|---------|----------------------|--------|
| **Settlement                Period**  |   | **Derivative****Instrument** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)**      |    | **Oil****(Barrels)** |   | **Nymex****Reference****Price** |   |
| ***Costless                Collars*** |   |                         |   |                              |   |                               |    |                 |   |   |   |
| 01/01/07                - 12/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               |    |                 |   | 12,000 |   | $ | 55.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               |    |                 |   | 12,000 |   |   | 79.00 |   |
| 01/01/07                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 90,000  |                 |   |   |   | $ | 7.50 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 90,000  |                 |   |   |   |   | 10.00 |   |
| 01/01/07                - 03/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 150,000 |                 |   |   |   | $ | 7.25 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 150,000 |                 |   |   |   |   | 9.65 |   |
| 04/01/07                - 10/31/07    |   | Purchased              put   |   | Cash              flow            |   |                               | 350,000 |                 |   |   |   | $ | 7.00 |   |
|                                  |   | Written              call    |   | Cash              flow            |   |                               | 350,000 |                 |   |   |   |   | 9.10 |   |

***Basis      Swaps***

|                                                        |   | **September                30,****2006** |   | **December                31,****2005** |   |
|-------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
| Fair                value of undesignated derivatives  |   | $                                        | (119   | )                                       | $      | - |   |

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*Table          of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                         |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                                         |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| Increase                (decrease) in earnings due to changes in fair value of undesignated                derivatives  |   | $                                                                     | (15    | )                                                                    | $      | - |   | $ | (119 | ) | $ | - |   |

|                           |   |                                 |                               |                         |   |                              |   | **Notional                Amount** |         |                 |   |
|--------------------------------|--------|--------------------------------------|------------------------------------|------------------------------|--------|-----------------------------------|--------|------------------------------------|--------------|----------------------|--------|
| **Basis                Swaps** |   | **Settlement                Period** |                               | **Derivative****Instrument** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)**      |         | **Oil****(Barrels)** |   | **Discount****To****NYMEX** |   |
|                           |   |                                 |                               |                         |   |                              |   |                               |         |                 |   |   |   |
| ***NGPL                STX***  |   |                                 | 10/01/06                - 10/31/06 |                         |   | Purchased                Put      |   |                               | Undesignated |                 |   | 200,000 |   |   |   |   | $ | 0.603 |   |
| ***HSC***                      |   |                                 | 10/01/06                - 10/31/06 |                         |   | Purchased                Put      |   |                               | Undesignated |                 |   | 80,000 |   |   |   |   | $ | 0.510 |   |
| ***ANR                OK***    |   |                                 | 10/01/06                - 10/31/06 |                         |   | Purchased                Put      |   |                               | Undesignated |                 |   | 140,000 |   |   |   |   | $ | 1.110 |   |

***Interest      rate swap***

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

***Fair      values***

|                                        |   | **September                30,****2006** |   | **December                31,****2005** |   |
|---------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
|                                        |   | (In                thousands)            |   |
|                                        |   |                                     |   |                                    |   |
| Other                current liabilities    |   | $                                        | (45    | )                                       | $      | (2,112 | ) |
| Other                noncurrent liabilities |   |                                     | 0      |                                    |   | (61 | ) |
| Other                current assets         |   |                                     | 5,630  |                                    |   | 224 |   |
| Other                noncurrent assets      |   |                                     | 1,135  |                                    |   | 654 |   |
|                                        |   | $                                        | 6,720  |                                    | $      | (1,295 | ) |

| **9.** | **Oil                and Gas Properties** |
|--------|-------------------------------------------|

| **10.** | **Asset                Retirement Obligations** |
|---------|-------------------------------------------------|

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                   |   | **Nine                Months Ended****September                30,** |   |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                   |   | **2006**                                                             |   | **2005** |   |
|                                                                   |   |                                                                 |   |   |   |
| Beginning                asset retirement obligations                  |   | $                                                                    | 4,389  |   | $ | 2,896 |   |
| Liabilities                incurred for new wells placed on production |   |                                                                 | 395    |   |   | 244 |   |
| Liabilities                settled                                     |   |                                                                 | (218   | ) |   | (10 | ) |
| Accretion                of discount on asset retirement obligations   |   |                                                                 | 229    |   |   | 126 |   |
|                                                                   |   | $                                                                    | 4,795  |   | $ | 3,256 |   |

| **11****.** | **Stock                Based Compensation** |
|-------------|---------------------------------------------|

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*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

| Risk-free                interest rate                                     |   |   | 4.6%                    |   |
|----------------------------------------------------------------------------|--------|--------|-------------------------|--------|
| Expected                life (in years)                                    |   |   | 5.0                     |   |
| Expected                volatility                                         |   |   | 74                - 87% |   |
| Expected                dividend yield                                     |   |   | —                 |   |
| Weighted                average fair value per share of stock compensation |   | $      | 6.54                    |   |

|                                                                                                                                                      |   | **Three                Months****Ended****Sept                30, 2005** |   | **Nine                Months****Ended****Sept                30, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|
| Net                income, as reported                                                                                                                    |   | $                                                                        | 7,678  |                                                                    | $      | 15,536 |   |
| Add                back: Stock compensation expense previously included in net                income                                                      |   |                                                                     | 111    |                                                                    |   | 333 |   |
| Effect                of total employee stock-based compensation expense, determined under                fair                value method for all awards |   |                                                                     | (355   | )                                                                       |   | (1,036 | ) |
| Pro                forma                                                                                                                                  |   | $                                                                        | 7,434  |                                                                    | $      | 14,833 |   |
|                                                                                                                                                      |   |                                                                     |   |                                                                    |   |   |   |
| Net                income per share:                                                                                                                      |   |                                                                     |   |                                                                    |   |   |   |
| Basic,                as reported                                                                                                                         |   | $                                                                        | 0.18   |                                                                    | $      | 0.37 |   |
| Basic,                pro forma                                                                                                                           |   |                                                                     | 0.18   |                                                                    |   | 0.35 |   |
|                                                                                                                                                      |   |                                                                     |   |                                                                    |   |   |   |
| Diluted,                as reported                                                                                                                       |   | $                                                                        | 0.18   |                                                                    | $      | 0.36 |   |
| Diluted,                pro forma                                                                                                                         |   |                                                                     | 0.17   |                                                                    |   | 0.34 |   |

----

*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

|                                                          |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                          |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                          |   |                                                                  |   |
| Pre-tax                stock based compensation expense  |   | $                                                                     | 516    |                                                                 | $      | 167 |   | $ | 2,072 |   | $ | 501 |   |
| Capitalized                stock based compensation      |   |                                                                  | (225   | )                                                                    |   | (80 | ) |   | (938 | ) |   | (241 | ) |
| Tax                benefit                               |   |                                                                  | (102   | )                                                                    |   | (31 | ) |   | (397 | ) |   | (91 | ) |
| Stock                based compensation expense, net     |   | $                                                                     | 189    |                                                                 | $      | 56 |   | $ | 737 |   | $ | 169 |   |

***Stock      Based Plan Descriptions and Share Information***

|                                                            |   | **Shares** |      | **Weighted-****Average****Exercise****Price** |   | **Weighted-****Average****Remaining****Contractual****Term** |   | **Aggregate****Intrinsic****Value** |                     |
|-----------------------------------------------------------------|--------|------------|-----------|-----------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------------|--------------------------|
|                                                            |   |       |      |                                          |   |                                                         |   |                                |                     |
| Options                outstanding at the beginning of the year |   |       | 2,946,333 |                                          | $      | 6.96                                                         |   |                                |                     |   |   |   |   |
| Granted                                                         |   |       | 430,000   |                                          | $      | 6.47                                                         |   |                                |                     |   |   |   |   |
| Forfeited                or cancelled                           |   |       | (200,467  | )                                             | $      | 4.93                                                         |   |                                |                     |   |   |   |   |
| Exercised                                                       |   |       | (77,100   | )                                             | $      | 5.08                                                         |   |                                |                     |   |   |   |   |
| Options                outstanding at September 30, 2006        |   |       | 3,098,766 |                                          | $      | 7.07                                                         |   |                                | 4.5                years |   | $ | 2,417,000 |   |
| Options                exercisable at September 30, 2006        |   |       | 1,201,566 |                                          | $      | 1.94                                                         |   |                                | 3.4                years |   | $ | 1,773,000 |   |

----

*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

***Restricted      Stock***

|                                                                      |   | **Number****of****Shares** |    | **Weighted-****Average****Price** |   |
|---------------------------------------------------------------------------|--------|----------------------------|---------|-----------------------------------|--------|
| Restricted                Stock Awards:                                   |   |                       |    |                              |   |
| Restricted                shares outstanding at the beginning of the year |   |                       | 397,650 |                              | $      | 7.37 |   |
| Shares                granted                                             |   |                       | 129,595 |                              | $      | 10.84 |   |
| Lapse                of restrictions                                      |   |                       | (65,000 | )                                 | $      | 5.23 |   |
| Forfeitures                                                               |   |                       | (58,348 | )                                 | $      | 8.16 |   |
| Restricted                shares outstanding at September 30, 2006        |   |                       | 403,897 |                              | $      | 8.72 |   |

| **12****.** | **Comprehensive                Income** |
|-------------|-----------------------------------------|

|                                                                    |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                    |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                                    |   |                                                                  |   |
| Net                income                                          |   | $                                                                     | 5,246  |                                                                 | $      | 7,678 |   | $ | 14,787 |   | $ | 15,536 |   |
| Unrealized                gains (losses) on cash flow hedges            |   |                                                                  | 3,527  |                                                                 |   | (6,129 | ) |   | 8,015 |   |   | (5,738 | ) |
| Tax                benefits (provisions) related to cash flow hedges    |   |                                                                  | (417   | )                                                                    |   | 1,978 |   |   | (1,681 | ) |   | 1,696 |   |
| Net                (gains) losses on derivatives included in net income |   |                                                                  | (2,336 | )                                                                    |   | 476 |   |   | (3,213 | ) |   | 890 |   |
| Other                Comprehensive Income, net                          |   | $                                                                     | 6,020  |                                                                 | $      | 4,003 |   | $ | 17,908 |   | $ | 12,384 |   |

----

*Table            of Contents*

**BRIGHAM      EXPLORATION COMPANY**

**NOTES      TO THE CONSOLIDATED FINANCIAL STATEMENTS**

| **13.** | **New                Accounting Pronouncements** |
|---------|--------------------------------------------------|

----

*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 and Add to Our Inventory of High Quality Exploratory                Prospects.* |
|--------|---------------------------------------------------------------------------------------------------------------------|

| · | *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.* |
|--------|-----------------------------------------------------------------------------------------------|

| · | *Enhance                Returns Through Operational Control.* |
|--------|---------------------------------------------------------------|

**Overview      of **
**Third      Quarter and First Nine Months 2006 Results**

----

*Table          of Contents*

**Third      Quarter 2006 Operations Update**

*Vicksburg      Trend*

*Frio      Trend *

----

*Table            of Contents*

*Gulf      Coast Louisiana Miocene Trend *

*Anadarko      Basin*

*Resource      Plays*

**Third      quarter and First Nine months 2006 Results **

*Comparison      of the three-month and nine month periods ended September 30, 2006 and      2005.*

***Production      volumes***

|                                               |   | **Three                months ended****September                30,**  |   | **Nine                months ended****September                30,**  |   |
|----------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|
|                                               |   | **2006**                                                               |   | **%                Change**                                           |   | **2005**  |   | **2006**  |   | **%                Change**  |   | **2005**  |   |
|                                               |   |                                                                        |   |                                                                       |   |   |   |   |   |   |   |   |   |
| Oil                (MBbls)                         |   |                                                                        | 105    |                                                        |   | (3%) |    |   | 108 |       |   | 330 |      |   | 0% |    |   | 329 |   |
| Natural                gas (MMcf)                  |   |                                                                        | 2,616  |                                                                       |   | 17% |   |   | 2,233 |   |   | 7,789 |   |   | 24% |   |   | 6,268 |   |
| Total                (MMcfe)(1)                    |   |                                                                        | 3,245  |                                                                       |   | 13% |   |   | 2,881 |   |   | 9,766 |   |   | 19% |   |   | 8,240 |   |
| Average                daily production ( MMcfe/d) |   |                                                                        | 36.1   |                                                                       |   |   |   |   | 32.0 |   |   | 36.2 |   |   |   |   |   | 30.5 |   |

----

| (1) | MMcfe                is defined 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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

***Revenues,      Commodity Prices and Hedging***

|                                                                |   | **Three                  months ended****September                  30,** |   | **Nine                  months ended****September                  30,** |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                                |   | **2006**                                                                  |   | **%                  Change**                                            |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                                |   | **(In                  thousands, except per unit measurements)**         |   |
| **Revenue                  from the sale of oil and natural gas:**  |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |
| Oil                  sales                                          |   | $                                                                         | 7,541  |                                                 |   | 16% |   | $ | 6,529 |      | $ | 22,150 |      |   | 26% |   | $ | 17,531 |   |
| Gain                  (loss) due to hedging                         |   |                                                                      | 52     |                                                                     |   | NM |   |   | (208 | ) |   | 2 |   |   | NM |   |   | (1,134 | ) |
| Total                  revenue from the sale of oil                 |   | $                                                                         | 7,593  |                                                                     |   | 20% |   | $ | 6,321 |   | $ | 22,152 |   |   | 35% |   | $ | 16,397 |   |
|                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Natural                  gas sales                                  |   | $                                                                         | 16,946 |                                                                     |   | (13%) |    | $ | 19,458 |   | $ | 52,827 |   |   | 18% |   | $ | 44,760 |   |
| Gain                  (loss) due to hedging                         |   |                                                                      | 1,549  |                                                                     |   | NM |   |   | (590 | ) |   | 3,039 |   |   | NM |   |   | (831 | ) |
| Total                  revenue from the sale of natural gas         |   | $                                                                         | 18,495 |                                                                     |   | (2%) |   | $ | 18,868 |   | $ | 55,866 |   |   | 27% |   | $ | 43,929 |   |
|                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                  and natural gas sales                          |   | $                                                                         | 24,487 |                                                                     |   | (6%) |   | $ | 25,987 |   | $ | 74,977 |   |   | 20% |   | $ | 62,291 |   |
| Gain                  (loss) due to hedging                         |   |                                                                      | 1,601  |                                                                     |   | NM |   |   | (798 | ) |   | 3,041 |   |   | NM |   |   | (1,965 | ) |
| Total                  revenue from the sale of oil and natural gas |   | $                                                                         | 26,088 |                                                                     |   | 4% |   | $ | 25,189 |   | $ | 78,018 |   |   | 29% |   | $ | 60,326 |   |
|                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Average                  prices:**                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                  sales price (per Bbl)                          |   | $                                                                         | 71.86  |                                                                     |   | 19% |   | $ | 60.44 |   | $ | 67.22 |   |   | 26% |   | $ | 53.32 |   |
| Gain                  (loss) due to hedging (per Bbl)               |   |                                                                      | 0.50   |                                                                     |   | NM |   |   | (1.93 | ) |   | — |   |   | 100% |   |   | (3.45 | ) |
| Realized                  oil price (per Bbl)                       |   | $                                                                         | 72.36  |                                                                     |   | 24% |   | $ | 58.51 |   | $ | 67.22 |   |   | 35% |   | $ | 49.87 |   |
|                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Natural                  gas sales price (per Mcf)                  |   | $                                                                         | 6.48   |                                                                     |   | (26%) |   | $ | 8.71 |   | $ | 6.78 |   |   | (5%) |    | $ | 7.14 |   |
| Gain                  (loss) due to hedging (per Mcf)               |   |                                                                      | 0.59   |                                                                     |   | NM |   |   | (0.26 | ) |   | 0.39 |   |   | NM |   |   | (0.13 | ) |
| Realized                  natural gas price (per Mcf)               |   | $                                                                         | 7.07   |                                                                     |   | (16%) |   | $ | 8.45 |   | $ | 7.17 |   |   | 2% |   | $ | 7.01 |   |
|                                                                |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Natural                  gas equivalent sales price (per Mcfe)      |   | $                                                                         | 7.55   |                                                                     |   | (16%) |   | $ | 9.02 |   | $ | 7.68 |   |   | 2% |   | $ | 7.56 |   |
| Gain                  (loss) due to hedging (per Mcfe)              |   |                                                                      | 0.49   |                                                                     |   | NM |   |   | (0.28 | ) |   | 0.31 |   |   | NM |   |   | (0.24 | ) |
| Realized                  natural gas equivalent (per Mcfe)         |   | $                                                                         | 8.04   |                                                                     |   | (8%) |   | $ | 8.74 |   | $ | 7.99 |   |   | 9% |   | $ | 7.32 |   |

|                                                                   |   | **For                the three****month                periods****ended****September                30,****2006                and 2005** |   | **For                  the nine****month                  periods****ended****September                  30,****2006                  and 2005** |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                              |   |                                                                                                                                      |   |                                                                                                                                                  |   |
| **Change                in revenue from the sale of oil**         |   |                                                                                                                                      |   |                                                                                                                                                  |   |
| Volume                variance impact                             |   |                                                                                                                                      | (186   | )                                                                                                                                                     |   | 39 |   |
| Price                variance impact                              |   | $                                                                                                                                         | 1,198  |                                                                                                                                                  | $      | 4,580 |   |
| Cash                settlement of hedging contracts               |   |                                                                                                                                      | 260    |                                                                                                                                                  |   | 1,136 |   |
| Total                change                                       |   | $                                                                                                                                         | 1,272  |                                                                                                                                                  | $      | 5,755 |   |
| **Change                in revenue from the sale of natural gas** |   |                                                                                                                                      |   |                                                                                                                                                  |   |   |   |
| Volume                variance impact                             |   |                                                                                                                                      | 3,325  |                                                                                                                                                  |   | 10,855 |   |
| Price                variance impact                              |   | $                                                                                                                                         | (5,837 | )                                                                                                                                                     | $      | (2,788 | ) |
| Cash                settlement of hedging contracts               |   |                                                                                                                                      | 2,139  |                                                                                                                                                  |   | 3,870 |   |
| Total                change                                       |   | $                                                                                                                                         | (373   | )                                                                                                                                                     | $      | 11,937 |   |

----

*Table            of Contents*

|   | · | A                13% increase in production volumes generated a $3.1 million increase                in                revenue; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                16% decrease in prices, excluding the impact of hedges, resulted                in a $4.6                million decrease in revenue; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                $1.6 million gain from the cash settlement of derivative contracts                in the                third quarter 2006 versus a $800,000 loss for the same period last                year                led to $2.4 million increase in                revenue. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                19% increase in production volumes generated a $10.9 million increase                in                revenue; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                2% increase in prices, excluding the impact of hedges, resulted in                a $1.8                million increase in revenue; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                $3.0 million gain from the cash settlement of derivative contracts                in the                first nine months of 2006 versus a $2.0 million loss last year led                to $5.0                million increase in revenue. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | **Three                months ended****September                30,** |      | **Nine                months ended****September                30,** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|----------------------------------------------------------------------|--------|
|                                                         |   | **2006**                                                         |      | **%                Change**                                          |   | **2005**  |   | **2006**  |   | **%                Change** |   | **2005**  |   |
|                                                         |   |                                                                  |      |                                                                 |   |   |   |   |   |   |   |   |   |
| ***Oil                collars***                             |   |                                                                  |      |                                                                 |   |   |   |   |   |   |   |   |   |
| Volumes                (Bbls)                                |   |                                                                  | 44,500    |                                             |   | 35% |     |   | 33,000 |       |   | 115,000 |       |   | 35% |     |   | 85,105 |   |
| Average                floor price ($ per Bbl)               |   | $                                                                     | 58.20     |                                                                 |   | 31% |   | $ | 44.36 |   | $ | 55.18 |   |   | 59% |   | $ | 34.71 |   |
| Average                ceiling price ($ per Bbl)             |   | $                                                                     | 77.45     |                                                                 |   | 35% |   | $ | 57.20 |   | $ | 73.80 |   |   | 70% |   | $ | 43.32 |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                                     | 52        |                                                                 |   | NM |   | $ | (208 | ) | $ | 2 |   |   | NM |   | $ | (1,134 | ) |
|                                                         |   |                                                                  |      |                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Natural                gas collars***                     |   |                                                                  |      |                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                (MMbtu)                               |   |                                                                  | 1,220,000 |                                                                 |   | 85% |   |   | 660,000 |   |   | 2,960,000 |   |   | 46% |   |   | 2,022,500 |   |
| Average                floor price ($ per MMbtu)             |   | $                                                                     | 7.60      |                                                                 |   | 24% |   | $ | 6.12 |   | $ | 7.94 |   |   | 47% |   | $ | 5.40 |   |
| Average                ceiling price ($ per MMbtu)           |   | $                                                                     | 13.23     |                                                                 |   | 75% |   | $ | 7.57 |   | $ | 12.94 |   |   | 77% |   | $ | 7.30 |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                                     | 1,549     |                                                                 |   | NM |   | $ | (590 | ) | $ | 3,039 |   |   | NM |   | $ | (831 | ) |

*Other      revenue*

----

*Table            of Contents*

***Operating      costs and expenses***

*Production      costs. *

|                                       |   | **Unit-of-Production****(Per                Mcfe)** |   | **Amount****(In                thousands)**         |   |
|--------------------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                       |   | **Three                months ended September 30,** |   | **Three                months ended September 30,** |   |
|                                       |   | **2006**                                            |   | **%                Change**                         |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                       |   |                                                |   |
| **Production                costs:**       |   |                                                |   |                                                |   |   |   |   |   |   |   |   |   |
| Operating                & maintenance |   | $                                                   | 0.64   |                                                |   | 31% |    | $ | 0.49 |   | $ | 2,076 |   |   | 47% |    | $ | 1,410 |   |
| Expensed                workovers          |   |                                                | 0.04   |                                                |   | NM |   |   | (0.03 | ) |   | 134 |   |   | NM |   |   | (73 | ) |
| Ad                valorem taxes            |   |                                                | 0.14   |                                                |   | 100% |   |   | 0.07 |   |   | 462 |   |   | 126% |   |   | 204 |   |
| Lease                operating expenses    |   | $                                                   | 0.82   |                                                |   | 55% |   | $ | 0.53 |   | $ | 2,672 |   |   | 73% |   | $ | 1,541 |   |
|                                       |   |                                                |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Production                taxes            |   |                                                | 0.39   |                                                |   | 50% |   |   | 0.26 |   |   | 1,259 |   |   | 70% |   |   | 741 |   |
| Production                costs            |   | $                                                   | 1.21   |                                                |   | 53% |   | $ | 0.79 |   | $ | 3,931 |   |   | 72% |   | $ | 2,282 |   |

| · | O&M                expense increased 31%, or $0.15 per Mcfe. Increases in equipment                rental,                chemical treating, and saltwater disposal accounted for 62% of the                per                unit change. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Ad                valorem taxes increased 100% or $0.07 per Mcfe due to an increase                in                estimated property valuations for our oil and natural gas properties                because of higher commodity prices. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Production                taxes increased 50% or $0.13 per Mcfe due to $400,000 less in severance                tax refunds in the third quarter 2006 compared to third quarter 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                       |   | **Unit-of-Production****(Per                Mcfe)**  |   | **Amount** **(In                thousands)**  |   |
|--------------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                       |   | **Nine                months ended September 30,**        |   | **Nine                months ended September 30,**      |   |
|                                       |   | **2006**                                                  |   | **%                Change**                             |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                       |   |                                                      |   |                                                    |   |   |   |   |   |   |   |   |   |
| **Production                cost:**        |   |                                                      |   |                                                    |   |   |   |   |   |   |   |   |   |
| Operating                & maintenance |   | $                                                         | 0.63   |                                                    |   | 24% |    | $ | 0.51 |   | $ | 6,127 |   |   | 45% |   | $ | 4,221 |   |
| Expensed                workovers          |   |                                                      | 0.04   |                                                    |   | 33% |   |   | 0.03 |   |   | 411 |   |   | 73% |   |   | 238 |   |
| Ad                valorem taxes            |   |                                                      | 0.14   |                                                    |   | 75% |   |   | 0.08 |   |   | 1,400 |   |   | 103% |   |   | 690 |   |
| Lease                operating expenses    |   | $                                                         | 0.81   |                                                    |   | 31% |   | $ | 0.62 |   | $ | 7,938 |   |   | 54% |   | $ | 5,149 |   |
|                                       |   |                                                      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Production                taxes            |   |                                                      | 0.35   |                                                    |   | 52% |   |   | 0.23 |   |   | 3,455 |   |   | 81% |   |   | 1,909 |   |
| Production                costs            |   | $                                                         | 1.16   |                                                    |   | 36% |   | $ | 0.85 |   | $ | 11,393 |   |   | 61% |   | $ | 7,058 |   |

| · | O&M                expense increased 24% or $0.12 per Mcfe. Increases in chemical treating,                equipment rental, saltwater disposal, and well service and repair                accounted for 60% of the per unit increase. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Ad                valorem taxes increased 75% or $0.06 per Mcfe due to an increase                in                estimated property valuations for our oil and natural gas properties                because of higher commodity prices. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

| · | Production                taxes increased 52% or $0.12 per Mcfe due to higher commodity prices                and                $1.0 million less in severance tax refunds in the nine months ended                September 2006 versus the nine months ended September                2005. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*General      and administrative expenses. *

|                                                           |   | **Three                months ended September 30,**             |   | **Nine                months ended September 30,**  |   |
|----------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                                                           |   | **2006**                                                        |   | **%                Change**                              |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                                           |   | **(In                thousands, except per unit measurements)** |   |
|                                                           |   |                                                            |   |
| General                and administrative costs                |   | $                                                               | 3,702  |                                                     |   | 45% |    | $ | 2,551 |   | $ | 10,878 |   |   | 48% |   | $ | 7,355 |   |
| Capitalized                general and administrative costs    |   |                                                            | (1,717 | )                                                        |   | 39% |   |   | (1,234 | ) |   | (4,942 | ) |   | 36% |   |   | (3,636 | ) |
| General                and administrative expenses             |   | $                                                               | 1,985  |                                                     |   | 51% |   | $ | 1,317 |   | $ | 5,936 |   |   | 60% |    | $ | 3,719 |   |
|                                                           |   |                                                            |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General                and administrative expense ($ per Mcfe) |   | $                                                               | 0.61   |                                                     |   | 33% |   | $ | 0.46 |   | $ | 0.61 |   |   | 36% |   | $ | 0.45 |   |

*Depletion      of oil and natural gas properties. *

|                                                                    |   | **Three                months ended September 30,**             |   | **Nine                months ended September 30,** |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                                    |   | **2006**                                                   |   | **%                Change**                        |   | **2005** |   | **2006** |   | **%                Change** |   | **2005**  |   |
|                                                                    |   | **(In                thousands, except per unit measurements)** |   |
|                                                                    |   |                                                            |   |
| Depletion                of oil and natural gas properties              |   | $                                                               | 11,910 |                                               |   | 50% |    | $ | 7,953 |   | $ | 33,272 |   |   | 54% |    | $ | 21,612 |   |
| Depletion                of oil and natural gas properties ($ per Mcfe) |   | $                                                               | 3.67   |                                               |   | 33% |   | $ | 2.76 |   | $ | 3.41 |   |   | 30% |   | $ | 2.62 |   |

*Net      interest expense. *

----

*Table            of Contents*

|                                                                 |   | **Three                months ended September 30,** |    | **Nine                months ended September 30,** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------------|---------|----------------------------------------------------|--------|
|                                                                 |   | **2006**                                            |    | **%                Change**                        |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                                                 |   | **(In                thousands)**                   |    |
|                                                                 |   |                                                |    |
| Interest                on Senior Notes                              |   | $                                                   | 3,008   |                                               |   | NM |   | $ | — |   | $ | 5,347 |   |   | NM |   | $ | — |   |
| Interest                on senior credit facility                    |   |                                                | — |                                               |   | (100%) |   |   | 668 |   |   | 743 |   |   | (52%) |   |   | 1,538 |   |
| Interest                on senior subordinated notes (a)             |   |                                                | — |                                               |   | (100%) |   |   | 574 |   |   | 699 |   |   | (48%) |   |   | 1,333 |   |
| Commitment                fees                                       |   |                                                | 41      |                                               |   | 14% |   |   | 36 |   |   | 124 |   |   | 35% |   |   | 92 |   |
| Dividend                on mandatorily redeemable preferred stock    |   |                                                | 153     |                                               |   | (24%) |   |   | 200 |   |   | 453 |   |   | (22%) |   |   | 581 |   |
| Amortization                of deferred loan and debt issuance cost  |   |                                                | 197     |                                               |   | 64% |   |   | 120 |   |   | 1,465 |   |   | 293% |   |   | 373 |   |
| Other                general interest expense                        |   |                                                | 1       |                                               |   | 0% |   |   | 1 |   |   | 6 |   |   | (14%) |   |   | 7 |   |
| Capitalized                interest expense                          |   |                                                | (731    | )                                                  |   | 59% |   |   | (461 | ) |   | (1,938 | ) |   | 52% |   |   | (1,279 | ) |
| Net                interest expense                                  |   | $                                                   | 2,669   |                                               |   | 135% |   | $ | 1,138 |   | $ | 6,899 |   |   | 161% |   | $ | 2,645 |   |
|                                                                 |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average debt outstanding                     |   | $                                                   | 135,101 |                                               |   | 47% |   | $ | 91,985 |   | $ | 114,067 |   |   | 50% |   | $ | 76,241 |   |
| Average                interest rate on outstanding indebtedness (b) |   |                                                | 9.5     | %                                                  |   |   |   |   | 6.4 | % |   | 8.6 | % |   |   |   |   | 6.2 | % |

----

|   | a) | Includes                the effects of interest rate swaps. |
|--------|----|-------------------------------------------------------------|

|   | b) | 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,** |   |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|----------------------------------------------------|--------|
|                                                                                                         |   | **2006**                                            |    | **%                Change**                        |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                                                                                         |   |                                                |    |                                               |   |
| **Derivative:**                                                                                              |   | **(In                thousands)**                   |    |
| Non-cash                gain (loss) due to change in fair market value of undesignated                hedges |   | $                                                   | 100     |                                               |   | NM |   | $ | (52 | ) | $ | (287 | ) |   | 174% |   | $ | (105 | ) |
| Non-cash                gain (loss) for ineffective portion of cash flow hedges                              |   |                                                | 2,336   |                                               |   | NM |   |   | (477 | ) |   | 3,213 |   |   | NM |   |   | (890 | ) |
| Cash                settlement of undesignated hedges                                                        |   |                                                | (222    | )                                                  |   | NM |   |   | — |   |   | (421 | ) |   | NM |   |   | — |   |
| Derivative                other income (loss)                                                                |   | $                                                   | 2,214   |                                               |   | NM |   | $ | (529 | ) | $ | 2,505 |   |   | NM |   | $ | (995 | ) |
|                                                                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other:**                                                                                                   |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-cash                gain (loss)                                                                          |   | $                                                   | — |                                               |   | (100%) |    | $ | (44 | ) | $ | (64 | ) |   | (38%) |   | $ | (103 | ) |
| Cash                income (expense)                                                                         |   |                                                | 171     |                                               |   | 125% |   |   | 76 |   |   | 1,245 |   |   | 404% |   |   | 247 |   |
| Miscellaneous                other income (loss)                                                             |   | $                                                   | 171     |                                               |   | 434% |   | $ | 32 |   | $ | 1,181 |   |   | 720% |   | $ | 144 |   |
|                                                                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                other income                                                                            |   | $                                                   | 2,385   |                                               |   | NM |   | $ | (497 | ) | $ | 3,686 |   |   | NM |   | $ | (851 | ) |

----

*Table            of Contents*

|                                                         |   | **Three                months ended September 30,** |    | **Nine                months ended September 30,** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------|---------|----------------------------------------------------|--------|
|                                                         |   | **2006**                                            |    | **%                Change**                        |   | **2005** |   | **2006** |   | **%                Change** |   | **2005** |   |
|                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |
| ***Oil***                                                    |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |
| ***Written                puts***                            |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |
| Volumes                (Bbl)                                 |   |                                                | 15,000  |                                               |   | (55%) |   |   | 33,000 |   |   | 40,500 |   |   | 4% |    |   | 39,000 |   |
| Average                price ($ per Bbl)                     |   | $                                                   | 48.00   |                                               |   | 40% |   | $ | 34.36 |   | $ | 43.56 |   |   | 25% |   |   | 34.92 |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                   | — |                                               |   | NM |   | $ | — |   | $ | — |   |   | NM |   | $ | — |   |
|                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Total                oil***                               |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                   | — |                                               |   | NM |   | $ | — |   | $ | — |   |   | NM |   | $ | — |   |
|                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Natural                gas***                             |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Basis                swaps***                             |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                (MMbtu)                               |   |                                                | 840,000 |                                               |   | NM |   |   | — |   |   | 840,000 |   |   | NM |   |   | — |   |
| Average                discount to NYMEX ($ per MMbtu)       |   | $                                                   | (0.754  | )                                                  |   | NM |   | $ | — |   | $ | (0.754 | ) |   | NM |   |   | — |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                   | (107    | )                                                  |   | NM |   | $ | — |   | $ | (107 | ) |   | NM |   | $ | — |   |
|                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Written                puts***                            |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                (MMbtu)                               |   |                                                | 390,000 |                                               |   | (19%) |   |   | 480,000 |   |   | 1,380,000 |   |   | 100% |   |   | 690,000 |   |
| Average                price ($ per MMbtu)                   |   | $                                                   | 6.65    |                                               |   | 26% |   | $ | 5.28 |   | $ | 6.83 |   |   | 28% |   | $ | 5.35 |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                   | (115    | )                                                  |   | NM |   | $ | — |   | $ | (314 | ) |   | NM |   | $ | — |   |
|                                                         |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Total                natural gas***                       |   |                                                |    |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain                /(loss) upon settlement ($ in thousands) |   | $                                                   | (222    | )                                                  |   | NM |   | $ | — |   | $ | (421 | ) |   | NM |   | $ | — |   |

*Income      taxes*

----

*Table            of Contents*

|                                                       |   | **Nine                months****ended****September                30, 2006** |   |  **Tax                Rate** |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                       |   |                                                                         |   |                              |   |
| ***Reconciliation                to effective tax rate:*** |   |                                                                         |   |                              |   |
| Tax                at the statutory rate                   |   | $                                                                            | 8,665  |                              |   | 35.00 | % |
| Add                the effect of:                          |   |                                                                         |   |                              |   |   |   |
| Non-deductible                expenses                     |   |                                                                         | 2      |                              |   | 0.01 | % |
| Preferred                stock dividends                   |   |                                                                         | 159    |                              |   | 0.64 | % |
| Incentive                stock options not exercised       |   |                                                                         | 184    |                              |   | 0.75 | % |
| Adoption                of Margin Tax (after-tax)          |   |                                                                         | 872    |                              |   | 3.52 | % |
| Other                                                      |   |                                                                         | 89     |                              |   | 0.35 | % |
| Total                                                      |   | $                                                                            | 9,971  |                              |   | 40.27 | % |

**C**
**apital      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 our exploration professional                staff. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                            |   | **Revised                2006****Budget** |    | **Amount****Spent                Through****09/30/2006** |   | **Amount****Remaining                (1)** |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|---------|----------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                            |   | **(In                thousands)**         |    |
| Drilling                                                        |   | $                                         | 137,255 |                                                     | $      | 106,931                                    |   | $ | 30,324 |   |
| Net                land and seismic                             |   |                                      | 28,060  |                                                     |   | 24,244                                     |   |   | 3,816 |   |
| Capitalized                costs (2)                            |   |                                      | 9,970   |                                                     |   | 7,273                                      |   |   | 2,697 |   |
| Asset                retirement obligation                      |   |                                      | 533     |                                                     |   | 395                                        |   |   | 138 |   |
| Total                oil and gas capital expenditures (3)  |   | $                                         | 175,818 |                                                     | $      | 138,843                                    |   | $ | 36,975 |   |

----

|   | (1) | Calculated                based on the 2006 capital expenditure budget announced in September                2006                less amount spent through September 30, 2006. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Capitalized                costs include capitalized interest expense, general and administrative                expense and stock compensation                expense. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Excludes                other property capital                expenditures. |
|--------|-----|-----------------------------------------------------------------------------|

***2006      Capital Spending Plan***

----

*Table            of Contents*

***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. |
|--------|--------|----------------------------------------------------------------------------|

**Liquidity      and Capital Resources**

**Sources      of Capital**

**9      **
**5/8**
***%      Senior Notes due 2014***

----

*Table            of Contents*

|   | · | 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 Gurantors’                existing and future secured indebtedness, including debt of our senior                credit agreement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Senior      Credit Agreement***

***Mandatorily      Redeemable Preferred Stock***

----

*Table            of Contents*

***Access      to Capital Markets***

***Off      Balance Sheet Arrangements***

**Analysis      of Changes In Cash and Cash Equivalents**

|                                                       |   | **Nine                months ended September 30,** |     |
|------------------------------------------------------------|--------|----------------------------------------------------|----------|
|                                                       |   | **2006**                                           |     | **%Change** |   | **2005** |   |
|                                                       |   | **(In                thousands)**                  |     |
|                                                       |   |                                               |     |
| Net                income                                  |   | $                                                  | 14,787   |   |   | (5%) |   | $ | 15,536 |   |
| Non-cash                items                              |   |                                               | 43,593   |   |   | 33% |   |   | 32,858 |   |
| Changes                in working capital and other items  |   |                                               | 15,915   |   |   | NM |   |   | (8,332 | ) |
| Cash                flows provided by operating activities |   | $                                                  | 74,295   |   |   | 85% |   |   | 40,062 |   |
| Cash                flows used by investing activities     |   |                                               | (126,139 | ) |   | 51% |   |   | (83,285 | ) |
| Cash                flows provided by financing activities |   |                                               | 57,483   |   |   | 23% |   |   | 46,815 |   |
| Net                increase in cash and cash equivalents   |   | $                                                  | 5,639    |   |   | 57% |   | $ | 3,592 |   |

***Analysis      of net cash provided by operating activities***

----

*Table            of Contents*

***Analysis      of changes in cash flows used in investing activities***

|                                                                        |   | **Nine                months ended September 30,**  |    |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|
|                                                                        |   | **2006**                                            |    | **%Change** |   | **2005** |   |
|                                                                        |   | **(In                thousands)**                        |    |
| **Capital                expenditures for oil and natural gas activities:** |   |                                                     |    |   |   |   |   |
| Drilling                                                                    |   | $                                                        | 106,931 |   |   | 62% |   | $ | 66,172 |   |
| Land                and seismic                                             |   |                                                     | 24,244  |   |   | 90% |   |   | 12,754 |   |
| Capitalized                cost                                             |   |                                                     | 7,273   |   |   | 41% |   |   | 5,156 |   |
| Capitalized                asset retirement obligation                      |   |                                                     | 395     |   |   | 62% |   |   | 244 |   |
| Total                                                                       |   | $                                                        | 138,843 |   |   | 65% |   | $ | 84,326 |   |
|                                                                        |   |                                                     |    |   |   |   |   |   |   |   |
| **Reconciling                Items:**                                       |   |                                                     |    |   |   |   |   |   |   |   |
| Change                in accrued drilling costs                             |   | $                                                        | (12,453 | ) |   | 2228% |   | $ | (535 | ) |
| Change                short-term investments                                |   |                                                     | 1,004   |   |   | NM |   |   | — |   |
| Other                                                                       |   |                                                     | (1,255  | ) |   | 148% |   |   | (506 | ) |
| Total                Reconciling Items                                      |   |                                                     | (12,704 | ) |   | 1120% |   |   | (1,041 | ) |
|                                                                        |   |                                                     |    |   |   |   |   |   |   |   |
| Net                cash used in investing activities                        |   | $                                                        | 126,139 |   |   | 51% |   | $ | 83,285 |   |

| · | Drilling                capital expenditures increased by $40.8 million due to our increased                level                of exploratory and developmental drilling                activities. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Land                and seismic expenditures increased by $11.5 million due principally                to our                180 square mile 3-D shoot in Wheeler County, Texas and land expenditures                related to our resource plays. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Capitalized                costs increased by $2.1 million associated with our increased levels                of                general and administrative expense, capitalized stock expense and                capitalized interest expense during the                period. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | As                of September 30, 2006, $1.0 million of our Senior Notes proceeds                were                invested in short-term investments. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

***Analysis      of changes in cash flows from financing activities***

| · | In                April 2006, we issued $125 million of Senior Notes, generating net                proceeds after the discount, fees and expenses of $120.7                million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our                Senior Notes issuance was partially offset by $78.4 million in repayments                on our senior credit agreement and senior subordinated notes**.** |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Common      Stock Transactions**

|                                                 |   | **Shares                Issued**               |    | **Net                Proceeds**  |   |
|------------------------------------------------------|--------|-----------------------------------------------------|---------|---------------------------------------|--------|
|                                                 |   | **(In                thousands except share data)** |    |
| ***2006                common stock transactions:*** |   |                                                |    |                                  |   |
| Exercise                of employee stock options    |   |                                                | 77,100  |                                  | $      | 392 |   |
|                                                 |   |                                                |    |                                  |   |   |   |
| ***2005                common stock transactions:*** |   |                                                |    |                                  |   |   |   |
| Exercise                of employee stock options    |   |                                                | 218,300 |                                  | $      | 805 |   |

----

*Table            of Contents*

**Other      Matters**

*Derivative      Instruments*

*Effects      of Inflation and Changes in Prices*

*Environmental      and Other Regulatory Matters*

*New      Accounting Pronouncements *

----

*Table            of Contents*

----

*Table            of Contents*

*Forward      Looking Information*

----

*Table            of Contents*

| **ITEM                3.** | **QUANTITATIVE                AND QUALITATIVE DISCLOSURE ABOUT MARKET                RISK** |
|----------------------------|---------------------------------------------------------------------------------------------|

**Management      Opinion Concerning Derivative Instruments**

***Derivative      Instruments and Hedging Activities***

***Cash      Flow Hedges***

----

*Table            of Contents*

***Derivatives      Not Designated as Hedges***

| **Settlement                Period**              |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)** |    | **Purchased****Put****(Nymex)** |   | **Written****Call****(Nymex)** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|-------------------------------|---------|---------------------------------|--------|--------------------------------|--------|
| ***Natural                Gas Costless Collars*** |   |                              |   |                          |    |                            |   |                           |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |
| 10/01/06                - 10/31/06                |   | Cash              flow            |   |                          | 70,000  |                            | $      | 8.00                           |   | $ | 14.85 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 10/01/06                - 10/31/06                |   | Cash              flow            |   |                          | 120,000 |                            | $      | 8.00                           |   | $ | 16.65 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 10/01/06                - 10/31/06                |   | Cash              flow            |   |                          | 100,000 |                            | $      | 5.50                           |   | $ | 11.75 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/06                - 01/31/07                |   | Cash              flow            |   |                          | 540,000 |                            | $      | 8.00                           |   | $ | 23.25 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/06                - 03/31/07                |   | Cash              flow            |   |                          | 450,000 |                            | $      | 8.00                           |   | $ | 21.20 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/06                - 03/31/07                |   | Cash              flow            |   |                          | 375,000 |                            | $      | 8.00                           |   | $ | 15.75 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 02/01/07                - 03/31/07                |   | Cash              flow            |   |                          | 300,000 |                            | $      | 8.00                           |   | $ | 25.75 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 280,000 |                            | $      | 7.00                           |   | $ | 15.45 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 280,000 |                            | $      | 7.25                           |   | $ | 15.25 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 280,000 |                            | $      | 7.00                           |   | $ | 14.85 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 700,000 |                            | $      | 7.50                           |   | $ | 11.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 350,000 |                            | $      | 7.00                           |   | $ | 11.60 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 04/30/07                |   | Cash              flow            |   |                          | 60,000  |                            | $      | 7.00                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 05/01/07                - 05/31/07                |   | Cash              flow            |   |                          | 50,000  |                            | $      | 7.00                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 06/01/07                - 06/30/07                |   | Cash              flow            |   |                          | 40,000  |                            | $      | 7.00                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 07/01/07                - 07/31/07                |   | Cash              flow            |   |                          | 30,000  |                            | $      | 7.00                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 08/01/07                - 08/31/07                |   | Cash              flow            |   |                          | 20,000  |                            | $      | 7.00                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/07                - 03/31/08                |   | Cash              flow            |   |                          | 250,000 |                            | $      | 8.00                           |   | $ | 13.40 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/07                - 03/31/08                |   | Cash              flow            |   |                          | 300,000 |                            | $      | 8.85                           |   | $ | 15.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 11/01/07                - 03/31/08                |   | Cash              flow            |   |                          | 300,000 |                            | $      | 9.30                           |   | $ | 15.00 |   |

----

*Table            of Contents*

| **Settlement                  Period**                        |   | **Hedge                  Strategy**   |   | **Crude****Oil****(Barrels)** |   | **Purchased****Put****(Nymex)** |   | **Written****Call****(Nymex)** |   | **Written****Put****(Nymex)** |   |
|---------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------|--------|---------------------------------|--------|--------------------------------|--------|-------------------------------|--------|
| ***Natural                  Gas Three-Way Costless Collars*** |   |                                  |   |                          |   |                            |   |                           |   |
|                                                          |   |                                  |   |                          |   |                            |   |                           |   |                          |   |   |   |   |   |   |
| 10/01/06                  - 10/31/06                          |   | Cash                flow/Undesignated |   |                          | 60,000 |                            | $      | 7.50                           |   | $                             | 9.15   |   | $ | 6.25 |   |
| 10/01/06                  - 10/31/06                          |   | Cash                flow/Undesignated |   |                          | 70,000 |                            | $      | 8.50                           |   | $                             | 9.96   |   | $ | 7.00 |   |

| **Settlement                Period**      |   | **Hedge                Strategy** |   | **Crude****Oil****(Barrels)** |   | **Purchased****Put****(Nymex)** |   | **Written****Call****(Nymex)** |   |
|-------------------------------------------|--------|-----------------------------------|--------|-------------------------------|--------|---------------------------------|--------|--------------------------------|--------|
| ***Oil                Costless Collars*** |   |                              |   |                          |   |                            |   |                           |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |
| 10/01/06                - 10/31/06        |   | Cash              flow            |   |                          | 8,500  |                            | $      | 70.00                          |   | $ | 85.20 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 10/01/06                - 12/31/06        |   | Cash              flow            |   |                          | 27,000 |                            | $      | 50.00                          |   | $ | 77.50 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 11/01/06                - 11/30/06        |   | Cash              flow            |   |                          | 4,000  |                            | $      | 70.00                          |   | $ | 85.20 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 11/01/06                - 06/30/07        |   | Cash              flow            |   |                          | 32,000 |                            | $      | 59.00                          |   | $ | 90.00 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 12/01/06                - 02/28/07        |   | Cash              flow            |   |                          | 7,500  |                            | $      | 70.00                          |   | $ | 85.20 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 01/01/07                - 03/31/07        |   | Cash              flow            |   |                          | 24,000 |                            | $      | 50.00                          |   | $ | 78.25 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 09/30/07        |   | Cash              flow            |   |                          | 30,000 |                            | $      | 50.00                          |   | $ | 81.50 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 09/30/07        |   | Cash              flow            |   |                          | 12,000 |                            | $      | 56.00                          |   | $ | 92.50 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 07/01/07                - 10/31/07        |   | Cash              flow            |   |                          | 10,000 |                            | $      | 58.00                          |   | $ | 90.50 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 10/01/07                - 12/31/07        |   | Cash              flow            |   |                          | 9,000  |                            | $      | 59.20                          |   | $ | 90.00 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 10/01/07                - 03/31/08        |   | Cash              flow            |   |                          | 18,000 |                            | $      | 56.00                          |   | $ | 89.95 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 10/01/07                - 03/31/08        |   | Cash              flow            |   |                          | 6,000  |                            | $      | 65.00                          |   | $ | 80.25 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 06/01/07                - 08/31/07        |   | Cash              flow            |   |                          | 6,000  |                            | $      | 65.00                          |   | $ | 80.00 |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 04/01/08                - 10/31/08        |   | Cash              flow            |   |                          | 21,000 |                            | $      | 65.70                          |   | $ | 90.00 |   |

| **Settlement                Period** |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)** |    | **Purchased****Put****(Discount                to Nymex)** |   |
|--------------------------------------|--------|-----------------------------------|--------|-------------------------------|---------|------------------------------------------------------------|--------|
| ***Basis                Swaps***     |   |                              |   |                          |    |                                                       |   |
| ***NGPL                STX***        |   |                              |   |                          |    |                                                       |   |
| 10/01/06                - 10/31/06   |   | Undesignated                      |   |                          | 200,000 |                                                       | $      | 0.603 |   |
|                                 |   |                              |   |                          |    |                                                       |   |   |   |   |
| ***HSC***                            |   |                              |   |                          |    |                                                       |   |   |   |   |
| 10/01/06                - 10/31/06   |   | Undesignated                      |   |                          | 80,000  |                                                       | $      | 0.510 |   |
|                                 |   |                              |   |                          |    |                                                       |   |   |   |   |
| ***ANR                OK***          |   |                              |   |                          |    |                                                       |   |   |   |   |
| 10/01/06                - 10/31/06   |   | Undesignated                      |   |                          | 140,000 |                                                       | $      | 1.110 |   |

----

*Table            of Contents*

| **Settlement                Period**              |   | **Hedge                Strategy** |   | **Natural****Gas****(MMBTU)** |    | **Purchased****Put****(Nymex)** |   | **Written****Call****(Nymex)** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|-------------------------------|---------|---------------------------------|--------|--------------------------------|--------|
| ***Natural                Gas Costless Collars*** |   |                              |   |                          |    |                            |   |                           |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |
| 01/01/07                - 03/31/07                |   | Cash              flow            |   |                          | 90,000  |                            | $      | 7.50                           |   | $ | 10.00 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 01/01/07                - 03/31/07                |   | Cash              flow            |   |                          | 150,000 |                            | $      | 7.25                           |   | $ | 9.65 |   |
|                                              |   |                              |   |                          |    |                            |   |                           |   |   |   |   |   |
| 04/01/07                - 10/31/07                |   | Cash              flow            |   |                          | 350,000 |                            | $      | 7.00                           |   | $ | 9.10 |   |

| **Settlement                Period**      |   | **Hedge                Strategy** |   | **Crude****Oil****(Barrels)** |   | **Purchased****Put****(Nymex)** |   | **Written****Call****(Nymex)** |   |
|-------------------------------------------|--------|-----------------------------------|--------|-------------------------------|--------|---------------------------------|--------|--------------------------------|--------|
| ***Oil                Costless Collars*** |   |                              |   |                          |   |                            |   |                           |   |
|                                      |   |                              |   |                          |   |                            |   |                           |   |   |   |   |   |
| 01/01/07                - 12/31/07        |   | Cash              flow            |   |                          | 12,000 |                            | $      | 55.00                          |   | $ | 79.00 |   |

| **ITEM                4.** | **CONTROLS                AND PROCEDURES** |
|----------------------------|--------------------------------------------|

**Evaluation      of Disclosure Controls and Procedures**

**Changes      in Internal Control over Financial Reporting**

----

*Table          of Contents*

**PART          II - OTHER INFORMATION**

| **ITEM1.** | **LEGAL                    PROCEEDINGS** |
|------------|------------------------------------------|

| **ITEM                    1A.** | **RISK                    FACTORS** |
|---------------------------------|-------------------------------------|

| **ITEM2.** | **UNREGISTERED                SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS** |
|------------|-----------------------------------------------------------------------------------------------|

| **ITEM                3.** | **DEFAULTS                UPON SENIOR SECURITIES** |
|----------------------------|----------------------------------------------------|

| **ITEM                4.** | **SUBMISSON                OF MATTERS TO A VOTE OF SECURITY                HOLDERS** |
|----------------------------|--------------------------------------------------------------------------------------|

| **ITEM                5.** | **OTHER                INFORMATION** |
|----------------------------|--------------------------------------|

| **ITEM6.** | **EXHIBITS** |
|------------|--------------|

| 31.1 | Certification                of Chief Executive Officer of the Company pursuant to Rule 13a-14(a)                of                the Securities Exchange Act of 1934 |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification                of Chief Financial Officer of the Company pursuant to Rule 13a-14(a)                of                the Securities Exchange Act of 1934 |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.1 | Certification                of Chief Executive Officer of the Company pursuant to 18 U.S.C. §                1350 |
|------|-------------------------------------------------------------------------------------------------------------------------|

| 32.2 | Certification                of Chief Financial Officer of the Company pursuant to 18 U.S.C. §                1350 |
|------|-------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**SIGNATURES**

|   |   | **BRIGHAM                EXPLORATION COMPANY** |                                                                        |
|--------|--------|------------------------------------------------|-----------------------------------------------------------------------------|
|   |   |                                           |                                                                        |   |
|   |   |                                           |                                                                        |   |
|   |   | By:                                            | /s/                BEN M. BRIGHAM                                           |   |
|   |   |                                           | Ben                M. Brigham                                               |   |
|   |   |                                           | Chief                Executive Officer, President and Chairman of the Board |   |
|   |   |                                           |                                                                        |   |
|   |   |                                           |                                                                        |   |
|   |   |                                           |                                                                        |   |
|   |   | By:                                            | /s/                EUGENE B. SHEPHERD, JR.                                  |   |
|   |   |                                           | Eugene                B. Shepherd, Jr.                                      |   |
|   |   |                                           | Executive                Vice President and Chief Financial Officer         |   |

----