----

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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**

** ̈        **
** 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 August 7, 2006 |   | 45,513,508      |   |

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**Brigham        Exploration Company**

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

**TABLE        OF CONTENTS**

|                                                |   |                                                                                                                        | **Page** |
|-----------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|----------|
| **PART                  I - FINANCIAL INFORMATION** |
|                                                |   |                                                                                                                        |     |
| ITEM                  1.                            |   | FINANCIAL                  STATEMENTS                                                                                       |     |
|                                                |   |                                                                                                                        |     |
|                                                |   | Consolidated                  Balance Sheets - June 30, 2006 and December 31,                  2005                         | 1        |
|                                                |   | Consolidated                  Statements of Operations - Three and six months                  ended June 30, 2006 and 2005 | 2        |
|                                                |   | Consolidated                  Statement of Stockholders’ Equity - Six months                  ended June 30, 2006     | 3        |
|                                                |   | Consolidated                  Statements of Cash Flows - Six months ended June                  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     | 16       |
|                                                |   |                                                                                                                        |     |
| ITEM                  3.                            |   | QUANTITATIVE                  AND QUALITATIVE DISCLOSURES ABOUT MARKET                  RISK                                | 32       |
|                                                |   |                                                                                                                        |     |
| ITEM                  4.                            |   | CONTROLS                  AND PROCEDURES                                                                                    | 35       |
|                                                |   |                                                                                                                        |     |
| **PART                  II - OTHER INFORMATION**    |
|                                                |   |                                                                                                                        |     |
| ITEM                  1.                            |   | LEGAL                  PROCEEDINGS                                                                                          | 35       |
|                                                |   |                                                                                                                        |     |
| ITEM                  1.A.                          |   | RISK                  FACTORS                                                                                               | 35       |
|                                                |   |                                                                                                                        |     |
| ITEM                  2.                            |   | UNREGISTERED                  SALES OF EQUITY SECURITIES                  AND USE OF PROCEEDS                               | 36       |
|                                                |   |                                                                                                                        |     |
| ITEM                  3.                            |   | DEFALTS                  UPON SENIOR SECURITIES                                                                             | 36       |
|                                                |   |                                                                                                                        |     |
| ITEM                  4.                            |   | SUBMISSION                  OF MATTERS TO A VOTE OF                  SECURITYHOLDERS                                        | 36       |
|                                                |   |                                                                                                                        |     |
| ITEM                  5.                            |   | OTHER                  INFORMATION                                                                                          | 37       |
|                                                |   |                                                                                                                        |     |
| ITEM                  6.                            |   | EXHIBITS                                                                                                                    | 37       |
|                                                |   |                                                                                                                        |     |
| SIGNATURES                                          | 37     |

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*Table            of Contents*

**BRIGHAM        EXPLORATION COMPANY**

**CONSOLIDATED        BALANCE SHEETS**

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

**(Unaudited)**

|                                                                                                                                                                                                                                                                                                    |   | **June                  30,** |    | **December                  31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                    |   | **2006**                      |    | **2005**                          |   |
|                                                                                                                                                                                                                                                                                                    |   |                          |    |                              |   |
| **ASSETS**                                                                                                                                                                                                                                                                                              |   |
| Current                  assets:                                                                                                                                                                                                                                                                        |   |                          |    |                              |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                         |   | $                             | 8,048   |                              | $      | 3,975 |   |
| Accounts                  receivable                                                                                                                                                                                                                                                               |   |                          | 17,194  |                              |   | 22,825 |   |
| Investments                                                                                                                                                                                                                                                                                        |   |                          | 37,600  |                              |   | - |   |
| Deferred                  income taxes                                                                                                                                                                                                                                                             |   |                          | -       |                              |   | 482 |   |
| Other                  current assets                                                                                                                                                                                                                                                              |   |                          | 5,338   |                              |   | 1,043 |   |
| Total                  current assets                                                                                                                                                                                                                                                                   |   |                          | 68,180  |                              |   | 28,325 |   |
|                                                                                                                                                                                                                                                                                                    |   |                          |    |                              |   |   |   |
| Oil                  and natural gas properties, net (full cost method)                                                                                                                                                                                                                            |   |                          | 410,274 |                              |   | 347,329 |   |
| Other                  property and equipment, net                                                                                                                                                                                                                                                 |   |                          | 1,020   |                              |   | 1,027 |   |
| Deferred                  loan fees                                                                                                                                                                                                                                                                |   |                          | 3,563   |                              |   | 2,174 |   |
| Other                  noncurrent assets                                                                                                                                                                                                                                                           |   |                          | 1,156   |                              |   | 1,572 |   |
| Total                  assets                                                                                                                                                                                                                                                                           |   | $                             | 484,193 |                              | $      | 380,427 |   |
|                                                                                                                                                                                                                                                                                                    |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                                                                                                                                                                               |
| Current                  liabilities:                                                                                                                                                                                                                                                                   |   |                          |    |                              |   |   |   |
| Accounts                  payable                                                                                                                                                                                                                                                                  |   | $                             | 23,304  |                              | $      | 12,128 |   |
| Royalties                  payable                                                                                                                                                                                                                                                                 |   |                          | 6,672   |                              |   | 6,886 |   |
| Accrued                  drilling costs                                                                                                                                                                                                                                                            |   |                          | 20,525  |                              |   | 12,218 |   |
| Participant                  advances received                                                                                                                                                                                                                                                     |   |                          | 3,543   |                              |   | 2,116 |   |
| Other                  current liabilities                                                                                                                                                                                                                                                         |   |                          | 6,280   |                              |   | 4,119 |   |
| Total                  current liabilities                                                                                                                                                                                                                                                         |   |                          | 60,324  |                              |   | 37,467 |   |
|                                                                                                                                                                                                                                                                                                    |   |                          |    |                              |   |   |   |
| Senior                  Notes                                                                                                                                                                                                                                                                      |   |                          | 123,328 |                              |   | - |   |
| 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 June 30, 2006 and December 31, 2005  |   |                          | 10,101  |                              |   | 10,101 |   |
| Deferred                  income taxes                                                                                                                                                                                                                                                             |   |                          | 30,275  |                              |   | 23,563 |   |
| Other                  noncurrent liabilities                                                                                                                                                                                                                                                      |   |                          | 5,016   |                              |   | 4,556 |   |
|                                                                                                                                                                                                                                                                                                    |   |                          |    |                              |   |   |   |
| Commitments                  and contingencies (Note 3)                                                                                                                                                                                                                                                 |   |                          |    |                              |   |   |   |
|                                                                                                                                                                                                                                                                                                    |   |                          |    |                              |   |   |   |
| Stockholders'                  equity:                                                                                                                                                                                                                                                                  |   |                          |    |                              |   |   |   |
| Common                  stock, $.01 par value, 90 million shares authorized, 45,031,368                  and                  44,917,768 shares issued and 45,013,400 and 44,917,768 shares outstanding                  at June 30, 2006 and December 31, 2005, respectively                 |   |                          | 450     |                              |   | 449 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                        |   |                          | 201,659 |                              |   | 202,127 |   |
| Treasury                  stock, at cost; 17,968 shares at June 30, 2006                                                                                                                                                                                                                           |   |                          | (211    | )                                 |   | - |   |
| Unearned                  stock compensation                                                                                                                                                                                                                                                       |   |                          | -       |                              |   | (2,299 | ) |
| Accumulated                  other comprehensive income (loss)                                                                                                                                                                                                                                     |   |                          | 1,921   |                              |   | (426 | ) |
| Retained                  earnings                                                                                                                                                                                                                                                                 |   |                          | 51,330  |                              |   | 41,789 |   |
| Total                  stockholders’ equity                                                                                                                                                                                                                                                  |   |                          | 255,149 |                              |   | 241,640 |   |
| Total                  liabilities and stockholders' equity                                                                                                                                                                                                                                             |   | $                             | 484,193 |                              | $      | 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** |   | **Six                  Months Ended** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                          |   | **June                  30,**           |   | **June                  30,**         |   |
|                                                                          |   | **2006**                                |   | **2005**                              |   | **2006** |   | **2005** |   |
|                                                                          |   |                                    |   |                                  |   |   |   |   |   |
| Revenues:                                                                     |   |                                    |   |                                  |   |   |   |   |   |
| Oil                  and natural gas sales                               |   | $                                       | 26,134 |                                  | $      | 18,434 |   | $ | 51,930 |   | $ | 35,137 |   |
| Other                  revenue                                           |   |                                    | 52     |                                  |   | 56 |   |   | 30 |   |   | 99 |   |
|                                                                          |   |                                    | 26,186 |                                  |   | 18,490 |   |   | 51,960 |   |   | 35,236 |   |
| Costs                  and expenses:                                          |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Lease                  operating                                         |   |                                    | 2,536  |                                  |   | 1,390 |   |   | 5,266 |   |   | 3,608 |   |
| Production                  taxes                                        |   |                                    | 1,052  |                                  |   | 366 |   |   | 2,196 |   |   | 1,168 |   |
| General                  and administrative                              |   |                                    | 2,182  |                                  |   | 1,304 |   |   | 3,951 |   |   | 2,402 |   |
| Depletion                  of oil and natural gas properties             |   |                                    | 11,106 |                                  |   | 7,206 |   |   | 21,362 |   |   | 13,659 |   |
| Depreciation                  and amortization                           |   |                                    | 121    |                                  |   | 178 |   |   | 236 |   |   | 360 |   |
| Accretion                  of discount on asset retirement obligations   |   |                                    | 79     |                                  |   | 43 |   |   | 149 |   |   | 82 |   |
|                                                                          |   |                                    | 17,076 |                                  |   | 10,487 |   |   | 33,160 |   |   | 21,279 |   |
| Operating                  income                                             |   |                                    | 9,110  |                                  |   | 8,003 |   |   | 18,800 |   |   | 13,957 |   |
|                                                                          |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Other                  income (expense):                                      |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  income                                         |   |                                    | 448    |                                  |   | 52 |   |   | 554 |   |   | 91 |   |
| Interest                  expense, net                                   |   |                                    | (3,141 | )                                     |   | (766 | ) |   | (4,230 | ) |   | (1,507 | ) |
| Gain                  (loss) on derivatives, net                         |   |                                    | (316   | )                                     |   | 140 |   |   | 291 |   |   | (466 | ) |
| Other                  income (expense)                                  |   |                                    | 938    |                                  |   | 37 |   |   | 1,010 |   |   | 112 |   |
|                                                                          |   |                                    | (2,071 | )                                     |   | (537 | ) |   | (2,375 | ) |   | (1,770 | ) |
| Income                  before income taxes                              |   |                                    | 7,039  |                                  |   | 7,466 |   |   | 16,425 |   |   | 12,187 |   |
| Income                  tax expense:                                          |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Current                                                                  |   |                                    | -      |                                  |   | - |   |   | - |   |   | - |   |
| Deferred                                                                 |   |                                    | (3,373 | )                                     |   | (2,656 | ) |   | (6,884 | ) |   | (4,329 | ) |
|                                                                          |   |                                    | (3,373 | )                                     |   | (2,656 | ) |   | (6,884 | ) |   | (4,329 | ) |
| Net                  income                                              |   | $                                       | 3,666  |                                  | $      | 4,810 |   | $ | 9,541 |   | $ | 7,858 |   |
|  Net                  income per share available to common stockholders: |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Basic                                                                    |   | $                                       | 0.08   |                                  | $      | 0.11 |   | $ | 0.21 |   | $ | 0.19 |   |
| Diluted                                                                  |   | $                                       | 0.08   |                                  | $      | 0.11 |   | $ | 0.21 |   | $ | 0.18 |   |
|                                                                          |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding:                         |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Basic                                                                    |   |                                    | 44,992 |                                  |   | 42,189 |   |   | 44,989 |   |   | 42,144 |   |
| Diluted                                                                  |   |                                    | 45,361 |                                  |   | 43,206 |   |   | 45,501 |   |   | 43,162 |   |

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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                                    |   |                              | — |                                    |   | —      |   |                                | — |                                                 |   | —                            |   |                                     | — |   |   | — |   |   | 9,541 |   |   | 9,541 |   |
| Unrealized                  gain (losses) on cash flow hedges  |   |                              | — |                                    |   | —      |   |                                | — |                                                 |   | —                            |   |                                     | — |   |   | 4,488 |   |   | — |   |   | 4,488 |   |
| Tax                  provisions related to cash flow hedges    |   |                              | — |                                    |   | —      |   |                                | — |                                                 |   | —                            |   |                                     | — |   |   | (1,264 | ) |   | — |   |   | (1,264 | ) |
| Net                  (gains) losses included in net income          |   |                              | — |                                    |   | —      |   |                                | — |                                                 |   | —                            |   |                                     | — |   |   | (877 | ) |   | — |   |   | (877 | ) |
| Comprehensive                  income                               |   |                              |    |                                    |   |         |   |                                |    |                                                 |   |                               |   |                                     |    |   |   |   |   |   |   |   |   | 11,888 |   |
| Adoption                  of SFAS No. 123R                     |   |                              | — |                                    |   | —      |   |                                | (2,299  | )                                                    |   | —                            |   |                                     | 2,299   |   |   | — |   |   | — |   |   | — |   |
| Issuance                  of common stock                      |   |                              | — |                                    |   | —      |   |                                | 37      |                                                 |   | —                            |   |                                     | — |   |   | — |   |   | — |   |   | 37 |   |
| Exercises                  of employee stock options           |   |                              | 48      |                                    |   |         |   |                                | 239     |                                                 |   | —                            |   |                                     | — |   |   | — |   |   | — |   |   | 239 |   |
| Vesting                  of restricted stock                   |   |                              | 65      |                                    |   | 1            |   |                                | (1      | )                                                    |   | —                            |   |                                     | — |   |   | — |   |   | — |   |   | — |   |
| Stock                  based compensation                      |   |                              | — |                                    |   | —      |   |                                | 1,556   |                                                 |   | —                            |   |                                     | — |   |   | — |   |   | — |   |   | 1,556 |   |
| Repurchases                  of common stock              |   |                              | — |                                    |   | —      |   |                                | — |                                                 |   | (211                               | )      |                                     | — |   |   | — |   |   | — |   |   | (211 | ) |
| Balance,                  June 30, 2006                        |   |                              | 45,031  |                                    | $      | 450          |   | $                                   | 201,659 |                                                 | $      | (211                               | )      | $                                        | -       |   | $ | 1,921 |   | $ | 51,330 |   | $ | 255,149 |   |

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*Table            of Contents*

**BRIGHAM        EXPLORATION COMPANY**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(In        thousands)**

**(Unaudited)**

|                                                                                                                  |   | **Six                  Months Ended** |     |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|
|                                                                                                                  |   | **June                  30,**         |     |
|                                                                                                                  |   | **2006**                              |     | **2005** |   |
|                                                                                                                  |   |                                  |     |   |   |
| Cash                  flows from operating activities:                                                                |   |                                  |     |   |   |
| Net                  income                                                                                      |   | $                                     | 9,541    |   | $ | 7,858 |   |
| Adjustments                  to reconcile net income to cash provided by operating activities:                   |   |                                  |     |   |   |   |   |
| Depletion                  of oil and natural gas properties                                                          |   |                                  | 21,362   |   |   | 13,659 |   |
| Depreciation                  and amortization                                                                        |   |                                  | 236      |   |   | 360 |   |
| Stock                  based compensation                                                                             |   |                                  | 843      |   |   | - |   |
| Write-off                  of deferred loan costs                                                                     |   |                                  | 965      |   |   | - |   |
| Interest                  paid through issuance of additional mandatorily redeemable preferred                  stock |   |                                  | -        |   |   | 381 |   |
| Amortization                  of deferred loan fees and debt issuance costs                                           |   |                                  | 303      |   |   | 253 |   |
| Market                  value adjustment for derivative instruments                                                   |   |                                  | (490     | ) |   | 466 |   |
| Accretion                  of discount on asset retirement obligations                                           |   |                                  | 149      |   |   | 82 |   |
| Deferred                  income taxes                                                                                |   |                                  | 6,884    |   |   | 4,329 |   |
| Other                  noncash items                                                                                  |   |                                  | 64       |   |   | 59 |   |
| Changes                  in operating assets and liabilities:                                                         |   |                                  |     |   |   |   |   |
| Accounts                  receivable                                                                                  |   |                                  | 5,631    |   |   | 4,030 |   |
| Other                  current assets                                                                                 |   |                                  | (750     | ) |   | 241 |   |
| Accounts                  payable                                                                                     |   |                                  | 11,176   |   |   | 466 |   |
| Royalties                  payable                                                                                    |   |                                  | (214     | ) |   | (1,070 | ) |
| Participant                  advances received                                                                        |   |                                  | 1,427    |   |   | (2,946 | ) |
| Other                  current liabilities                                                                            |   |                                  | 2,548    |   |   | 47 |   |
| Other                  noncurrent assets and liabilities                                                              |   |                                  | (221     | ) |   | (14 | ) |
| Net                  cash provided by operating activities                                                            |   |                                  | 59,454   |   |   | 28,201 |   |
|                                                                                                                  |   |                                  |     |   |   |   |   |
| Cash                  flows from investing activities:                                                                |   |                                  |     |   |   |   |   |
| Additions                  to oil and natural gas properties                                                     |   |                                  | (74,929  | ) |   | (56,938 | ) |
| Purchases                  of short term investments                                                             |   |                                  | (45,150  | ) |   | - |   |
| Sales                  and redemptions of short term investments                                                 |   |                                  | 7,550    |   |   | - |   |
| Additions                  to other property and equipment                                                       |   |                                  | (293     | ) |   | (86 | ) |
| Decrease                  (increase) in drilling advances paid                                                   |   |                                  | (45      | ) |   | 211 |   |
| Net                  cash used by investing activities                                                                |   |                                  | (112,867 | ) |   | (56,813 | ) |
|                                                                                                                  |   |                                  |     |   |   |   |   |
| Cash                  flows from financing activities:                                                                |   |                                  |     |   |   |   |   |
| Proceeds                  from senior notes offering                                                                  |   |                                  | 123,286  |   |   | - |   |
| Increase                  in senior credit facility                                                                   |   |                                  | 24,200   |   |   | 31,600 |   |
| Repayment                  of senior credit facility                                                                  |   |                                  | (57,300  | ) |   | (8,200 | ) |
| Increase                  in senior subordinated notes                                                                |   |                                  | -        |   |   | 10,000 |   |
| Repayment                  of senior subordinated notes                                                               |   |                                  | (30,000  | ) |   | - |   |
| Deferred                  loan fees paid and equity costs                                                             |   |                                  | (2,765   | ) |   | (888 | ) |
| Proceeds                  from issuance of stock, net of issuance costs                                               |   |                                  | 37       |   |   | - |   |
| Proceeds                  from exercise of employee stock options                                                     |   |                                  | 239      |   |   | 434 |   |
| Repurchases                  of common stock                                                                          |   |                                  | (211     | ) |   | (190 | ) |
| Net                  cash provided by financing activities                                                            |   |                                  | 57,486   |   |   | 32,756 |   |
| Net                  increase (decrease) in cash and cash equivalents                                                 |   |                                  | 4,073    |   |   | 4,144 |   |
| Cash                  and cash equivalents, beginning of year                                                         |   |                                  | 3,975    |   |   | 2,281 |   |
| Cash                  and cash equivalents, end of period                                                             |   | $                                     | 8,048    |   | $ | 6,425 |   |

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*Table            of Contents*

| **1.** | **Organization                  and Nature of Operations** |
|--------|------------------------------------------------------------|

| **2.** | **Basis                  of Presentation** |
|--------|--------------------------------------------|

| **3.** | **Commitments                  and Contingencies** |
|--------|----------------------------------------------------|

| **4.** | **Earnings                  Per Common Share** |
|--------|------------------------------------------------|

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*Table            of Contents*

|                                                                                                            |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                            |   | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                                                            |   |                                                                 |   |                                                               |   |   |   |   |   |
| Weighted                  average common shares outstanding - basic                                   |   |                                                                 | 44,992 |                                                               |   | 42,189 |   |   | 44,989 |   |   | 42,144 |   |
| Plus:                  Potential common shares                                                                  |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Stock                  options and restricted stock                                                        |   |                                                                 | 369    |                                                               |   | 1,017 |   |   | 512 |   |   | 1,018 |   |
| Weighted                  average common shares outstanding - diluted                                      |   |                                                                 | 45,361 |                                                               |   | 43,206 |   |   | 45,501 |   |   | 43,162 |   |
|                                                                                                            |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Stock                  options excluded from diluted EPS due to the anti-dilutive                  effect  |   |                                                                 | 1,426  |                                                               |   | 700 |   |   | 1,246 |   |   | 700 |   |

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

|                                    |   | **June                  30,****2006** |   |
|-----------------------------------------|--------|---------------------------------------|--------|
| Current                  income taxes:  |   |                                  |   |
| Federal                                 |   | $                                     | -      |   |
| State                                   |   |                                  | -      |   |
| Deferred                  income taxes: |   |                                  |   |   |
| Federal                                 |   |                                  | 5,543  |   |
| State                                   |   |                                  | 1,341  |   |
|                                    |   | $                                     | 6,884  |   |

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

----

*Table            of Contents*

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

|                                                |   | **Cost** |   | **Unrealized                  Holding Gains / (Losses)** |   | **Fair                  Value** |   |
|-----------------------------------------------------|--------|----------|--------|----------------------------------------------------------|--------|---------------------------------|--------|
| **Available-for-Sale                  Securities:** |   |     |   |                                                     |   |                            |   |
| State                  and municipal securities     |   | $        | 37,600 |                                                     | $      | -                               |   | $ | 37,600 |   |

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

|                                                                           |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                           |   | **2006**                                         |   | **2005**                                       |   | **2006** |   | **2005** |   |
| ***Natural                  Gas***                                             |   |                                             |   |                                           |   |   |   |   |   |
| Average                  price per Mcf as reported (including hedging results) |   | $                                                | 7.07   |                                           | $      | 6.62 |   | $ | 7.22 |   | $ | 6.21 |   |
| Average                  price per Mcf realized (excluding hedging results)    |   | $                                                | 6.56   |                                           | $      | 6.73 |   | $ | 6.94 |   | $ | 6.27 |   |
| Increase                  (decrease) in revenue (in thousands)                 |   | $                                                | 1,359  |                                           | $      | (231 | ) | $ | 1,490 |   | $ | (241 | ) |
| ***Oil***                                                                      |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |
| Average                  price per Bbl as reported (including hedging results) |   | $                                                | 68.88  |                                           | $      | 47.83 |   | $ | 64.83 |   | $ | 45.65 |   |
| Average                  price per Bbl realized (excluding hedging results)    |   | $                                                | 68.88  |                                           | $      | 51.56 |   | $ | 65.05 |   | $ | 49.84 |   |
| Increase                  (decrease) in revenue (in thousands)                 |   | $                                                | -      |                                           | $      | (385 | ) | $ | (50 | ) | $ | (926 | ) |

|                                                                          |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                          |   | **2006**                                         |   | **2005**                                       |   | **2006** |   | **2005** |   |
| Increase                  (decrease) in earnings due to ineffectiveness  |   | $                                                | 42     |                                           | $      | 203 |   | $ | 877 |   | $ | (413 | ) |

----

*Table            of Contents*

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

***Cash-flow        hedges***

|                                                          |   | **June                  30,****2006** |   | **December                  31, 2005** |   |
|---------------------------------------------------------------|--------|---------------------------------------|--------|----------------------------------------|--------|
| Fair                  value of undesignated derivatives  |   | $                                     | (408   | )                                      | $      | (125 | ) |

|                                                                                                                             |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                             |   | **2006**                                         |   | **2005**                                       |   | **2006** |   | **2005** |   |
| Increase                  (decrease) in earnings due to changes in fair value of undesignated                  derivatives  |   | $                                                | (163   | )                                              | $      | (63 | ) | $ | (283 | ) | $ | (53 | ) |

|                                    |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|-----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**  |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Costless                  Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 07/01/06                  - 07/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   |   | 17.00 |   |
| 07/01/06                  - 07/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   |   | 15.60 |   |
| 07/01/06                  - 09/30/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 21,000 |   | $ | 50.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 21,000 |   |   | 75.60 |   |
| 07/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   |   | 14.85 |   |
| 10/01/06                  - 12/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 27,000 |   | $ | 50.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 27,000 |   |   | 77.50 |   |
| 08/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 360,000 |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 360,000 |   |   |   |   |   | 16.65 |   |
| 08/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   | $ | 5.50 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   |   | 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 |   |

----

*Table            of Contents*

|                                    |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|-----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**  |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Costless                  Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 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 |   |

|                                              |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|---------------------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**            |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Three                  Way Costless Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 07/01/06                  - 09/30/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 15,000 |   | $ | 63.00 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 15,000 |   |   | 75.65 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 |    |   |   | 15,000 |   |   | 48.00 |   |
| 07/01/06                  - 10/31/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 240,000 |   |   |   |   | $ | 7.50 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 240,000 |   |   |   |   |   | 9.15 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 | 240,000 |   |   |   |   |   | 6.25 |   |
| 07/01/06                  - 10/31/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   | $ | 8.50 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   |   | 9.96 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 | 280,000 |   |   |   |   |   | 7.00 |   |

----

*Table            of Contents*

|                                      |   |                         |                             |                                  |   | **Notional                    Amount**        |   |                 |    |
|-------------------------------------------|--------|------------------------------|----------------------------------|---------------------------------------|--------|-----------------------------------------------|--------|----------------------|---------|
| **Settlement                    Period**  |   | **Derivative****Instrument** |                             | **Hedge                    Strategy** |   | **Natural                    Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                    Reference****Price** |   |
| ***Costless                    Collars*** |   |                         |                             |                                  |   |                                          |   |                 |    |   |   |
| 09/01/06                    - 10/31/06    |   |                         | Purchased                    put |                                  |   | Cash                    flow                  |   |                 |    |   |   | 17,000 |   | $ | 70.00 |   |
|                                      |   |                         | Written                    call  |                                  |   | Cash                    flow                  |   |                 |    |   |   | 17,000 |   |   | 85.20 |   |
| 11/01/06                    - 11/30/06    |   |                         | Purchased                    put |                                  |   | Cash                    flow                  |   |                 |    |   |   | 4,000 |   | $ | 70.00 |   |
|                                      |   |                         | Written                    call  |                                  |   | Cash                    flow                  |   |                 |    |   |   | 4,000 |   |   | 85.20 |   |
| 12/01/06                    - 02/28/07    |   |                         | Purchased                    put |                                  |   | Cash                    flow                  |   |                 |    |   |   | 7,500 |   | $ | 70.00 |   |
|                                      |   |                         | Written                    call  |                                  |   | Cash                    flow                  |   |                 |    |   |   | 7,500 |   |   | 85.20 |   |
| 11/01/07                    - 03/31/08    |   |                         | Purchased                    out |                                  |   | Cash                    Flow                  |   |                 | 300,000 |   |   |   |   | $ | 8.85 |   |
|                                      |   |                         | Written                    call  |                                  |   | Cash                    Flow                  |   |                 | 300,000 |   |   |   |   |   | 15.00 |   |

***Basis        Swaps***

|                                                          |   | **June                  30,****2006** |   | **December                  31, 2005** |   |
|---------------------------------------------------------------|--------|---------------------------------------|--------|----------------------------------------|--------|
| Fair                  value of undesignated derivatives  |   | $                                     | (104   | )                                      | $      | - |   |

|                                                                                                                             |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                             |   | **2006**                                         |   | **2005**                                       |   | **2006** |   | **2005** |   |
| Increase                  (decrease) in earnings due to changes in fair value of undesignated                  derivatives  |   | $                                                | (104   | )                                              | $      | - |   | $ | (104 | ) | $ | - |   |

|                                   |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period** |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Discount                  To****NYMEX** |   |
| ***Basis                  Swaps***     |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| ***NGPL                  STX***        |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 600,000 |   |   |   |   | $ | 0.603 |   |
| ***HSC***                              |   |                         |                           |                                |   |                                        |   |                 |    |   |   |   |   |   |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 240,000 |   |   |   |   | $ | 0.510 |   |
| ***ANR                  OK***          |   |                         |                           |                                |   |                                        |   |                 |    |   |   |   |   |   |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 420,000 |   |   |   |   | $ | 1.110 |   |

----

*Table            of Contents*

***Interest        rate swap***

***Fair        values***

|                                          |   | **June                  30,****2006** |   | **December                  31, 2005** |   |
|-----------------------------------------------|--------|---------------------------------------|--------|----------------------------------------|--------|
|                                          |   | (In                  thousands)       |   |
|                                          |   |                                  |   |                                   |   |
| Other                  current liabilities    |   | $                                     | (383   | )                                      | $      | (2,112 | ) |
| Other                  noncurrent liabilities |   |                                  | (235   | )                                      |   | (61 | ) |
| Other                  current assets         |   |                                  | 3,619  |                                   |   | 224 |   |
| Other                  noncurrent assets      |   |                                  | 192    |                                   |   | 654 |   |
|                                          |   | $                                     | 3,193  |                                   | $      | (1,295 | ) |

| **9.** | **Asset                  Retirement Obligations** |
|--------|---------------------------------------------------|

|                                                                     |   | **Six                  Months Ended****June                  30,** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                     |   | **2006**                                                           |   | **2005** |   |
|                                                                     |   |                                                               |   |   |   |
| Beginning                  asset retirement obligations                  |   | $                                                                  | 4,389  |   | $ | 2,896 |   |
| Liabilities                  incurred for new wells placed on production |   |                                                               | 358    |   |   | 160 |   |
| Liabilities                  settled                                     |   |                                                               | (196   | ) |   | (6 | ) |
| Accretion                  of discount on asset retirement obligations   |   |                                                               | 149    |   |   | 82 |   |
|                                                                     |   | $                                                                  | 4,700  |   | $ | 3,132 |   |

----

*Table            of Contents*

| **10.** | **Stock                  Based Compensation** |
|---------|-----------------------------------------------|

| 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                     |   |

----

*Table            of Contents*

|                                                                                                                                                                  |   | **Three                  Months Ended****June                  30, 2005** |   | **Six                  Months Ended****June                  30, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|
| Net                  income, as reported                                                                                                                         |   | $                                                                         | 4,810  |                                                                    | $      | 7,858 |   |
| Add                  back: Stock compensation expense previously included in net                  income                                                         |   |                                                                      | 111    |                                                                    |   | 222 |   |
| Effect                  of total employee stock-based compensation expense, determined                  under fair                  value method for all awards  |   |                                                                      | (321   | )                                                                       |   | (682 | ) |
| Pro                  forma                                                                                                                                       |   | $                                                                         | 4,600  |                                                                    | $      | 7,398 |   |
|                                                                                                                                                                  |   |                                                                      |   |                                                                    |   |   |   |
| Net                  income per share:                                                                                                                                |   |                                                                      |   |                                                                    |   |   |   |
| Basic,                  as reported                                                                                                                              |   | $                                                                         | 0.11   |                                                                    | $      | 0.19 |   |
| Basic,                  pro forma                                                                                                                                |   |                                                                      | 0.11   |                                                                    |   | 0.18 |   |
|                                                                                                                                                                  |   |                                                                      |   |                                                                    |   |   |   |
| Diluted,                  as reported                                                                                                                                 |   | $                                                                         | 0.11   |                                                                    | $      | 0.18 |   |
| Diluted,                  pro forma                                                                                                                                   |   |                                                                      | 0.11   |                                                                    |   | 0.17 |   |

|                                                            |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|-----------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                            |   | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                            |   |                                                                 |   |
| Pre-tax                  stock based compensation expense  |   | $                                                                    | 943    |                                                               | $      | 166 |   | $ | 1,556 |   | $ | 334 |   |
| Capitalized                  stock based compensation      |   |                                                                 | (408   | )                                                                  |   | (80 | ) |   | (713 | ) |   | (161 | ) |
| Tax                  benefit                               |   |                                                                 | (187   | )                                                                  |   | (30 | ) |   | (295 | ) |   | (60 | ) |
| Stock                  based compensation expense, net     |   | $                                                                    | 348    |                                                               | $      | 56 |   | $ | 548 |   | $ | 113 |   |

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

----

*Table            of Contents*

|                                                              |   | **Shares**  |      | **Weighted-                  Average Exercise****Price** |   | **Weighted-                  Average Remaining Contractual****Term** |   | **Aggregate                  Intrinsic Value****(in                  thousands)** |                       |
|-------------------------------------------------------------------|--------|------------------|-----------|----------------------------------------------------------|--------|----------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|----------------------------|
| Options                  outstanding at the beginning of the year |   |             | 2,946,333 |                                                     | $      | 6.96                                                                 |   |                                                                              |                       |   |   |   |   |
| Granted                                                           |   |             | 20,000    |                                                     | $      | 9.73                                                                 |   |                                                                              |                       |   |   |   |   |
| Forfeited                  or cancelled                           |   |             | (194,067  | )                                                        | $      | 4.84                                                                 |   |                                                                              |                       |   |   |   |   |
| Exercised                                                         |   |             | (48,600   | )                                                        | $      | 5.99                                                                 |   |                                                                              |                       |   |   |   |   |
| Options                  outstanding at June 30, 2006             |   |             | 2,723,666 |                                                     | $      | 7.15                                                                 |   |                                                                              | 4.4                  years |   | $ | 4,127,489 |   |
| Options                  exercisable at June 30, 2006             |   |             | 1,021,733 |                                                     | $      | 5.58                                                                 |   |                                                                              | 3.6                  years |   | $ | 2,513,637 |   |

***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                                                                 |   |                                     | (27,500 | )                                               | $      | 8.05 |   |
| Restricted                  shares outstanding at June 30, 2006             |   |                                     | 434,745 |                                            | $      | 8.68 |   |

----

*Table            of Contents*

| **11.** | **Comprehensive                  Income** |
|---------|-------------------------------------------|

|                                                                   |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                   |   | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                   |   |                                                                 |   |
| Net                  income                                       |   | $                                                                    | 3,666  |                                                               | $      | 4,810 |   | $ | 9,541 |   | $ | 7,858 |   |
| Unrealized                  gains (losses) on cash flow hedges         |   |                                                                 | 27     |                                                               |   | 1,000 |   |   | 4,488 |   |   | 391 |   |
| Tax                  benefits (provisions) related to cash flow hedges |   |                                                                 | 5      |                                                               |   | (279 | ) |   | (1,264 | ) |   | (282 | ) |
| Net                  (gains) losses included in net income             |   |                                                                 | (42    | )                                                                  |   | (202 | ) |   | (877 | ) |   | 414 |   |
| Other                  Comprehensive Income, net                       |   | $                                                                    | 3,656  |                                                               | $      | 5,329 |   | $ | 11,888 |   | $ | 8,381 |   |

| **12.** | **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 Second Quarter and First Six Months 2006**
**        Results**

----

*Table            of Contents*

**Overview        of Operations **

*Vicksburg        Trend*

*Frio        Trend *

*Gulf        Coast Louisiana Miocene Trend*

*Anadarko        Basin*

----

*Table            of Contents*

*Rockies        Plays*

**Second        Quarter and First Six Months 2006 Results **

*Comparison        of the three-month and six month periods ended June 30, 2006 and        2005.*

***Production        volumes***

|                                                |   | **Three                  months ended June 30,** |   | **Six                  months ended June 30,** |   |
|-----------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                |   | **2006**                                         |   | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |
| Oil                  (MBbls)                        |   |                                             | 109    |                                           |   | 6 | % |   | 103 |   |   | 225 |   |   | 2 | % |   | 221 |   |
| Natural                  gas (MMcf)                 |   |                                             | 2,629  |                                           |   | 29 | % |   | 2,041 |   |   | 5,174 |   |   | 28 | % |   | 4,035 |   |
| Total                  (MMcfe)(1)                   |   |                                             | 3,286  |                                           |   | 24 | % |   | 2,659 |   |   | 6,521 |   |   | 22 | % |   | 5,359 |   |
| Average                  daily production (MMcfe/d) |   |                                             | 36.5   |                                           |   |   |   |   | 29.5 |   |   | 36.2 |   |   |   |   |   | 29.8 |   |

| (1) | MMcfe                  is defined as one million cubic feet equivalent of natural gas                  and                  is determined using the ratio of six MMcf of natural gas to one MBbl                  of crude oil, condensate or natural gas                  liquids. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                                |   | **Three                  months ended June 30,**                  |    | **Six                  months ended June 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   |                                           |   | 42 | % |   | $ | 5,313 |   | $ | 14,609 |   |   | 33 | % |   | $ | 11,002 |   |
| Gain                  (loss) due to hedging                         |   |                                                              | — |                                           |   | (100 | %) |   |   | (385 | ) |   | (50 | ) |   | (95 | %) |   |   | (926 | ) |
| Total                  revenue from the sale of oil                 |   | $                                                                 | 7,541   |                                           |   | 53 | % |   | $ | 4,928 |   | $ | 14,559 |   |   | 44 | % |   | $ | 10,076 |   |
|                                                                |   |                                                              |    |                                           |   |  |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Natural                  gas sales                                  |   | $                                                                 | 17,234  |                                           |   | 25 | % |   | $ | 13,737 |   | $ | 35,881 |   |   | 42 | % |   | $ | 25,302 |   |
| Gain                  (loss) due to hedging                         |   |                                                              | 1,359   |                                           |   | NM |   |   |   | (231 | ) |   | 1,490 |   |   | NM |   |   |   | (241 | ) |
| Total                  revenue from the sale of natural gas         |   | $                                                                 | 18,593  |                                           |   | 38 | % |   | $ | 13,506 |   | $ | 37,371 |   |   | 49 | % |   | $ | 25,061 |   |
|                                                                |   |                                                              |    |                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Oil                  and natural gas sales                          |   | $                                                                 | 24,775  |                                           |   | 30 | % |   | $ | 19,050 |   | $ | 50,490 |   |   | 39 | % |   | $ | 36,304 |   |
| Gain                  (loss) due to hedging                         |   |                                                              | 1,359   |                                           |   | NM |   |   |   | (616 | ) |   | 1,440 |   |   | NM |   |   |   | (1,167 | ) |
| Total                  revenue from the sale of oil and natural gas |   | $                                                                 | 26,134  |                                           |   | 42 | % |   | $ | 18,434 |   | $ | 51,930 |   |   | 48 | % |   | $ | 35,137 |   |
|                                                                |   |                                                              |    |                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| **Average                  prices:**                                |   |                                                              |    |                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Oil                  sales price (per Bbl)                          |   | $                                                                 | 68.88   |                                           |   | 34 | % |   | $ | 51.56 |   | $ | 65.05 |   |   | 31 | % |   | $ | 49.84 |   |
| Gain                  (loss) due to hedging (per Bbl)               |   |                                                              | — |                                           |   | (100 | %) |   |   | (3.73 | ) |   | (0.22 | ) |   | (95 | %) |   |   | (4.19 | ) |
| Realized                  oil price (per Bbl)                       |   | $                                                                 | 68.88   |                                           |   | 44 | % |   | $ | 47.83 |   | $ | 64.83 |   |   | 42 | % |   | $ | 45.65 |   |
|                                                                |   |                                                              |    |                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Natural                  gas sales price (per Mcf)                  |   | $                                                                 | 6.56    |                                           |   | (3 | )% |   | $ | 6.73 |   | $ | 6.94 |   |   | 11 | % |   | $ | 6.27 |   |
| Gain                  (loss) due to hedging (per Mcf)               |   |                                                              | 0.51    |                                           |   | NM |   |   |   | (0.11 | ) |   | 0.28 |   |   | NM |   |   |   | (0.06 | ) |
| Realized                  natural gas price (per Mcf)               |   | $                                                                 | 7.07    |                                           |   | 7 | % |   | $ | 6.62 |   | $ | 7.22 |   |   | 16 | % |   | $ | 6.21 |   |
|                                                                |   |                                                              |    |                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Natural                  gas equivalent sales price (per Mcfe)      |   | $                                                                 | 7.54    |                                           |   | 5 | % |   | $ | 7.16 |   | $ | 7.74 |   |   | 14 | % |   | $ | 6.77 |   |
| Gain                  (loss) due to hedging (per Mcfe)              |   |                                                              | 0.41    |                                           |   | NM |   |   |   | (0.23 | ) |   | 0.22 |   |   | NM |   |   |   | (0.21 | ) |
| Realized                  natural gas equivalent (per Mcfe)         |   | $                                                                 | 7.95    |                                           |   | 15 | % |   | $ | 6.93 |   | $ | 7.96 |   |   | 21 | % |   | $ | 6.56 |   |

----

*Table            of Contents*

|                                                                |   | **For                  the three** **month                  periods** **ended                  June 30,** **2006                  and 2005** |   | **For                  the six** **month                  periods** **ended                  June 30,**** ** **2006                  and 2005** |   |
|---------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                |   |                                                                                                                                                        |   |                                                                                                                                                                |   |
|                                                                |   |                                                                                                                                                        |   |                                                                                                                                                                |   |
| **Change                  in revenue from the sale of oil**         |   |                                                                                                                                                        |   |                                                                                                                                                                |   |
| Price                  variance impact                              |   | $                                                                                                                                                           | 1,896  |                                                                                                                                                                | $      | 3,415 |   |
| Volume                  variance impact                             |   |                                                                                                                                                        | 332    |                                                                                                                                                                |   | 192 |   |
| Cash                  settlement of hedging contracts               |   |                                                                                                                                                        | 385    |                                                                                                                                                                |   | 876 |   |
| Total                  change                                       |   | $                                                                                                                                                           | 2,613  |                                                                                                                                                                | $      | 4,483 |   |
| **Change                  in revenue from the sale of natural gas** |   |                                                                                                                                                        |   |                                                                                                                                                                |   |   |   |
| Price                  variance impact                              |   | $                                                                                                                                                           | (457   | )                                                                                                                                                                   | $      | 3,443 |   |
| Volume                  variance impact                             |   |                                                                                                                                                        | 3,954  |                                                                                                                                                                |   | 7,136 |   |
| Cash                  settlement of hedging contracts               |   |                                                                                                                                                        | 1,590  |                                                                                                                                                                |   | 1,731 |   |
| Total                  change                                       |   | $                                                                                                                                                           | 5,087  |                                                                                                                                                                | $      | 12,310 |   |

|   | · | A                  24% increase in production volumes generated a $4.3 million increase                  in                  revenue; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  5% increase in prices, excluding the impact of hedges, resulted                  in a $1.4                  million increase in revenue; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  $1.4 million gain from the cash settlement of derivative contracts                  in the                  second quarter 2006 versus a $0.6 million loss for the same period                  last                  year led to $2.0 million increase in                  revenue. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  22% increase in production volumes generated a $7.3 million increase                  in                  revenue; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  14% increase in prices, excluding the impact of hedges, resulted                  in a $6.9                  million increase in revenue; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  $1.4 million gain from the cash settlement of derivative contracts                  in the                  first half of 2006 versus a $1.2 million loss last year led to                  $2.6                  million increase in revenue. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

|                                                           |   | **Three                  months ended June 30,** |      | **Six                  months ended June 30,** |   |
|----------------------------------------------------------------|--------|--------------------------------------------------|-----------|------------------------------------------------|--------|
|                                                           |   | **2006**                                         |      | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                           |   |                                             |      |                                           |   |   |   |   |   |   |   |   |   |   |   |
| ***Oil                  collars***                             |   |                                             |      |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                  (Bbls)                                |   |                                             | 45,000    |                                           |   | 83 | % |   |   | 24,655 |   |   | 70,500 |   |   | 35 | % |   |   | 52,105 |   |
| Average                  floor price ($ per Bbl)               |   | $                                                | 53.93     |                                           |   | 69 | % |   | $ | 31.96 |   | $ | 53.27 |   |   | 86 | % |   | $ | 28.59 |   |
| Average                  ceiling price ($ per Bbl)             |   | $                                                | 75.32     |                                           |   | 91 | % |   | $ | 39.37 |   | $ | 71.50 |   |   | 107 | % |   | $ | 34.53 |   |
| Gain                  /(loss) upon settlement ($ in thousands) |   | $                                                | —   |                                           |   | (100 | %) |   | $ | (385 | ) | $ | (50 | ) |   | (95 | %) |   | $ | (926 | ) |
|                                                           |   |                                             |      |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Natural                  gas collars***                     |   |                                             |      |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                  (MMbtu)                               |   |                                             | 1,140,000 |                                           |   | 80 | % |   |   | 635,000 |   |   | 1,740,000 |   |   | 28 | % |   |   | 1,362,500 |   |
| Average                  floor price ($ per MMbtu)             |   | $                                                | 8.01      |                                           |   | 62 | % |   | $ | 4.93 |   | $ | 8.18 |   |   | 62 | % |   | $ | 5.06 |   |
| Average                  ceiling price ($ per MMbtu)           |   | $                                                | 13.74     |                                           |   | 94 | % |   | $ | 7.08 |   | $ | 12.74 |   |   | 78 | % |   | $ | 7.17 |   |
| Gain                  /(loss) upon settlement ($ in thousands) |   | $                                                | 1,359     |                                           |   | NM |   |   | $ | (231 | ) | $ | 1,490 |   |   | NM |   |   | $ | (241 | ) |

*Other        revenue*

***Operating        costs and expenses***

*Production        costs. *

|                                           |   | **Unit-of-Production****(Per                    Mcfe)** |   | **Amount****(In                    thousands)**    |   |
|------------------------------------------------|--------|---------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                           |   | **Three                    months ended June 30,**      |   | **Three                    months ended June 30,** |   |
|                                           |   | **2006**                                                |   | **%                    Change**                    |   | **2005** |   | **2006** |   | **%                    Change** |   | **2005** |   |
|                                           |   |                                                    |   |
| **Production                    costs:**       |   |                                                    |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Operating                    & maintenance |   | $                                                       | 0.59   |                                               |   | 13 | % |   | $ | 0.52 |   | $ | 1,953 |   |   | 41 | % |   | $ | 1,389 |   |
| Expensed                    workovers          |   |                                                    | 0.05   |                                               |   | NM |   |   |   | (0.08 | ) |   | 152 |   |   | NM |   |   |   | (213 | ) |
| Ad                    valorem taxes            |   |                                                    | 0.13   |                                               |   | 63 | % |   |   | 0.08 |   |   | 431 |   |   | 101 | % |   |   | 214 |   |
| Lease                    operating expenses    |   | $                                                       | 0.77   |                                               |   | 48 | % |   | $ | 0.52 |   | $ | 2,536 |   |   | 82 | % |   | $ | 1,390 |   |
|                                           |   |                                                    |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Production                    taxes            |   |                                                    | 0.32   |                                               |   | 129 | % |   |   | 0.14 |   |   | 1,052 |   |   | 187 | % |   |   | 366 |   |
| Production                    costs            |   | $                                                       | 1.09   |                                               |   | 65 | % |   | $ | 0.66 |   | $ | 3,588 |   |   | 104 | % |   | $ | 1,756 |   |

----

*Table            of Contents*

| · | O&M                  expense increased 13%, or $0.07 per Mcfe. The increase in our per                  unit                  O&M expense from that in the prior year’s quarter was due to small                  increases in several different expense categories, with chemical                  treating                  accounting for 43% of the per unit increase. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Ad                  valorem taxes increased 63% or $0.05 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 129% or $0.18 per Mcfe due to higher production                  volumes,                  higher commodity prices and a lack of severance tax refunds in                  the current                  period as compared to the $540,000 in refunds on six wells during                  the                  second quarter 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Workover                  expense increased by $0.13 per Mcfe due principally to a reclassification                  of costs related to workovers performed and reported as workover                  expense                  in the first quarter 2005 to capital cost in the second quarter                  2005 and                  to insurance reimbursements in the second quarter                  2005 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                         |   | **Unit-of-Production****(Per                  Mcfe)** |   | **Amount****(In                  thousands)**  |   |
|----------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------|--------|
|                                         |   | **Six                  months ended June 30,**        |   | **Six                  months ended June 30,** |   |
|                                         |   | **2006**                                              |   | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                         |   |                                                  |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| **Production                  cost:**        |   |                                                  |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  & maintenance |   | $                                                     | 0.62   |                                           |   | 19 | % |   | $ | 0.52 |   | $ | 4,051 |   |   | 44 | % |   | $ | 2,811 |   |
| Expensed                  workovers          |   |                                                  | 0.04   |                                           |   | (33 | %) |   |   | 0.06 |   |   | 277 |   |   | (11 | %) |   |   | 311 |   |
| Ad                  valorem taxes            |   |                                                  | 0.15   |                                           |   | 67 | % |   |   | 0.09 |   |   | 938 |   |   | 93 | % |   |   | 486 |   |
| Lease                  operating expenses    |   | $                                                     | 0.81   |                                           |   | 21 | % |   | $ | 0.67 |   | $ | 5,266 |   |   | 46 | % |   | $ | 3,608 |   |
|                                         |   |                                                  |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Production                  taxes            |   |                                                  | 0.34   |                                           |   | 55 | % |   |   | 0.22 |   |   | 2,196 |   |   | 88 | % |   |   | 1,168 |   |
| Production                  costs            |   | $                                                     | 1.15   |                                           |   | 29 | % |   | $ | 0.89 |   | $ | 7,462 |   |   | 56 | % |   | $ | 4,776 |   |

| · | O&M                  expense increased 19% or $0.10 per Mcfe. The increase in our per                  unit                  O&M expense from that in the prior year’s first six months was due to                  small increases in several different expense categories, with chemical                  treating and saltwater disposal accounting for 44% of the per unit                  change. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Ad                  valorem taxes increased 67% 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Production                  taxes increased 55% or $0.12 per Mcfe due to higher production                  volumes,                  higher commodity prices and a lack of severance tax refunds in                  the current                  period as compared to the $540,000 in refunds on six wells during                  the                  first six months 2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*General        and administrative expenses. *

----

*Table            of Contents*

|                                                             |   | **Three                  months ended June 30,**                  |   | **Six                  months ended June 30,** |   |
|------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                             |   | **2006**                                                          |   | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                             |   | **(In                  thousands, except per unit measurements)** |   |
|                                                             |   |                                                              |   |
| General                  and administrative costs                |   | $                                                                 | 3,882  |                                           |   | 55 | % |   | $ | 2,501 |   | $ | 7,176 |   |   | 49 | % |   | $ | 4,804 |   |
| Capitalized                  general and administrative costs    |   |                                                              | (1,700 | )                                              |   | 42 | % |   |   | (1,197 | ) |   | (3,225 | ) |   | 34 | % |   |   | (2,402 | ) |
| General                  and administrative expenses             |   | $                                                                 | 2,182  |                                           |   | 67 | % |   | $ | 1,304 |   | $ | 3,951 |   |   | 64 | % |   | $ | 2,402 |   |
|                                                             |   |                                                              |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General                  and administrative expense ($ per Mcfe) |   | $                                                                 | 0.66   |                                           |   | 35 | % |   | $ | 0.49 |   | $ | 0.61 |   |   | 36 | % |   | $ | 0.45 |   |

*Depletion        of oil and natural gas properties. *

|                                                                      |   | **Three                  months ended June 30,**                  |   | **Six                  months ended June 30,** |   |
|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                      |   | **2006**                                                          |   | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                                      |   | **(In                  thousands, except per unit measurements)** |   |
|                                                                      |   |                                                              |   |
| Depletion                  of oil and natural gas properties              |   | $                                                                 | 11,106 |                                           |   | 54 | % |   | $ | 7,206 |   | $ | 21,362 |   |   | 56 | % |   | $ | 13,659 |   |
| Depletion                  of oil and natural gas properties ($ per Mcfe) |   | $                                                                 | 3.38   |                                           |   | 25 | % |   | $ | 2.71 |   | $ | 3.28 |   |   | 29 | % |   | $ | 2.55 |   |

*Net        interest expense. *

|                                                                   |   | **Three                  months ended June 30,** |    | **Six                  months ended June 30,** |   |
|------------------------------------------------------------------------|--------|--------------------------------------------------|---------|------------------------------------------------|--------|
|                                                                   |   | **2006**                                         |    | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                                   |   | **(In                  thousands)**              |    |
|                                                                   |   |                                             |    |
| Interest                  on Senior Notes                              |   | $                                                | 2,339   |                                           |   | NM |   |   | $ | — |   | $ | 2,339 |   |   | NM |   |   | $ | — |   |
| Interest                  on senior credit facility                    |   |                                             | 142     |                                           |   | (74 | %) |   |   | 547 |   |   | 743 |   |   | (15 | %) |   |   | 870 |   |
| Interest                  on senior subordinated notes (a)             |   |                                             | 121     |                                           |   | (68 | %) |   |   | 381 |   |   | 699 |   |   | (8 | %) |   |   | 759 |   |
| Commitment                  fees                                       |   |                                             | 35      |                                           |   | 94 | % |   |   | 18 |   |   | 83 |   |   | 48 | % |   |   | 56 |   |
| Dividend                  on mandatorily redeemable preferred stock    |   |                                             | 151     |                                           |   | (22 | %) |   |   | 193 |   |   | 300 |   |   | (21 | %) |   |   | 381 |   |
| Amortization                  of deferred loan and debt issuance cost  |   |                                             | 1,149   |                                           |   | 805 | % |   |   | 127 |   |   | 1,268 |   |   | 401 | % |   |   | 253 |   |
| Other                  general interest expense                        |   |                                             | 2       |                                           |   | (33 | %) |   |   | 3 |   |   | 5 |   |   | (17 | %) |   |   | 6 |   |
| Capitalized                  interest expense                          |   |                                             | (798    | )                                              |   | 59 | % |   |   | (503 | ) |   | (1,207 | ) |   | 48 | % |   |   | (818 | ) |
| Net                  interest expense                                  |   | $                                                | 3,141   |                                           |   | 310 | % |   | $ | 766 |   | $ | 4,230 |   |   | 181 | % |   | $ | 1,507 |   |
|                                                                   |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average debt outstanding                     |   | $                                                | 124,918 |                                           |   | 67 | % |   | $ | 74,899 |   | $ | 103,376 |   |   | 51 | % |   | $ | 68,239 |   |
| Average                  interest rate on outstanding indebtedness (b) |   |                                             | 9.1     | %                                              |   |   |   |   |   | 6.1 | % |   | 8.1 | % |   |   |   |   |   | 6.1 | % |

----

*Table            of Contents*

|   | 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 June 30,** |   | **Six                  months ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                                                                  |   | **2006**                                         |   | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                                                                                                                                  |   |                                             |   |                                           |   |
| **Derivative:**                                                                                                                                                       |   | **(In                  thousands)**              |   |
| Non-cash                  gain (loss) due to change in fair market value of derivative contracts                  not                  designated as cash flow hedges |   | $                                                | (267   | )                                              |   | 324 | % |   | $ | (63 | ) | $ | (387 | ) |   | 630 | % |   | $ | (53 | ) |
| Non-cash                  gain (loss) for ineffective portion of cash flow hedges                                                                                     |   |                                             | 42     |                                           |   | (79 | %) |   |   | 203 |   |   | 877 |   |   | NM |   |   |   | (413 | ) |
| Cash                  settlement                                                                                                                                      |   |                                             | (91    | )                                              |   | NM |   |   |   | — |   |   | (199 | ) |   | NM |   |   |   | — |   |
| Gain                  (loss) on derivatives, net                                                                                                                      |   | $                                                | (316   | )                                              |   | NM |   |   | $ | 140 |   | $ | 291 |   |   | NM |   |   | $ | (466 | ) |
|                                                                                                                                                                  |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other:**                                                                                                                                                            |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-cash                  gain (loss)                                                                                                                                 |   | $                                                | (22    | )                                              |   | (57 | %) |   | $ | (51 | ) | $ | (64 | ) |   | 8 | % |   | $ | (59 | ) |
| Cash                  income (expense)                                                                                                                                |   |                                             | 960    |                                           |   | 991 | % |   |   | 88 |   |   | 1,074 |   |   | 528 | % |   |   | 171 |   |
| Miscellaneous                  other income (loss)                                                                                                                    |   | $                                                | 938    |                                           |   | 2435 | % |   | $ | 37 |   | $ | 1,010 |   |   | 802 | % |   | $ | 112 |   |
|                                                                                                                                                                  |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  other income                                                                                                                                   |   | $                                                | 622    |                                           |   | 251 | % |   | $ | 177 |   | $ | 1,301 |   |   | NM |   |   | $ | (354 | ) |

----

*Table            of Contents*

|                                                           |   | **Three                  months ended June 30,** |    | **Six                  months ended June 30,** |   |
|----------------------------------------------------------------|--------|--------------------------------------------------|---------|------------------------------------------------|--------|
|                                                           |   | **2006**                                         |    | **%                  Change**                  |   | **2005** |   | **2006** |   | **%                  Change** |   | **2005** |   |
|                                                           |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |
| ***Written                  puts***                            |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |
| ***Oil***                                                      |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                  (Bbl)                                 |   |                                             | 7,500   |                                           |   | 25 | % |   |   | 6,000 |   |   | 25,500 |   |   | 325 | % |   |   | 6,000 |   |
| Average                  price ($ per Bbl)                     |   | $                                                | 48.00   |                                           |   | 26 | % |   | $ | 38.00 |   | $ | 40.94 |   |   | 8 | % |   |   | 38.00 |   |
| Gain                  /(loss) upon settlement ($ in thousands) |   | $                                                | — |                                           |   | — |   |   | $ | — |   | $ | — |   |   | — |   |   | $ | — |   |
|                                                           |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Natural                  gas***                             |   |                                             |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Volumes                  (MMbtu)                               |   |                                             | 390,000 |                                           |   | NM |   |   |   | — |   |   | 990,000 |   |   | 371 | % |   |   | 210,000 |   |
| Average                  price ($ per MMbtu)                   |   | $                                                | 6.65    |                                           |   | NM |   |   | $ | — |   | $ | 6.89 |   |   | 25 | % |   | $ | 5.50 |   |
| Gain                  /(loss) upon settlement ($ in thousands) |   | $                                                | (91     | )                                              |   | NM |   |   | $ | — |   | $ | (199 | ) |   | NM |   |   | $ | — |   |

*Income        taxes*

|                                                         |   | **Six                  months ended**** ****June                  30, 2006** |   | **Tax                  Rate** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                         |   |                                                                              |   |                          |   |
| ***Reconciliation                  to effective tax rate:*** |   |                                                                              |   |                          |   |
| Tax                  at the statutory rate                   |   | $                                                                                 | 5,749  |                          |   | 35.00 | % |
| Add                  the effect of:                          |   |                                                                              |   |                          |   |   |   |
| Non-deductible                  expenses                     |   |                                                                              | 2      |                          |   | 0.02 | % |
| Preferred                  stock dividends                   |   |                                                                              | 105    |                          |   | 0.64 | % |
| Incentive                  stock options not exercised       |   |                                                                              | 124    |                          |   | 0.76 | % |
| Deferred Margin                  Tax (after-tax)        |   |                                                                              | 848    |                          |   | 5.16 | % |
| Other                                                        |   |                                                                              | 56     |                          |   | 0.34 | % |
| Total                                                        |   | $                                                                                 | 6,884  |                          |   | 41.92 | % |

----

*Table            of Contents*

**Capital        Expenditures**

|   | · | cost                  of acquiring and maintaining our lease acreage position and our                  seismic                  resources; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | cost                  of drilling and completing new oil and natural gas                  wells; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | cost                  of installing new production                  infrastructure; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | cost                  of maintaining, repairing and enhancing existing oil and natural                  gas                  wells; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | · | cost                  related to plugging and abandoning unproductive or uneconomic wells;                  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | indirect                  costs related to our exploration activities, including payroll                  and other                  expenses attributable our exploration professional                  staff. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | **2006                  Budget**    |    | **Amount                  Spent Through****06/30/2006** |   | **Amount****Remaining                  (1)** |   |
|-----------------------------------------------|--------|-------------------------------------|---------|---------------------------------------------------------|--------|----------------------------------------------|--------|
|                                          |   | **(In                  thousands)** |    |
| Drilling                                      |   | $                                   | 120,467 |                                                    | $      | 67,617                                       |   | $ | 52,850 |   |
| Net                  land and seismic         |   |                                | 28,597  |                                                    |   | 11,554                                       |   |   | 17,043 |   |
| Capitalized                  costs (2)        |   |                                | 7,259   |                                                    |   | 4,781                                        |   |   | 2,478 |   |
| Asset                  Retirement Obligations |   |                                | 559     |                                                    |   | 358                                          |   |   | 201 |   |
| Total                  (3)               |   | $                                   | 156,882 |                                                    | $      | 84,310                                       |   | $ | 72,572 |   |

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

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

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

**Liquidity        and Capital Resources**

**Sources        of Capital**

----

*Table            of Contents*

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

|   | · | rank                  equally in right of payment with all our existing and future senior                  indebtedness; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | rank                  senior to all of our future subordinated indebtedness;                  and |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | · | be                  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***

----

*Table            of Contents*

***Senior        Subordinated Notes***

***Mandatorily        Redeemable Preferred Stock***

***Access        to Capital Markets***

***Off        Balance Sheet Arrangements***

----

*Table            of Contents*

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

|                                                         |   | **Six                  months ended June 30,** |     |
|--------------------------------------------------------------|--------|------------------------------------------------|----------|
|                                                         |   | **2006**                                       |     | **%Change** |   | **2005** |   |
|                                                         |   | **(In                  thousands)**            |     |
|                                                         |   |                                           |     |
| Net                  income                                  |   | $                                              | 9,541    |   |   | 21 | % |   | $ | 7,858 |   |
| Non-cash                  items                              |   |                                           | 30,316   |   |   | 55 | % |   |   | 19,589 |   |
| Changes                  in working capital and other items  |   |                                           | 19,597   |   |   | 2499 | % |   |   | 754 |   |
| Cash                  flows provided by operating activities |   | $                                              | 59,454   |   |   | 111 | % |   |   | 28,201 |   |
| Cash                  flows used by investing activities     |   |                                           | (112,867 | ) |   | 99 | % |   |   | (56,813 | ) |
| Cash                  flows provided by financing activities |   |                                           | 57,486   |   |   | 75 | % |   |   | 32,756 |   |
| Net                  increase in cash and cash equivalents   |   | $                                              | 4,073    |   |   | (2 | %) |   | $ | 4,144 |   |

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

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

|                                                                          |   | **Six                  months ended June 30,** |    |
|-------------------------------------------------------------------------------|--------|------------------------------------------------|---------|
|                                                                          |   | **2006**                                       |    | **%Change** |   | **2005** |   |
|                                                                          |   | **(In                  thousands)**            |    |
| **Capital                  expenditures for oil and natural gas activities:** |   |                                           |    |   |   |   |   |   |
| Drilling                                                                      |   | $                                              | 67,617  |   |   | 49 | % |   | $ | 45,238 |   |
| Land                  and seismic                                             |   |                                           | 11,554  |   |   | 13 | % |   |   | 10,246 |   |
| Capitalized                  cost                                             |   |                                           | 4,781   |   |   | 41 | % |   |   | 3,381 |   |
| Asset                  retirement obligation                                  |   |                                           | 358     |   |   | 124 | % |   |   | 160 |   |
| Total                                                                         |   | $                                              | 84,310  |   |   | 43 | % |   | $ | 59,025 |   |
|                                                                          |   |                                           |    |   |   |   |   |   |   |   |   |
| **Reconciling                  Items:**                                       |   |                                           |    |   |   |   |   |   |   |   |   |
| Change                  in accrued drilling costs                             |   | $                                              | (8,307  | ) |   | 370 | % |   | $ | (1,766 | ) |
| Change                  short-term investments                                |   |                                           | 37,600  |   |   | NM |   |   |   | — |   |
| Other                                                                         |   |                                           | (736    | ) |   | 65 | % |   |   | (446 | ) |
| Total                  reconciling items                                      |   |                                           | 28,556  |   |   | NM |   |   |   | (2,212 | ) |
|                                                                          |   |                                           |    |   |   |   |   |   |   |   |   |
| Net                  cash used in investing activities                        |   | $                                              | 112,867 |   |   | 99 | % |   | $ | 56,813 |   |

| · | Drilling                  capital expenditures increased by $22.4 million due to our increased                  level                  of exploratory and developmental drilling activities. Increased                  drilling                  expenditures were partially offset by an $8.3 million change in                  our                  drilling accrual. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

| · | Capitalized                  costs increased by $1.4 million associated with our increased levels                  of                  general and administrative expense, capitalized stock expense and                  capitalized interest expense during the                  period. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We                  invested $37.6 million of our Senior Notes proceeds 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 $120.8                  million. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our                  Senior Notes issuance was partially offset by $78 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    |   |                                                  | 48,600  |                              | $      | 238 |   |
|                                                   |   |                                                  |    |                              |   |   |   |
| ***2005                  common stock transactions:*** |   |                                                  |    |                              |   |   |   |
| Exercise                  of employee stock options    |   |                                                  | 125,500 |                              | $      | 434 |   |

**Other        Matters**

*Derivative        Instruments*

*Effects        of Inflation and Changes in Prices*

*Environmental        and Other Regulatory Matters*

----

*Table            of Contents*

*New        Accounting Pronouncements *

----

*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***

|                                    |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|-----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**  |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Costless                  Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 07/01/06                  - 07/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   |   | 17.00 |   |
| 07/01/06                  - 07/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 90,000  |   |   |   |   |   | 15.60 |   |
| 07/01/06                  - 09/30/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 21,000 |   | $ | 50.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 21,000 |   |   | 75.60 |   |
| 07/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   |   | 14.85 |   |
| 10/01/06                  - 12/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 27,000 |   | $ | 50.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 27,000 |   |   | 77.50 |   |
| 08/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 360,000 |   |   |   |   | $ | 8.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 360,000 |   |   |   |   |   | 16.65 |   |
| 08/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   | $ | 5.50 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   |   | 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 |   |

----

*Table            of Contents*

|                                              |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|---------------------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**            |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Costless                  Collars***           |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 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 |   |
| ***Three                  Way Costless Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |   |   |
| 07/01/06                  - 09/30/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 15,000 |   | $ | 63.00 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 15,000 |   |   | 75.65 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 |    |   |   | 15,000 |   |   | 48.00 |   |
| 07/01/06                  - 10/31/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 240,000 |   |   |   |   | $ | 7.50 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 240,000 |   |   |   |   |   | 9.15 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 | 240,000 |   |   |   |   |   | 6.25 |   |
| 07/01/06                  - 10/31/06              |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   | $ | 8.50 |   |
|                                              |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 280,000 |   |   |   |   |   | 9.96 |   |
|                                              |   |                         | Written                  put   |                                |   | Undesignated                                |   |                 | 280,000 |   |   |   |   |   | 7.00 |   |

|                                   |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period** |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Discount                  To****Nymex** |   |
| ***Basis                  Swaps***     |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| ***NGPL                  STX***        |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 600,000 |   |   |   |   | $ | 0.603 |   |
| ***HSC***                              |   |                         |                           |                                |   |                                        |   |                 |    |   |   |   |   |   |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 240,000 |   |   |   |   | $ | 0.510 |   |
| ***ANR                  OK***          |   |                         |                           |                                |   |                                        |   |                 |    |   |   |   |   |   |   |   |
| 08/01/06                  - 10/31/06   |   |                         | Purchased                  Put |                                |   | Undesignated                                |   |                 | 420,000 |   |   |   |   | $ | 1.110 |   |

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*Table            of Contents*

|                                    |   |                         |                           |                                |   | **Notional                  Amount**        |   |                 |    |
|-----------------------------------------|--------|------------------------------|--------------------------------|-------------------------------------|--------|---------------------------------------------|--------|----------------------|---------|
| **Settlement                  Period**  |   | **Derivative****Instrument** |                           | **Hedge                  Strategy** |   | **Natural                  Gas****(MMBTU)** |   | **Oil****(Barrels)** |    | **Nymex                  Reference****Price** |   |
| ***Costless                  Collars*** |   |                         |                           |                                |   |                                        |   |                 |    |   |   |
| 09/01/06                  - 10/31/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 17,000 |   | $ | 70.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 17,000 |   |   | 85.20 |   |
| 11/01/06                  - 11/30/06    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 4,000 |   | $ | 70.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 4,000 |   |   | 85.20 |   |
| 12/01/06                  - 02/28/07    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 |    |   |   | 7,500 |   | $ | 70.00 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 |    |   |   | 7,500 |   |   | 85.20 |   |
| 11/01/07                  - 03/31/08    |   |                         | Purchased                  put |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   | $ | 8.85 |   |
|                                    |   |                         | Written                  call  |                                |   | Cash                  flow                  |   |                 | 300,000 |   |   |   |   |   | 15.00 |   |

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

**Evaluation        of Disclosure Controls and Procedures**

**Changes        in Internal Control over Financial Reporting**

**PART        II - OTHER INFORMATION**

| **ITEM                  1.** | **LEGAL                  PROCEEDINGS** |
|------------------------------|----------------------------------------|

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

*%*
*** ***

***Holders        of outstanding notes who fail to properly tender them may be unable to resell        them.***

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*Table            of Contents*

| **ITEM                  2.** | **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** |
|------------------------------|------------------------------------------------------------------------------------------|

| (a) | We                  held our Annual Stockholders meeting on Thursday, June 1, 2006,                  in Austin,                  Texas at 10:00 a.m. local time. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Proxies                  were solicited by our Board of Directors pursuant to Regulation                  14A under                  the Securities Exchange Act of 1934. There were no solicitations                  in                  opposition to the Board of Directors’ nominees as listed in the proxy                  statement and all of such nominees were duly                  elected. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Out                  of the total 45,474,608 shares of our common stock outstanding                  and                  entitled to vote, 39,928,466 shares were present in person or by                  proxy,                  representing approximately 88%. The only matters voted on by our                  stockholders, as fully described in the definitive proxy materials                  for the                  annual meeting, are set forth below. The results were as                  follows: |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | To                  elect eight directors to serve until the Annual Meeting of Stockholders                  in                  2006. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------|

| **Nominee**                                       |   | **Number                  of shares voting for election as director** |       | **Number                  of shares voting against election as director** |   | **Number                  of shares withholding authority to vote for election as                  director** |   |
|---------------------------------------------------|--------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|
|                                              |   |                                                                  |       |                                                                      |   |                                                                                                          |   |
| Ben                  M. “Bud” Brigham |   |                                                                  | 29,922,190 |                                                                      |   | —                                                                                                       |   |   | 10,006,276 |   |
| David                  T. Brigham                 |   |                                                                  | 29,801,404 |                                                                      |   | —                                                                                                       |   |   | 10,127,062 |   |
| Harold                  D. Carter                 |   |                                                                  | 27,685,503 |                                                                      |   | —                                                                                                       |   |   | 12,242,963 |   |
| Stephen                  C. Hurley                |   |                                                                  | 38,986,035 |                                                                      |   | —                                                                                                       |   |   | 942,431 |   |
| Stephen                  P. Reynolds              |   |                                                                  | 38,162,107 |                                                                      |   | —                                                                                                       |   |   | 1,766,359 |   |
| Hobart                  A. Smith                  |   |                                                                  | 38,985,706 |                                                                      |   | —                                                                                                       |   |   | 942,760 |   |
| Steven                  A. Webster                |   |                                                                  | 29,297,365 |                                                                      |   | —                                                                                                       |   |   | 10,631,101 |   |
| R.                  Graham Whaling                |   |                                                                  | 38,985,930 |                                                                      |   | —                                                                                                       |   |   | 942,536 |   |

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*Table            of Contents*

|   | 2. | To                  approve the appointment of PricewaterhouseCoopers LLP for the year                  ending                  December 31, 2006. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

| For       |   |   | 39,547,818 |   |
|-----------|--------|--------|------------|--------|
| Against   |   |   | 367,248    |   |
| Abstained |   |   | 13,400     |   |

|   | 3. | To                  approve the amendment to our Certificate of Incorporation to increase                  the                  number of authorized shares of our common stock from 50,000,000                  to                  90,000,000. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For       |   |   | 37,380,671 |   |
|-----------|--------|--------|------------|--------|
| Against   |   |   | 2,468,743  |   |
| Abstained |   |   | 79,050     |   |

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

| **ITEM                6.** | **EXHIBITS** |
|----------------------------|--------------|

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

**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 |

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