<PAGE>   1
================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

             [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 1999

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

        For the transition period from ______________ to________________

                        Commission File Number 000-22433

                           BRIGHAM EXPLORATION COMPANY
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                         <C>                                      <C>
               DELAWARE                                 1311                               75-2692967
     (State of other jurisdiction           (Primary Standard Industrial                (I.R.S. Employer
   of incorporation or organization)         Classification Code Number)             Identification Number)
</TABLE>

                            6300 BRIDGE POINT PARKWAY
                               BLDG. 2, SUITE 500
                               AUSTIN, TEXAS 78730
                                 (512) 427-3300

 (Name, address, including zip code, and telephone number, including area code,
                  of Registrant's principal executive offices)


   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X].  No [ ].

As of July 31, 1999, 14,428,621 shares of Common Stock, $.01 per share, were
outstanding.

================================================================================


<PAGE>   2
                           BRIGHAM EXPLORATION COMPANY

                                      INDEX


<TABLE>
<CAPTION>
                                                                                           PAGE
PART I.   FINANCIAL INFORMATION:                                                          NUMBER
                                                                                          ------
<S>                                                                                       <C>
Item 1.   Unaudited Financial Statements

              Condensed Consolidated Financial Statements of Brigham Exploration Company
              Balance Sheets - December 31, 1998 and June 30, 1999 .....................    1
                  Statements of Operations - Three and six months ended
                    June 30, 1998 and 1999 .............................................    2
                  Statements of Cash Flows - Three and six months ended
                    June 30, 1998 and 1999 .............................................    3
                  Statement of Changes in Stockholders' Equity - Six months ended
                    June 30, 1999 ......................................................    4
                  Notes to Condensed Consolidated Financial Statements .................   5-6

              Condensed Financial Statements of Brigham Exploration Company Subsidiaries
                  Balance Sheets - June 30, 1999 .......................................    7
                  Balance Sheets - December 31, 1998 ...................................    8
                  Statements of Operations - Three months ended June 30, 1999 ..........    9
                  Statements of Operations - Three months ended June 30, 1998 ..........   10
                  Statements of Operations - Six months ended June 30, 1999 ............   11
                  Statements of Operations - Six months ended June 30, 1998 ............   12
                  Statements of Cash Flows - Six months ended June 30, 1999 ............   13
                  Statements of Cash Flows - Six months ended June 30, 1998 ............   14
                  Statements of Changes in Equity - Six months ended June 30, 1999 .....   15
                  Notes to Condensed Financial Statements ..............................  16-17

          As all Brigham Exploration Company subsidiaries fully and
          unconditionally guarantee the Senior Subordinated Secured Notes and
          the Company has no significant assets other than its investments in
          its subsidiaries, the consolidated financial statements are
          substantially the same as the financial statements of the subsidiary
          guarantors and separate financial statements have been omitted as they
          would not be meaningful to investors.

Item 2.   Management's Discussion and Analysis of Results of
              Operations and Financial Condition .......................................  18-27


PART II.  OTHER INFORMATION:

Item 2.   Change in Securities .........................................................   28

Item 4.   Submission of Matters to a Vote of Security Holders ..........................   28

Item 6.   Exhibits and Reports on Form 8-K .............................................   29
</TABLE>


<PAGE>   3


Part I.         FINANCIAL INFORMATION:

Item 1.         Financial Statements

                           BRIGHAM EXPLORATION COMPANY

                             CONDENSED CONSOLIDATED
                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            December 31,  June 30,
                                                                               1998         1999
                                                                            -----------   --------
                                                                                         (unaudited)
<S>                                                                         <C>          <C>
                                                ASSETS
Current assets:
     Cash and cash equivalents                                               $  2,569     $  2,752
     Accounts receivable                                                        7,938        3,059
     Prepaid expenses                                                             290          380
                                                                             --------     --------
         Total current assets                                                  10,797        6,191
                                                                             --------     --------

Natural gas and oil properties, at cost, net                                  134,317      105,324
Other property and equipment, at cost, net                                      2,014        1,888
Drilling advances paid                                                            230          352
Deferred loan fees                                                              3,146        3,296
Other noncurrent assets                                                            12          123
                                                                             --------     --------
                                                                             $150,516     $117,174
                                                                             ========     ========

                                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                        $ 19,883     $ 14,966
     Accrued drilling costs                                                     1,219           38
     Participant advances received                                                764          459
     Other current liabilities                                                  1,647        1,571
                                                                             --------     --------
         Total current liabilities                                             23,513       17,034
                                                                             --------     --------

Notes payable                                                                  59,000       48,250
Senior subordinated notes, net                                                 35,786       38,177
Other noncurrent liabilities                                                    7,536        2,510

Stockholders' equity:
     Preferred stock, $.01 par value, 10 million shares
         authorized, none issued and outstanding                                   --           --
     Common stock, $.01 par value, 30 million shares
         authorized, 13,306,206 and 14,309,071 issued and outstanding at          133          143
         December 31, 1998 and June 30, 1999, respectively
     Additional paid-in capital                                                58,838       62,817
     Unearned stock compensation                                                 (890)        (654)
     Accumulated deficit                                                      (33,400)     (51,103)
                                                                             --------     --------
         Total stockholders' equity                                            24,681       11,203
                                                                             --------     --------
                                                                             $150,516     $117,174
                                                                             ========     ========
</TABLE>

   Natural gas and oil properties are accounted for using the full cost method.

   See accompanying notes to the condensed consolidated financial statements.


                                       1
<PAGE>   4

                           BRIGHAM EXPLORATION COMPANY

                             CONDENSED CONSOLIDATED
                            STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months             Six Months
                                                                 Ended June 30,          Ended June 30,
                                                               -------------------    --------------------
                                                                1998        1999        1998        1999
                                                               -------    --------    --------    --------
<S>                                                            <C>        <C>         <C>         <C>
Revenues:
     Natural gas and oil sales                                 $ 3,987    $  3,555    $  7,130    $  6,746
     Workstation revenue                                           133          71         247         161
                                                               -------    --------    --------    --------
                                                                 4,120       3,626       7,377       6,907
                                                               -------    --------    --------    --------
Costs and expenses:
     Lease operating                                               564         619         978       1,154
     Production taxes                                              262         216         450         385
     General and administrative                                  1,139         891       2,293       1,809
     Depletion of natural gas and oil properties                 1,520       1,461       2,790       2,811
     Depreciation and amortization                                  92         139         175         266
     Amortization of stock compensation                            116          55         233         113
                                                               -------    --------    --------    --------
                                                                 3,693       3,381       6,919       6,538
                                                               -------    --------    --------    --------
         Operating income                                          427         245         458         369
                                                               -------    --------    --------    --------

Other income (expense):
     Interest income                                                40          70          77          94
     Interest expense                                           (1,410)     (3,154)     (2,432)     (5,971)
     Loss on sale of natural gas and oil properties                 --     (12,195)         --     (12,195)
                                                               -------     -------     -------     -------
                                                                (1,370)    (15,279)     (2,355)    (18,072)
                                                               -------     -------     -------     -------

Net loss before income taxes                                      (943)    (15,034)     (1,897)    (17,703)
Income tax benefit                                                 316          --         638          --
                                                               -------    --------    --------    --------
     Net loss                                                  $  (627)   $(15,034)   $ (1,259)   $(17,703)
                                                               =======    ========    ========    ========

Net loss per share:
     Basic / Diluted                                           $ (0.05)   $  (1.05)   $  (0.10)   $  (1.28)

Weighted average common shares outstanding:
     Basic / Diluted                                            12,254      14,309      12,254      13,816
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.



                                       2
<PAGE>   5


                           BRIGHAM EXPLORATION COMPANY

                             CONDENSED CONSOLIDATED
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                    Six Six         Six
                                                                                  Months Ended   Months Ended
                                                                                    June 30,      June 30,
                                                                                      1998          1999
                                                                                  -------------  ------------
<S>                                                                                 <C>           <C>
Cash flows from operating activities:
     Net loss                                                                       $ (1,259)     $(17,703)
     Adjustments to reconcile net loss to cash used
        by operating activities:
         Depletion of natural gas and oil properties                                   2,790         2,811
         Depreciation and amortization                                                   175           266
         Amortization of stock compensation                                              233           113
         Interest paid through issuance of senior subordinated note                       --         2,642
         Amortization of deferred loan fees                                              266           628
         Amortization of discount on senior subordinated notes                            --           228
         Loss on sale of natural gas and oil properties                                   --        12,195
         Changes in deferred income tax liability                                       (639)           --
         Changes in working capital and other items:
             (Increase) decrease in accounts receivable                               (3,025)        4,879
             (Increase) decrease in prepaid expenses                                      63           (90)
             Decrease in accounts payable                                             (4,055)       (2,001)
             Decrease in participant advances received                                   (47)         (305)
             Increase (decrease) in other current liabilities                          3,987           (74)
             Other noncurrent assets                                                    (119)         (111)
             Other noncurrent liabilities                                                (62)       (4,655)
                                                                                    --------      --------
             Net cash used by operating activities                                    (1,692)       (1,177)
                                                                                    --------      --------

Cash flows from investing activities:
     Additions to natural gas and oil properties                                     (30,044)      (13,771)
     Proceeds from sale of natural gas and oil properties                                 --        26,700
     Additions to other property and equipment                                          (315)          (89)
     Increase in drilling advances paid                                                 (525)         (122)
                                                                                    --------      --------
             Net cash (used) provided by investing activities                        (30,884)       12,718
                                                                                    --------      --------

Cash flows from financing activities:
     Increase in notes payable                                                        70,800         6,000
     Repayment of notes payable                                                      (34,800)      (16,750)
     Principal payments on capital lease obligations                                    (108)         (130)
     Deferred loan fees paid                                                          (1,911)         (478)
                                                                                    --------      --------
             Net cash (used) provided by financing activities                         33,981       (11,358)
                                                                                    --------      --------

Net increase in cash and cash equivalents                                              1,405           183

Cash and cash equivalents, beginning of period                                         1,701         2,569
                                                                                    --------      --------
Cash and cash equivalents, end of period                                            $  3,106      $  2,752
                                                                                    ========      ========

Supplemental disclosure of cash flow information:
     Cash paid during the period for interest                                       $  1,585      $  2,457
                                                                                    ========      ========

Supplemental disclosure of noncash investing and financing activities:
     Capital lease asset additions                                                  $     59      $     51
                                                                                    ========      ========
     Decrease in accounts payable and other noncurrent liabilities in exchange
         for issuance of common stock                                               $     --      $  3,510
                                                                                    ========      ========
     Increase in accounts payable for deferred loan fees to be
         paid in future periods                                                     $     --      $    300
                                                                                    ========      ========
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.


                                       3
<PAGE>   6

                           BRIGHAM EXPLORATION COMPANY

                             CONDENSED CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)
                                   (unaudited)


<TABLE>
<CAPTION>
                                         Common Stock           Additional     Unearned
                                  -------------------------      Paid-in         Stock         Accum.
                                    Shares        Amounts        Capital      Compensation     Deficit      Total
                                  ----------     ----------     ----------    ------------    --------     ----------
<S>                               <C>            <C>            <C>            <C>            <C>          <C>
Balance, December 31, 1998        13,306,206     $      133     $   58,838     $    (890)     $(33,400)    $   24,681

     Net loss for the period
         ended June 30, 1999              --             --             --            --       (17,703)       (17,703)
     Issuance of common stock      1,002,865             10          3,500            --            --          3,510
     Revision in terms
         of warrants                      --             --            479            --            --            479
     Amortization of unearned
         stock compensation               --             --             --           236            --            236
                                  ----------     ----------     ----------     ---------      --------     ----------
Balance, June 30, 1999            14,309,071     $      143     $   62,817     $    (654)     $(51,103)    $   11,203
                                  ==========     ==========     ==========     ==========     ========     ==========
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.


                                       4
<PAGE>   7

                           BRIGHAM EXPLORATION COMPANY

                             NOTES TO THE CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


1.       ORGANIZATION AND NATURE OF OPERATIONS

         Brigham Exploration Company (the "Company") is a Delaware corporation
         formed on February 25, 1997 for the purpose of exchanging its common
         stock for the common stock of Brigham, Inc. and the partnership
         interests of Brigham Oil & Gas, L.P. (the "Partnership"). Brigham, Inc.
         is a Nevada corporation whose only asset is its ownership interest in
         the Partnership. The Partnership was formed in May 1992 to explore and
         develop onshore domestic natural gas and oil properties using 3-D
         seismic imaging and other advanced technologies. Since its inception,
         the Partnership has focused its exploration and development of natural
         gas and oil properties primarily in West Texas, the Anadarko Basin and
         the onshore Gulf Coast.

         Pursuant to an exchange agreement dated February 26, 1997 (the
         "Exchange Agreement") and upon the initial filing on February 27, 1997
         of a registration statement with the Securities and Exchange Commission
         (the "SEC") for the public offering of common stock (the "Offering"),
         the shareholders of Brigham, Inc. transferred all of the outstanding
         stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares
         of common stock of the Company. Pursuant to the Exchange Agreement, the
         Partnership's other general partner and the limited partners also
         transferred all of their partnership interests to the Company in
         exchange for 3,314,286 shares of common stock of the Company.
         Furthermore, the holders of the Partnership's subordinated convertible
         notes transferred these notes to the Company in exchange for 1,754,464
         shares of common stock. These transactions are referred to as the
         "Exchange." In completing the Exchange, the Company issued 8,928,571
         shares of common stock to the stockholders of Brigham, Inc., the
         partners of the Partnership and the holder of the Partnership's
         subordinated notes payable. As a result of the Exchange, the Company
         now owns all the partnership interests in the Partnership. In May 1997,
         the Company sold 3,325,000 shares of its common stock in the Offering
         at a price of $8.00 per share.

2.       BASIS OF PRESENTATION

         The accompanying financial statements include the accounts of the
         Company and its wholly-owned subsidiaries, and its proportionate share
         of assets, liabilities and income and expenses of the limited
         partnerships in which the Company, or any of its subsidiaries, has a
         participating interest. All significant intercompany accounts and
         transactions have been eliminated.

         The accompanying condensed consolidated financial statements are
         unaudited, and in the opinion of management, reflect all adjustments
         that are necessary for a fair presentation of the financial position
         and results of operations for the periods presented. All such
         adjustments are of a normal and recurring nature. The results of
         operations for the periods presented are not necessarily indicative of
         the results to be expected for the entire year. The unaudited condensed
         consolidated financial statements should be read in conjunction with
         the Company's 1998 Annual Report on Form 10-K pursuant to Section 13 or
         15(d) of the Securities Exchange Act of 1934.


                                       5
<PAGE>   8


                           BRIGHAM EXPLORATION COMPANY

                             NOTES TO THE CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


3.       SALE OF NATURAL GAS AND OIL PROPERTIES

         In February 1999, the Company entered into a project financing
         arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund
         the continued exploration of five projects covered by approximately 200
         square miles of 3-D seismic data acquired in 1998. In this transaction,
         the Company conveyed 100% of its working interest in land and seismic
         in these project areas to a newly formed limited liability company (the
         "Duke LLC") for a total consideration of $10 million. The Company is
         the managing member of the Duke LLC with a 1% interest, and Duke is the
         sole remaining member with a 99% interest. Pursuant to the terms of the
         Duke LLC agreement, the Company pays 100% of the drilling and
         completion costs for all wells drilled by the Duke LLC in exchange for
         a 70% working interest in the wells and their associated drilling and
         spacing units and allocable seismic data. Upon 100% project payout, the
         Company has certain rights to back-in for up to a 94% effective working
         interest in the Duke LLC properties.

         In June 1999, the Company sold all of its interests in certain
         producing and non-producing natural gas and oil properties for a total
         sales price of $17.1 million. Due to the magnitude of the reserve
         volumes that were attributable to these properties relative to the
         Company's remaining net reserve volumes, the Company recognized as a
         loss the difference between the sales price received, after adjustment
         for transaction costs, and the $28.9 million basis allocated to the
         divested properties in accordance with the full-cost method of
         accounting for oil and gas properties.

4.       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

         In June 1998, the Financial Accounting Standards Board (the "FASB")
         issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities." SFAS No. 133 requires that all derivative instruments be
         recorded on the balance sheet at fair value. Changes in the fair value
         of derivatives are recorded each period in current earnings or other
         comprehensive income, depending on whether a derivative is designated
         as part of a hedge transaction and, if it is, depending on the type of
         hedge transaction. For fair value hedge transactions in which the
         Company is hedging changes in an asset's, liability's, or firm
         commitment's fair value, changes in the fair value of the derivative
         instrument will generally be offset in the income statement by changes
         in the hedged item's fair value. For cash flow hedge transactions in
         which the Company is hedging the variability of cash flows related to a
         variable-rate asset, liability, or a forecasted transaction, changes in
         the fair value of the derivative instrument will be reported in other
         comprehensive income. The gains and losses on the derivative instrument
         that are reported in other comprehensive income will be reclassified as
         earnings in the periods in which earnings are impacted by the
         variability of the cash flows of the hedged item. The ineffective
         portion of all hedges will be recognized in current period earnings.
         The Company must adopt SFAS No. 133, as amended,  effective January 1,
         2001. The Company is in the process of analyzing the potential impact
         of this standard on its financial statement presentations.



                                       6
<PAGE>   9

                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                            CONDENSED BALANCE SHEETS
                               AS OF JUNE 30, 1999
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       BRIGHAM                      BRIGHAM       BRIGHAM
                                                                        OIL &        BRIGHAM,      HOLDINGS      HOLDINGS
                                                                      GAS, L.P.        INC.         I, LLC        II, LLC
<S>                                                                   <C>           <C>            <C>           <C>
                                                   ASSETS
Current assets:
     Cash and cash equivalents                                        $   2,733     $   2,747      $       5     $       6
     Accounts receivable                                                  3,059         3,059             --            --
     Prepaid expenses                                                       380           380             --            --
                                                                      ---------     ---------      ---------     ---------
         Total current assets                                             6,172         6,186              5             6
                                                                      ---------     ---------      ---------     ---------

Natural gas and oil properties, at cost, net                            105,324       105,324             --            --
Other property and equipment, at cost, net                                1,888         1,888             --            --
Investment in subsidiaries
     and intercompany advances                                               29            21          2,277        45,386
Drilling advances paid                                                      352           352             --            --
Deferred loan fees                                                        1,736         1,736             --            --
Other noncurrent assets                                                     123           123             --            --
                                                                      ---------     ---------      ---------     ---------
                                                                      $ 115,624     $ 115,630      $   2,282     $  45,392
                                                                      =========     =========      =========     =========

                                           LIABILITIES AND EQUITY
Current liabilities:
     Accounts payable                                                 $  14,966     $  14,966      $      --     $      --
     Accrued drilling costs                                                  38            38             --            --
     Participant advances received                                          459           459             --            --
     Other current liabilities                                            1,536         1,536             --            --
                                                                      ---------     ---------      ---------     ---------
         Total current liabilities                                       16,999        16,999             --            --
                                                                      ---------     ---------      ---------     ---------

Notes payable                                                            48,250        48,250             --            --
Other noncurrent liabilities                                              2,510         2,510             --            --
Intercompany accounts payable                                             1,867         1,888             --         1,742
Intercompany notes payable                                               42,642        42,642             --        42,642

Minority interest                                                            --         2,299             --            --

Equity
     Partners' capital                                                    3,356            --          2,282         1,008
     Common stock, $1.00 par value, 1,000 shares
         authorized, issued and outstanding                                  --             1             --            --
     Additional paid-in capital                                              --        17,215             --            --
     Accumulated deficit                                                     --       (16,174)            --            --
                                                                      ---------     ---------      ---------     ---------
         Total equity                                                     3,356         1,042          2,282         1,008
                                                                      ---------     ---------      ---------     ---------
                                                                      $ 115,624     $ 115,630      $   2,282     $  45,392
                                                                      =========     =========      =========     =========
</TABLE>


  Natural gas and oil properties are accounted for using the full cost method.
         See accompanying notes to the condensed financial statements.


                                       7
<PAGE>   10

                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                            CONDENSED BALANCE SHEETS
                             AS OF DECEMBER 31, 1998
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                       BRIGHAM                      BRIGHAM       BRIGHAM
                                                                        OIL &        BRIGHAM,       HOLDINGS      HOLDINGS
                                                                      GAS, L.P.       INC.           I, LLC       II, LLC
<S>                                                                   <C>           <C>            <C>           <C>
                                                   ASSETS
Current assets:
     Cash and cash equivalents                                        $   2,549     $   2,563      $       5     $       6
     Accounts receivable                                                  7,938         7,938             --            --
     Prepaid expenses                                                       290           290             --            --
                                                                      ---------     ---------      ---------     ---------
         Total current assets                                            10,777        10,791              5             6
                                                                      ---------     ---------      ---------     ---------

Natural gas and oil properties, at cost, net                            134,317       134,317             --            --
Other property and equipment, at cost, net                                2,014         2,014             --            --
Investment in subsidiaries
     and intercompany advances                                              115            16         11,714        46,913
Drilling advances paid                                                      231           231             --            --
Deferred loan fees                                                        1,397         1,397             --            --
Other noncurrent assets                                                      12            12             --            --
                                                                      ---------     ---------      ---------     ---------
                                                                      $ 148,863     $ 148,778      $  11,719     $  46,919
                                                                      =========     =========      =========     =========

                                           LIABILITIES AND EQUITY
Current liabilities:
     Accounts payable                                                 $  19,883     $  19,883      $      --     $      --
     Accrued drilling costs                                               1,219         1,219             --            --
     Participant advances received                                          764           764             --            --
     Other current liabilities                                            1,647         1,647             --            --
                                                                      ---------     ---------      ---------     ---------
         Total current liabilities                                       23,513        23,513             --            --
                                                                      ---------     ---------      ---------     ---------

Notes payable                                                            59,000        59,000             --            --
Other noncurrent liabilities                                              7,536         7,536             --            --
Intercompany accounts payable                                             1,690         1,616             --         1,707
Intercompany notes payable                                               40,000        40,000             --        40,000

Minority interest                                                            --        11,730             --            --

Equity
     Partners' capital                                                   17,124            --         11,719         5,212
     Common stock, $1.00 par value, 1,000 shares
         authorized, issued and outstanding                                  --             1             --            --
     Additional paid-in capital                                              --        16,109             --            --
     Accumulated deficit                                                     --       (10,727)            --            --
                                                                      ---------     ---------      ---------     ---------
         Total equity                                                    17,124         5,383         11,719         5,212
                                                                      ---------     ---------      ---------     ---------
                                                                      $ 148,863     $ 148,778      $  11,719     $  46,919
                                                                      =========     =========      =========     =========
</TABLE>

  Natural gas and oil properties are accounted for using the full cost method.

          See accompanying notes to the condensed financial statements.


                                       8
<PAGE>   11


                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                       CONDENSED STATEMENTS OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 1999
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         BRIGHAM                    BRIGHAM       BRIGHAM
                                                          OIL &       BRIGHAM,      HOLDINGS      HOLDINGS
                                                        GAS, L.P.       INC.         I, LLC       II, LLC
<S>                                                     <C>           <C>           <C>           <C>
Revenues:
     Natural gas and oil sales                          $  3,555      $  3,555      $     --      $     --
     Workstation revenue                                      71            71            --            --
                                                        --------      --------      --------      --------
                                                           3,626         3,626            --            --
                                                        --------      --------      --------      --------
Costs and expenses:
     Lease operating                                         619           619            --            --
     Production taxes                                        216           216            --            --
     General and administrative                              881           886             5             5
     Depletion of natural gas and oil properties           1,461         1,461            --            --
     Depreciation and amortization                           139           139            --            --
     Amortization of stock compensation                       55            55            --            --
                                                        --------      --------      --------      --------
                                                           3,371         3,376             5             5
                                                        --------      --------      --------      --------
         Operating income (loss)                             255           250            (5)           (5)
                                                        --------      --------      --------      --------

Other income (expense):
     Interest income                                          70            70            --            --
     Interest expense                                     (1,563)       (1,563)           --            --
     Interest expense - intercompany                      (1,361)       (1,361)           --        (1,361)
     Loss on sale of natural gas and oil properties           --       (12,195)           --            --
                                                        --------      --------      --------      --------
                                                          (2,854)      (15,049)           --        (1,361)
                                                        --------      --------      --------      --------

Minority interest in net loss                                 --       (10,135)           --            --

                                                        --------      --------      --------      --------
Net loss before income taxes                              (2,599)       (4,664)           --        (1,366)

Equity in net loss of investee                                --            --       (10,135)       (3,151)
                                                        --------      --------      --------      --------
     Net loss                                           $ (2,599)     $ (4,664)     $(10,135)     $ (4,517)
                                                        ========      ========      ========      ========
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                       9
<PAGE>   12


                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                       CONDENSED STATEMENTS OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 1998
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                     BRIGHAM                   BRIGHAM      BRIGHAM
                                                      OIL &       BRIGHAM,     HOLDINGS     HOLDINGS
                                                    GAS, L.P.       INC.       I, LLC       II, LLC
<S>                                                 <C>          <C>          <C>          <C>
Revenues:
     Natural gas and oil sales                       $ 3,987      $ 3,987      $    --      $    --
     Workstation revenue                                 133          133           --           --
                                                     -------      -------      -------      -------
                                                       4,120        4,120           --           --
                                                     -------      -------      -------      -------
Costs and expenses:
     Lease operating                                     564          564           --           --
     Production taxes                                    262          262           --           --
     General and administrative                        1,128        1,134            6            6
     Depletion of natural gas and oil properties       1,520        1,520           --           --
     Depreciation and amortization                        92           92           --           --
     Amortization of stock compensation                  116          116           --           --
                                                     -------      -------      -------      -------
                                                       3,682        3,688            6            6
                                                     -------      -------      -------      -------
         Operating income (loss)                         438          432           (6)          (6)
                                                     -------      -------      -------      -------

Other income (expense):
     Interest income                                      40           40           --           --
     Interest expense                                 (1,410)      (1,410)          --           --
                                                     -------      -------      -------      -------
                                                      (1,370)      (1,370)          --           --
                                                     -------      -------      -------      -------

Minority interest in net loss                             --         (639)          --           --
                                                     -------      -------      -------      -------
Net loss before income taxes                            (932)        (299)          (6)          (6)

Income tax benefit                                        --           98           --           --
Equity in net loss of investee                            --           --         (639)        (284)
                                                     -------      -------      -------      -------
     Net loss                                        $  (932)     $  (201)     $  (645)     $  (290)
                                                     =======      =======      =======      =======
</TABLE>


          See accompanying notes to the condensed financial statements.


                                       10
<PAGE>   13


                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                       CONDENSED STATEMENTS OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         BRIGHAM                    BRIGHAM       BRIGHAM
                                                          OIL &       BRIGHAM,      HOLDINGS      HOLDINGS
                                                        GAS, L.P.       INC.         I, LLC       II, LLC
<S>                                                     <C>           <C>           <C>           <C>
Revenues:
     Natural gas and oil sales                          $  6,746      $  6,746      $     --      $     --
     Workstation revenue                                     161           161            --            --
                                                        --------      --------      --------      --------
                                                           6,907         6,907            --            --
                                                        --------      --------      --------      --------
Costs and expenses:
     Lease operating                                       1,154         1,154            --            --
     Production taxes                                        385           385            --            --
     General and administrative                            1,799         1,804             5             5
     Depletion of natural gas and oil properties           2,811         2,811            --            --
     Depreciation and amortization                           266           266            --            --
     Amortization of stock compensation                      113           113            --            --
                                                        --------      --------      --------      --------
                                                           6,528         6,533             5             5
                                                        --------      --------      --------      --------
         Operating income (loss)                             379           374            (5)           (5)
                                                        --------      --------      --------      --------

Other income (expense):
     Interest income                                          94            94            --            --
     Interest expense                                     (2,878)       (2,878)           --            --
     Interest expense - intercompany                      (2,678)       (2,678)           --        (2,678)
     Loss on sale of natural gas and oil properties      (12,195)      (12,195)           --            --
                                                        --------      --------      --------      --------
                                                         (17,657)      (17,657)           --        (2,678)
                                                        --------      --------      --------      --------

Minority interest in net loss                                 --       (11,836)           --            --

                                                        --------      --------      --------      --------
Net loss before income taxes                             (17,278)       (5,447)           (5)       (2,683)

Equity in net loss of investee                                --            --       (11,836)       (2,592)
                                                        --------      --------      --------      --------
     Net loss                                           $(17,278)     $ (5,447)     $(11,841)     $ (5,275)
                                                        ========      ========      ========      ========
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.


                                       11
<PAGE>   14


                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                       CONDENSED STATEMENTS OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                    BRIGHAM                    BRIGHAM      BRIGHAM
                                                     OIL &       BRIGHAM,      HOLDINGS     HOLDINGS
                                                    AS, L.P.       INC.         I, LLC      II, LLC
<S>                                                 <C>         <C>           <C>          <C>
Revenues:
     Natural gas and oil sales                       $ 7,130      $ 7,130      $    --      $    --
     Workstation revenue                                 247          247           --           --
                                                     -------      -------      -------      -------
                                                       7,377        7,377           --           --
                                                     -------      -------      -------      -------
Costs and expenses:
     Lease operating                                     978          978           --           --
     Production taxes                                    450          450           --           --
     General and administrative                        2,282        2,288            6            6
     Depletion of natural gas and oil properties       2,790        2,790           --           --
     Depreciation and amortization                       175          175           --           --
     Amortization of stock compensation                  233          233           --           --
                                                     -------      -------      -------      -------
                                                       6,908        6,914            6            6
                                                     -------      -------      -------      -------
         Operating income (loss)                         469          463           (6)          (6)
                                                     -------      -------      -------      -------

Other income (expense):
     Interest income                                      77           77           --           --
     Interest expense                                 (2,432)      (2,432)          --           --
                                                     -------      -------      -------      -------
                                                      (2,355)      (2,355)          --           --
                                                     -------      -------      -------      -------

Minority interest in net loss                             --       (1,292)          --           --
                                                     -------      -------      -------      -------
Net loss before income taxes                          (1,886)        (600)          (6)          (6)

Income tax benefit                                        --          192           --           --
Equity in net loss of investee                            --           --       (1,292)        (575)
                                                     -------      -------      -------      -------
     Net loss                                        $(1,886)     $  (408)     $(1,298)     $  (581)
                                                     =======      =======      =======      =======
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.


                                       12
<PAGE>   15

                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                       CONDENSED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           BRIGHAM                     BRIGHAM       BRIGHAM
                                                                            OIL &        BRIGHAM,      HOLDINGS      HOLDINGS
                                                                           GAS, L.P.       INC.         I, LLC       II, LLC
<S>                                                                        <C>           <C>           <C>           <C>
Cash flows from operating activities:
     Net loss                                                              $(17,278)     $ (5,447)     $(11,841)     $ (5,275)
     Adjustments to reconcile net loss to cash
      provided by operating activities:
         Depletion of natural gas and oil properties                          2,811         2,811            --            --
         Depreciation and amortization                                          266           266            --            --
         Amortization of stock compensation                                     113           113            --            --
         Amortization of deferred loan fees and debt issuance costs             440           440            --            --
         Loss on sale of natural gas and oil properties                      12,195        12,195            --            --
         Minority interest in net loss                                           --       (11,836)           --            --
         Equity in net loss of investee                                          --            --        11,836         2,592
         Changes in working capital and other items:
             Decrease in accounts receivable                                  4,879         4,879            --            --
             Increase in prepaid expenses                                       (90)          (90)           --            --
             Decrease in accounts payable                                    (2,001)       (2,001)           --            --
             Decrease in participant advances received                         (305)         (305)           --            --
             Decrease in other current liabilities                             (111)         (111)           --            --
             Increase in intercompany accounts payable                           31           127            --            35
             Other noncurrent assets                                           (109)         (109)           --            --
             Other noncurrent liabilities                                    (4,655)       (4,655)           --            --
                                                                           --------      --------      --------      --------
                                                                             (3,814)       (3,723)           (5)       (2,648)
                                                                           --------      --------      --------      --------
Cash flows from investing activities:
     Additions to natural gas and oil properties                            (13,771)      (13,771)           --            --
     Proceeds from sale of natural gas and oil properties                    26,700        26,700            --            --
     Additions to other property and equipment                                  (89)          (89)           --            --
     Change in investment in subsidiaries and intercompany advances              (4)          (95)            5             6
     Change in drilling advances paid                                          (122)         (122)           --            --
                                                                           --------      --------      --------      --------
                                                                             12,714        12,623             5             6
                                                                           --------      --------      --------      --------
Cash flows from financing activities:
     Increase in notes payable                                                6,000         6,000            --            --
     Repayment of notes payable                                             (16,750)      (16,750)           --            --
     Increase in intercompany notes payable                                   2,642         2,642            --         2,642
     Principal payments on capital lease obligations                           (130)         (130)           --            --
     Deferred loan fees paid                                                   (478)         (478)           --            --
                                                                           --------      --------      --------      --------
                                                                             (8,716)       (8,716)           --         2,642
                                                                           --------      --------      --------      --------

Net increase in cash and cash equivalents                                       184           184            --            --

Cash and cash equivalents, beginning of period                                2,549         2,563             5             6
                                                                           --------      --------      --------      --------
Cash and cash equivalents, end of period                                   $  2,733      $  2,747      $      5      $      6
                                                                           ========      ========      ========      ========

Supplemental disclosure of cash flow information:
     Cash paid during the period for interest                              $  2,897      $  2,897      $     --      $     --

Supplemental disclosure of noncash investing and financing activities:
     Capital lease asset additions                                         $     51      $     51      $     --      $     --
     Increase in accounts payable for deferred loan fees to be
         paid in future periods                                            $    300      $    300      $     --      $     --
     Capital contribution received in exchange for accounts
         payable and other noncurrent liabilities                          $  3,510      $     --      $     --      $     --
     Intercompany capital contributions                                    $     --      $  1,106      $  2,404      $  1,071
</TABLE>


   See accompanying notes to the condensed consolidated financial statements.


                                       13
<PAGE>   16

                       CONDENSED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           BRIGHAM                     BRIGHAM       BRIGHAM
                                                                             OIL &       BRIGHAM,      HOLDINGS      HOLDINGS
                                                                           GAS, L.P.       INC.         I, LLC       II, LLC
<S>                                                                        <C>           <C>           <C>           <C>
Cash flows from operating activities:
     Net loss                                                              $ (1,886)     $   (408)     $ (1,298)     $   (581)
     Adjustments to reconcile net loss to cash
      used by operating activities:
         Depletion of natural gas and oil properties                          2,790         2,790            --            --
         Depreciation and amortization                                          175           175            --            --
         Amortization of stock compensation                                     233           233            --            --
         Amortization of deferred loan fees and debt issuance costs             266           266            --            --
         Minority interest in net loss                                           --        (1,292)           --            --
         Equity in net loss of investee                                          --            --         1,292           575
         Changes in working capital and other items:
             Increase in accounts receivable                                 (3,026)       (3,026)           --            --
             Decrease in prepaid expenses                                        63            63            --            --
             Decrease in accounts payable                                    (4,055)       (4,055)           --            --
             Decrease in participant advances received                          (47)          (47)           --            --
             Increase in other current liabilities                            3,987         3,987            --            --
             Decrease in deferred income tax liability                           --          (192)           --            --
             Other noncurrent assets                                           (119)         (119)           --            --
             Other noncurrent liabilities                                       (62)          (62)           --            --
                                                                           --------      --------      --------      --------
                                                                             (1,681)       (1,687)           (6)           (6)
                                                                           --------      --------      --------      --------
Cash flows from investing activities:
     Additions to natural gas and oil properties                            (30,044)      (30,044)           --            --
     Additions to other property and equipment                                 (315)         (315)           --            --
     Change in investment in subsidiaries and intercompany advances            (223)           (7)            7             7
     Change in drilling advances paid                                          (525)         (525)           --            --
                                                                           --------      --------      --------      --------
                                                                            (31,107)      (30,891)            7             7
                                                                           --------      --------      --------      --------
Cash flows from financing activities:
     Increase in notes payable                                               70,800        70,800            --            --
     Repayment of notes payable                                             (34,800)      (34,800)           --            --
     Principal payments on capital lease obligations                           (108)         (108)           --            --
     Deferred loan fees paid                                                 (1,911)       (1,911)           --            --
                                                                           --------      --------      --------      --------
                                                                             33,981        33,981            --            --
                                                                           --------      --------      --------      --------

Net increase in cash and cash equivalents                                     1,193         1,403             1             1

Cash and cash equivalents, beginning of period                                1,701         1,701            --            --
                                                                           --------      --------      --------      --------
Cash and cash equivalents, end of period                                   $  2,894      $  3,104      $      1      $      1
                                                                           ========      ========      ========      ========

Supplemental disclosure of cash flow information:
     Cash paid during the period for interest                              $  1,851      $  1,851      $     --      $     --

Supplemental disclosure of noncash investing and financing activities:
     Capital lease asset additions                                         $     59      $     59      $     --      $     --
     Intercompany capital contributions                                    $     --      $     --      $ 29,911      $ 13,318
</TABLE>


          See accompanying notes to the condensed financial statements.


                                       14
<PAGE>   17


                    BRIGHAM EXPLORATION COMPANY SUBSIDIARIES

                    CONDENSED STATEMENTS OF CHANGES IN EQUITY
                          (in thousands, except shares)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                               Retained
                                       Common Stock           Additional       Earnings/
                              ---------------------------       Paid-in       Accumulated    Partners'
                                 Shares          Amounts        Capital         Deficit       Capital        Total
                              -----------     -----------     -----------     -----------    ---------      --------
<S>                          <C>              <C>             <C>             <C>            <C>            <C>
BRIGHAM OIL & GAS, L.P.
     Balance,
       December 31, 1998               --     $        --     $        --     $        --     $ 17,124      $ 17,124
     Capital contribution              --              --              --              --        3,510         3,510
     Net loss                          --              --              --              --      (17,278)      (17,278)
                              -----------     -----------     -----------     -----------     --------      --------
     Balance,
       June 30, 1999                   --     $        --     $        --     $        --     $  3,356      $  3,356
                              ===========     ===========     ===========     ===========     ========      ========

BRIGHAM INC
     Balance,
       December 31, 1998            1,000     $         1     $    16,109     $   (10,727)    $     --      $  5,383
     Capital contribution              --              --           1,106              --           --         1,106
     Net loss                          --              --              --          (5,447)          --        (5,447)
                              -----------     -----------     -----------     -----------     --------      --------
     Balance,
       June 30, 1999                1,000     $         1     $    17,215     $   (16,174)    $     --      $  1,042
                              ===========     ===========     ===========     ===========     ========      ========

BRIGHAM HOLDING I, LLC
     Balance,
       December 31, 1998               --     $        --     $        --     $        --     $ 11,719      $ 11,719
     Capital contribution              --              --              --              --        2,404         2,404
     Net loss                          --              --              --              --      (11,841)      (11,841)
                              -----------     -----------     -----------     -----------     --------      --------
     Balance,
       June 30, 1999                   --     $        --     $        --     $        --     $  2,282      $  2,282
                              ===========     ===========     ===========     ===========     ========      ========

BRIGHAM HOLDINGS II, LLC
     Balance,
       December 31, 1998               --     $        --     $        --     $        --     $  5,212      $  5,212
     Capital contribution              --              --              --              --        1,071         1,071
     Net loss                          --              --              --              --       (5,275)       (5,275)
                              -----------     -----------     -----------     -----------     --------      --------
     Balance,
       June 30, 1999                   --     $        --     $        --     $        --     $  1,008      $  1,008
                              ===========     ===========     ===========     ===========     ========      ========
</TABLE>



          See accompanying notes to the condensed financial statements.


                                       15
<PAGE>   18


                           BRIGHAM EXPLORATION COMPANY

                             NOTES TO THE CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


1.       ORGANIZATION AND BACKGROUND

         In August 1998, upon the filing of a registration statement with the
         SEC, Brigham Exploration Company, a Delaware corporation, (the
         "Company") issued $50 million of debt and equity securities to two
         affiliated institutional investors. The financing transaction consisted
         of the issuance of $40 million of senior subordinated secured notes
         (the "Notes"). The Notes are fully and unconditionally guaranteed, on a
         joint and several basis, by each of the Company's directly or
         indirectly wholly-owned subsidiaries which are Brigham Oil & Gas, L.P.
         (the "Partnership"), Brigham Inc., Brigham Holdings I LLC ("Holdings
         I"), and Brigham Holdings II LLC ("Holdings II"). Furthermore, these
         subsidiaries have pledged their respective stock and partnership
         interests as collateral for the Notes. These financial statements
         include the financial statements for the wholly owned subsidiaries
         whose securities and partnership interests comprise substantially all
         of the collateral pledged for the Notes.

         The Partnership was formed in May 1992 to explore and develop onshore
         domestic natural gas and oil properties using 3-D seismic imaging and
         other advanced technologies. Since its inception, the Partnership has
         focused its exploration and development of natural gas and oil
         properties primarily in West Texas, the Anadarko Basin and the onshore
         Gulf Coast. Brigham, Inc. is a Nevada corporation whose only asset
         prior to the Exchange was its less than 1% ownership interest in the
         Partnership. Brigham, Inc. is the managing general partner of the
         Partnership.

         On February 25, 1997, the Company was formed for the purpose of
         exchanging its common stock for the common stock of Brigham, Inc. and
         the partnership interests of the Partnership.

         Pursuant to an exchange agreement dated February 26, 1997 (the
         "Exchange Agreement") and upon the initial filing on February 27, 1997
         of a registration statement with the Securities and Exchange Commission
         (the "SEC") for the public offering of common stock (the "Offering"),
         the shareholders of Brigham, Inc. transferred all of the outstanding
         stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares
         of common stock of the Company. Pursuant to the Exchange Agreement, the
         Partnership's other general partner and the limited partners also
         transferred all of their partnership interests to the Company in
         exchange for 3,314,286 shares of common stock of the Company.
         Furthermore, the holders of the Partnership's subordinated convertible
         notes transferred these notes to the Company in exchange for 1,754,464
         shares of common stock. These transactions are referred to as "the
         Exchange." In completing the Exchange, the Company issued 8,928,571
         shares of common stock to the stockholders of Brigham, Inc., the
         partners of the Partnership and the holder of the Partnership's
         subordinated notes payable. In May 1997, the Company sold 3,325,000
         shares of its common stock in the Offering at a price of $8.00 per
         share. As a result of the Exchange and the Offering, the Company owns a
         68.5% partnership interest in the Partnership and all of the
         outstanding shares of Brigham, Inc. Brigham, Inc. owns the remainder of
         the Partnership interest in the Partnership. The proceeds of the
         Offering were contributed to the Partnership by the Company.

         Subsequent to the Exchange and the Offering, the Company owned a 68.5%
         interest in the Partnership and Brigham, Inc. owned a 31.50% interest
         in the Partnership. Effective January 1, 1998, Brigham, Inc.
         contributed 30.5% of its 31.5% interest in the Partnership to Holdings
         II, a newly formed Nevada LLC and wholly owned subsidiary of Brigham,
         Inc., whose only asset is its investment in the Partnership. Also
         effective January 1, 1998 the Company contributed its 68.5% interest in
         the Partnership to Brigham Holdings I, a newly formed Nevada LLC and
         wholly owned subsidiary of the Company whose only asset is its
         investment in the Partnership.


                                       16
<PAGE>   19

                           BRIGHAM EXPLORATION COMPANY

                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)


2.     BASIS OF PRESENTATION

       The accompanying financial condensed financial statements are unaudited,
       and in the opinion of management, reflect all adjustments that are
       necessary for a fair presentation of the financial position and results
       of operations for the periods presented. All such adjustments are of a
       normal and recurring nature. The results of operations for the periods
       presented are not necessarily indicative of the results to be expected
       for the entire year. The unaudited condensed financial statements should
       be read in conjunction with the Company's 1998 Annual Report on Form 10-K
       pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
       1934.

3.     SALE OF NATURAL GAS AND OIL PROPERTIES

       In February 1999, the Partnership entered into a project financing
       arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund
       the continued exploration of five projects covered by approximately 200
       square miles of 3-D seismic data acquired in 1998. In this transaction,
       the Partnership conveyed 100% of its working interest in land and seismic
       in these project areas to a newly formed limited liability company (the
       "Duke LLC") for a total consideration of $10 million. The Partnership is
       the managing member of the Duke LLC with a 1% interest, and Duke is the
       sole remaining member with a 99% interest. Pursuant to the terms of the
       Duke LLC agreement, the Partnership pays 100% of the drilling and
       completion costs for all wells drilled by the Duke LLC in exchange for a
       70% working interest in the wells and their associated drilling and
       spacing units and allocable seismic data. Upon 100% project payout, the
       Partnership has certain rights to back-in for up to a 94% effective
       working interest in the Duke LLC properties.

       In June 1999, the Company sold all of its interests in certain producing
       and non-producing natural gas and oil properties for a total sales price
       of $17.1 million. Due to the magnitude of the reserve volumes that were
       attributable to these properties relative to the Company's remaining net
       reserve volumes, the Company recognized as a loss the difference between
       the sales price received, after adjustment for transaction costs, and the
       $28.9 million basis allocated to the divested properties in accordance
       with the full-cost method of accounting for oil and gas properties.

4.     ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

       In June 1998, the Financial Accounting Standards Board (the "FASB")
       issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
       Activities." SFAS No. 133 requires that all derivative instruments be
       recorded on the balance sheet at fair value. Changes in the fair value of
       derivatives are recorded each period in current earnings or other
       comprehensive income, depending on whether a derivative is designated as
       part of a hedge transaction and, if it is, depending on the type of hedge
       transaction. For fair value hedge transactions in which the Partnership
       is hedging changes in an asset's, liability's, or firm commitment's fair
       value, changes in the fair value of the derivative instrument will
       generally be offset in the income statement by changes in the hedged
       item's fair value. For cash flow hedge transactions in which the
       Partnership is hedging the variability of cash flows related to a
       variable-rate asset, liability, or a forecasted transaction, changes in
       the fair value of the derivative instrument will be reported in other
       comprehensive income. The gains and losses on the derivative instrument
       that are reported in other comprehensive income will be reclassified as
       earnings in the periods in which earnings are impacted by the variability
       of the cash flows of the hedged item. The ineffective portion of all
       hedges will be recognized in current period earnings. The Partnership
       must adopt SFAS No. 133, as amended, effective January 1, 2001. The
       Partnership is in the process of analyzing the potential impact of this
       standard on its financial statement presentations.



                                       17
<PAGE>   20


Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition

RESULTS OF OPERATIONS

Comparison of three month periods ended June 30, 1998 and June 30, 1999

      Natural gas and oil sales. Natural gas and oil sales decreased 11% from $4
million in the second quarter of 1998 to $3.6 million in the second quarter of
1999. Of this net decrease, $751,000 was attributable to a decrease in
production, offset in part by $319,000 attributable to an increase in the
average sales price for natural gas and oil. Production volumes for natural gas
decreased 17% from 1,207 MMcf in the second quarter of 1998 to 1,006 MMcf in the
second quarter of 1999. The average price received for natural gas decreased
from $2.09 per Mcf in the second quarter of 1998 to $2.07 per Mcf in the second
quarter of 1999. Production volumes for oil decreased 23% from 117 MBbls in the
second quarter of 1998 to 90 MBbls in the second quarter of 1999. This decrease
in net oil production volumes was primarily due to the natural decline of
existing producing oil wells coupled with the Company's strategic decision to
reduce its drilling for oil prospects during 1998 and 1999 in response to low
oil prices. The average price received for oil increased 33% from $12.17 per Bbl
in the second quarter of 1998 to $16.24 per Bbl in the second quarter of 1999.
As a result of hedging activities, natural gas revenues decreased $30,275, or
$0.03 per Mcf, in the second quarter of 1999 compared to the same period of
1998.

      Workstation revenue. Workstation revenue decreased 47% from $133,000 in
the second quarter of 1998 to $71,000 in the second quarter of 1999. Brigham
recognizes workstation revenue as industry participants in the Company's seismic
programs are charged an hourly rate for the work performed by Brigham on its 3-D
seismic interpretation workstations. This decrease is primarily attributable to
the Company's increased working interests in its most recently acquired 3-D
seismic data, which reduces the amount of workstation interpretation costs that
Brigham can bill to its project participants. The Company expects workstation
revenue to continue to decline in 1999 due to the Company's increased working
interests in the square miles of 3-D seismic it acquired in 1997 and 1998.

      Lease operating expenses. Lease operating expenses increased 10% from
$564,000 for the second quarter of 1998 to $619,000 for the second quarter of
1999 and, on a per unit of production basis, lease operating expenses for the
same periods increased 33% from $0.30 per Mcfe to $0.40 per Mcfe. The increase
in lease operating expenses was primarily due to an increase in the number of
producing wells in the second quarter of 1999 as compared with the same period
in 1998.

      Production taxes. Production taxes decreased 18% from $262,000 ($0.14 per
Mcfe) for the second quarter of 1998 to $216,000 ($0.14 per Mcfe) for the second
quarter of 1999, primarily as a result of reduced average natural gas and oil
production volumes.

      General and administrative expenses. General and administrative expenses
decreased 22% from $1.1 million for the second quarter of 1998 to $891,000 for
the second quarter of 1999 primarily due to an increase in overhead fees billed
to working interest participants on Company-operated wells and the reduction of
various administrative costs, the most significant of which was the elimination
of accrued bonuses for 1999 and a 10% payroll reduction that was effective
mid-May 1999. On a per unit of production basis, general and administrative
expenses decreased from $0.60 per Mcfe for the second quarter of 1998 to $0.58
per Mcfe for the second quarter of 1999.

      Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties decreased from $1.52 million ($0.80 per Mcfe) in the second



                                       18
<PAGE>   21

quarter of 1998 to $1.46 million ($0.94 per Mcfe) in the second quarter of 1999.
Of this net decrease, $287,000 was due to the decrease in production volumes,
which was partially offset by $228,000 due to an 18% increase in the depletion
rate per unit of production.

      Interest expense. Net interest expense increased 125% from $1.4 million in
the second quarter of 1998 to $3.1 million in the second quarter of 1999. This
increase was due to a higher average debt balance with a higher average interest
rate in the second quarter of 1999 compared with the second quarter of 1998
resulting from increased capital expenditures funded with debt. The weighted
average outstanding debt balance increased from $59.6 million in the second
quarter of 1998 to $104.1 million in the second quarter of 1999. The average
effective annual interest rate on borrowings outstanding during the second
quarter of 1999 was 12% compared to 9.3% for the second quarter of 1998.
Interest expense in the second quarter of 1999 included $1.8 million of non-cash
charges, including (i) $1.3 million of interest expense related to the
Subordinated Notes that was paid through the issuance of additional Subordinated
Notes (or "paid-in-kind"), (ii) $366,000 for amortization of deferred financing
fees, and (iii) $136,000 for amortization of debt discounts related to the
issuance of the Subordinated Notes. In connection with issuance of the
Subordinated Notes in August 1998, the Company recorded the Subordinated Notes
at a discount of $4.5 million to reflect the estimated value of the warrants to
purchase common stock that were issued in connection with the issuance of the
Subordinated Notes. This discount was increased by $479,000 in March 1999 to
adjust the estimated value of the warrants based on the amendment of certain
terms of the warrants, including a decrease in the exercise price per share and
an increase in the term of the warrants. The Company amortizes this debt
discount over the five-year term of the Subordinated Notes based on the interest
method of amortization and includes such amortization in interest expense.

      Loss on sale of natural gas and oil properties. In June 1999, the Company
sold all of its interests in certain producing and non-producing natural gas and
oil properties for a total sales price of $17.1 million. Due to the magnitude of
the reserve volumes that were attributable to these properties relative to the
Company's remaining net reserve volumes, the Company recognized as a loss the
difference between the sales price received, after adjustment for transaction
costs, and the $28.9 million basis allocated to the divested properties in
accordance with the full-cost method of accounting for oil and gas properties.
No property divestitures occurred during the second quarter of 1998 for which
recognition of gain or loss was appropriate.

Comparison of six month periods ended June 30, 1998 and June 30, 1999

      Natural gas and oil sales. Natural gas and oil sales decreased 5% from
$7.1 million in the first six months of 1998 to $6.8 million in the first six
months of 1999. Of this net decrease, $459,000 was attributable to a decrease in
production, offset in part by $75,000 attributable to an increase in the average
sales price for natural gas and oil. Production volumes for natural gas
increased 5% from 1,947 MMcf in the first six months of 1998 to 2,053 MMcf in
the first six months of 1999. The average price received for natural gas
decreased from $2.10 per Mcf in the first six months of 1998 to $2.08 per Mcf in
the first six months of 1999. Production volumes for oil decreased 23% from 232
MBbls in the first six months of 1998 to 178 MBbls in the first six months of
1999. This decrease in net oil production volumes was primarily due to the
natural decline of existing producing oil wells coupled with the Company's
strategic decision to reduce its drilling for oil prospects during 1998 and 1999
and the curtailment of certain producing oil wells in early 1999, both in
response to low oil prices. The average price received for oil increased 5% from
$13.15 per Bbl in the first six months of 1998 to $13.85 per Bbl in the first
six months of 1999. As a result of hedging activities, natural gas revenues
increased $528,945, or $0.26 per Mcf, in the first six months of 1999 compared
to the same period for 1998.



                                       19
<PAGE>   22

      Workstation revenue. Workstation revenue decreased 35% from $247,000 in
the first six months of 1998 to $161,000 in the first six months of 1999.
Brigham recognizes workstation revenue as industry participants in the Company's
seismic programs are charged an hourly rate for the work performed by Brigham on
its 3-D seismic interpretation workstations. This decrease is primarily
attributable to the Company's increased working interests in its most recently
acquired 3-D seismic data, which reduces the amount of workstation
interpretation costs that Brigham can bill to its project participants. The
Company expects workstation revenue to continue to decline in 1999 due to the
Company's increased working interests in the square miles of 3-D seismic it
acquired in 1997 and 1998.

      Lease operating expenses. Lease operating expenses increased 18% from
$978,000 for the first six months of 1998 to $1.2 million for the first six
months of 1999, and, on a per unit of production basis, lease operating expenses
for the same periods increased 28% from $0.29 per Mcfe to $0.37 per Mcfe. The
increase in lease operating expenses was primarily due to an increase in the
number of producing wells in the first six months of 1999 as compared with the
same period in 1998.

      Production taxes. Production taxes decreased 14% from $450,000 ($0.13 per
Mcfe) for the first six months of 1998 to $385,000 ($0.12 per Mcfe) for the
first six months of 1999, primarily as a result of reduced average natural gas
and oil production volumes.

      General and administrative expenses. General and administrative expenses
decreased 21% from $2.3 million for the first six months of 1998 to $1.8 million
for the first six months of 1999 primarily due to an increase in overhead fees
billed to working interest participants on Company-operated wells and the
reduction of various administrative costs, the most significant of which was the
elimination of accrued bonuses for 1999 and a 10% payroll reduction that was
effective mid-May 1999. On a per unit of production basis, general and
administrative expenses decreased 16% from $0.69 per Mcfe for the first six
months of 1998 to $0.58 per Mcfe for the first six months of 1999.

      Depletion of natural gas and oil properties. Depletion of natural gas and
oil properties increased from $2.79 million ($0.84 per Mcfe) in the first six
months of 1998 to $2.8 million ($0.90 per Mcfe) in the first six months of 1999.
Of this net increase, $202,000 was due to a 7% increase in the depletion rate
per unit of production, which was partially offset by $181,000 due to the
decrease in production volumes.

      Interest expense. Net interest expense increased 150% from $2.4 million in
the first six months of 1998 to $5.9 million in the first six months of 1999.
This increase was due to a higher average debt balance with a higher average
interest rate in the first six months of 1999 compared with the first six months
of 1998 resulting from increased capital expenditures related to the Company's
exploration activities funded with debt. The weighted average outstanding debt
balance increased from $51.3 million in the first six months of 1998 to $101.9
million in the first six months of 1999. The average effective annual interest
rate on borrowings outstanding during the first six months 1999 was 11.7%
compared to 9.4% for the first six months 1998. Interest expense in the first
six months of 1999 included $3.5 million of non-cash charges, including (i) $2.6
million of interest expense related to the Subordinated Notes that was paid
through the issuance of additional Subordinated Notes (or "paid-in-kind"), (ii)
$628,000 for amortization of deferred financing fees, and (iii) $228,000 for
amortization of debt discounts related to the issuance of the Subordinated
Notes. In connection with issuance of the Subordinated Notes in August 1998, the
Company recorded the Subordinated Notes at a discount of $4.5 million to reflect
the estimated value of the warrants to purchase common stock that were issued in
connection with the issuance of the Subordinated Notes. This discount was
increased by $479,000 in March 1999 to adjust the estimated value of the
warrants based on the amendment of certain terms of the warrants, including a
decrease in the exercise price per share and an increase in the term of the
warrants. The Company amortizes this debt discount over the five-year term of
the Subordinated Notes



                                       20
<PAGE>   23

based on the interest method of amortization and includes such amortization in
interest expense.

     Loss on sale of natural gas and oil properties. In June 1999, the Company
sold all of its interests in certain producing and non-producing natural gas and
oil properties for a total sales price of $17.1 million. Due to the magnitude of
the reserve volumes that  were attributable to these properties relative to the
Company's remaining net reserve volumes, the Company recognized as a loss the
difference between the sales price received, after adjustment for transaction
costs, and the $28.9 million basis allocated to the divested properties in
accordance with the full-cost method of accounting for oil and gas properties.
No property divestitures occurred during the first six months of 1998 for which
recognition of gain or loss was appropriate.


LIQUIDITY

     Despite the Company's success in building its inventory of 3-D seismic data
and potential drilling locations, a number of key factors have contributed to
significantly limit the Company's capital resources available to fund its
continued long-term growth-oriented exploration strategy. Management believes
these principal factors include: (i) lower commodity sales prices during the
second half of 1998 and the early part of 1999, which reduced revenues and cash
flow from the Company's production volumes, (ii) reduced access to public,
private and industry sources of capital on cost-effective terms due to the
continuing low commodity price environment and outlook, (iii) less than
anticipated success in placing working interests with industry or financial
participants in certain of its high equity interest projects during the second
half of 1998, resulting in lower levels of project cost recoupment than
budgeted, (iv) high levels of expenditures in 1997 and 1998 for 3-D seismic and
land activities that do not generate proved reserves and cash flow until the
drilling stage of the project cycle, (v) the utilization of high levels of debt
to fund its accelerating exploration expenditures, and (vi) disappointing
drilling results during 1998 on a number of high equity interest exploratory
and development wells, several of which were completed and subsequently plugged
and abandoned or otherwise performed below expectations.

      As a result of these limiting factors and an expectation for continuing
difficult industry and capital markets conditions, Brigham has substantially
reduced its planned capital budget for 1999 and has undertaken a number of
strategic initiatives in an effort to improve and preserve its capital liquidity
in the current environment. While the Company remains focused on its long-term
growth objectives and the continuation of its established business model for 3-D
seismic-based exploration, Brigham has adapted its business strategy in the
near-term in an effort to maximize value for its shareholders on a long-term
basis through the implementation of the following principal strategic
initiatives: (i) focusing all of the Company's planned exploration efforts in
1999 toward the drilling of its highest-grade 3-D prospects identified in its
Anadarko Basin and Gulf Coast projects, concentrated primarily in trends where
Brigham has achieved exploration success, (ii) elimination of substantially all
planned seismic and land expenditures for new projects until its capital
resources can support such additional activity, (iii) divestiture of certain
producing natural gas and oil properties to raise capital to reduce debt
borrowings and to redirect capital to drilling projects that have the potential
to generate higher investment returns, (iv) restructure of its outstanding
senior and subordinated debt agreements to provide the Company with flexibility
needed to preserve cash flow to fund its expected near-term exploration
activities, (v) implementation of overhead reduction plan to reduce general and
administrative expenses, and (vi) evaluating opportunities to raise additional
equity capital either through the sales of interests in certain of its seismic
projects or the issuance of equity securities. The Company believes that the
successful execution of these strategic initiatives will provide Brigham with
sufficient capital resources to execute its planned 1999 exploration program and
position the Company to realize the significant value it believes it has
captured in its inventory of 3-D seismic projects and delineated drilling
locations. While the Company has initiated each of these strategic directives in
late 1998 and early 1999, and has effected



                                       21
<PAGE>   24

certain of them to date, the successful completion of any or all of these
efforts to improve the Company's capital availability within the expected
timeframe is uncertain and will likely have a material impact on the Company's
liquidity, near-term capital expenditure levels and growth profile.


      On March 30, 1999, the Company entered into an agreement with Veritas DGC
Land, Inc. ("Veritas") to exchange 1,002,865 shares of newly issued Brigham
common stock valued at $3.50 per share for approximately $3.5 million of payment
obligations due to Veritas in 1999 for certain seismic acquisition and
processing services previously performed. In addition, this agreement provides
for the payment by Brigham of up to $1 million in future seismic processing
services to be performed by Veritas in newly issued shares of Brigham common
stock valued at $3.50 per share, in the event that the Company does not elect to
pay for such services in cash. The settlement of these seismic processing
services has been determined on a quarterly basis. During the third quarter
1999, Brigham issued an additional 119,550 shares of common stock valued at
$3.50 per share to Veritas pursuant to its election to settle certain seismic
processing service obligations, incurred primarily during the second quarter of
1999, in stock instead of cash. Brigham considers this arrangement to have been
beneficial as it has enabled the Company to reduce its working capital
commitments and preserve additional cash flow and capital availability to fund
its 1999 drilling program.

CAPITAL RESOURCES

      The Company's primary sources of capital have been revolving credit
facility and other debt borrowings, public and private equity financings, the
sale of interests in projects and properties, and funds generated by operations.
The Company's primary capital requirements are 3-D seismic acquisition,
processing and interpretation costs, land acquisition costs and drilling
expenditures. In January 1998, the Company entered into a new revolving credit
facility that provided for an initial borrowing availability of $75 million that
was used to repay its then outstanding borrowings under its previous credit
facility and to fund capital expenditures. This revolving credit facility has
been subsequently amended, most recently in July 1999, to provide for a
borrowing availability of $56 million. In August 1998, the Company issued $50
million of debt and equity securities, including $40 million of Subordinated
Notes, that generated proceeds of approximately $47.5 million, net of offering
costs, that were used to repay a portion of then outstanding borrowings under
the Credit Facility, thereby increasing the Company's borrowing availability
under its Credit Facility to fund capital expenditures. In late June 1999, the
Company received $17.1 million ($16.8 million after adjustment for transaction
costs and post-closing adjustments) from the sale of its interests in producing
and non-producing natural gas and oil properties within two non-operated fields
in its Anadarko Basin province.

Cash Flow Analysis

      In the first six months of 1999, cash flow used by operating activities
was $1.2 million primarily as a result of a $4.7 million decrease in other
noncurrent liabilities partially offset by a net $2.4 million increase in
non-cash working capital and a net $1.2 million cash flow from total revenues,
net of lease operating expenses, production taxes, general and administrative
expenses and cash interest expense. Cash flow provided by investing activities
was

                                       22
<PAGE>   25
$12.7 million in the first six months of 1999 primarily as a net result of $13.8
million of capital expenditures related to exploration activities and $26.7
million of proceeds received from the sale of interests in certain seismic
projects and natural gas and oil properties. Cash flow used in financing
activities was $11.4 million the first six months of 1999 resulting from a $10.8
million net reduction in notes payable attributable to the net repayment of
outstanding borrowings under the revolving credit facility and the payment of
deferred loan fees and principal payments made on capital lease obligations.

Revolving Credit Facility

      In January 1998, the Company entered into a new revolving credit agreement
(the "Credit Facility"), which provided for an initial borrowing availability of
$75 million. The Credit Facility was amended in March 1999 to reduce the
borrowing availability, extend the date of borrowing base redetermination,
modify certain financial covenants, include certain additional covenants that
place significant restrictions on the Company's ability to incur certain capital
expenditures, and to increase the interest rate on outstanding borrowings.

      As a result of the completion of the majority of the Company's strategic
initiatives to improve its capital resources, including the late June 1999
property divestitures and the application of the net sales proceeds to reduce
borrowings outstanding under the Credit Facility, the Company and its senior
lenders entered into an amendment to the Credit Facility in July 1999. This most
recent amendment provides the Company with borrowing availability of $56 million
(approximately $8 million of which remained available at the time the amendment
was effected) principally to fund its planned drilling activities and
anticipated working capital requirements through the end of 1999. The Company's
lenders have indicated that the borrowing availability provided under the
amended Credit Facility exceeds that which would otherwise be made available
under a more traditional conforming borrowing base calculation based on the
estimated value of the Company's current net proved reserves and its cash flow.
As consideration for this amendment to the Credit Facility, the Company has
issued to its senior lenders one million warrants to purchase the Company's
common stock at an exercise price of $2.25 per share. The warrants have a
seven-year term from the date of issuance and are exercisable at the holders'
option at any time.

      Principal outstanding under the Credit Facility is due at maturity on
January 26, 2001 with interest due monthly for base rate tranches or
periodically as LIBOR tranches mature. The annual interest rate for borrowings
under the Credit Facility is either the lender's base rate or LIBOR plus 3.00%,
at the Company's option. The Company's obligations under the Credit Facility are
secured by substantially all of the natural gas and oil properties and other
tangible assets of the Company. The borrowing availability will be redetermined
by the senior lenders at January 31, 2000, based on the Company's then estimated
net proved reserve value and cash flows.

      At August 12, 1999, the Company had $50.8 million in borrowings
outstanding under the Credit Facility, which bear interest at an average annual
rate of 8.39%.

      The Credit Facility has certain financial covenants including current and
interest coverage ratios, as defined. The Company and its lenders effected the
March 1999 amendment to the Credit Facility to enable the Company to comply with
certain financial covenants of the Credit Facility, including the minimum
current ratio, minimum interest coverage ratio and the limitation on capital
expenditures related to seismic and land activities. The Company believes its
amendments are indicative of its senior lenders' cooperation in the current oil
and natural gas industry environment. If oil and natural gas prices deteriorate
beyond the date of redetermination of borrowing availability or the Company
does not generate its expected growth in proved reserves through its drilling
activities planned for the second half of 1999, the Company believes its senior
lenders may require the Company to reduce its level of borrowing under the
Credit Facility accordingly. Should the Company be unable to comply with
certain of the financial covenants, its senior lenders may be unwilling to
waive compliance or amend the covenants in the future. In such instance, the
Company's liquidity may be adversely affected, which could in turn have an
adverse impact on the Company's future financial position and results of
operations.


                                       23
<PAGE>   26

Subordinated Notes

      In August 1998, the Company issued $50 million of debt and equity
securities to affiliates of Enron Corp. ("Enron"). Securities issued by the
Company in connection with this financing transaction included: (i) $40 million
of Subordinated Notes, (ii) warrants to purchase 1,000,000 shares of the
Company's common stock at a price of $10.45 per share (the "Warrants"), and
(iii) 1,052,632 shares of the Company's common stock at a price of $9.50 per
share. The approximate $47.5 million in net proceeds received by the Company
from this financing transaction were used to repay a portion of outstanding
borrowings under its Credit Facility, which increased the Company's borrowing
availability under its Credit Facility to fund capital expenditures.

      Principal outstanding under the Subordinated Notes is due at maturity on
August 20, 2003. Interest on the Subordinated Notes is payable quarterly at
rates that vary depending upon whether accrued interest is paid in cash or "in
kind" through the issuance of additional Subordinated Notes ("PIK Interest").
Interest shall be paid in cash at interest rates of 12%, 13% and 14% per annum
during years one through three, year four and year five, respectively, of the
term of the Subordinated Notes; provided, however, that the Company may pay PIK
Interest for a cumulative total of six quarterly interest payments at interest
rates of 13%, 14% and 15% per annum during years one through three, year four
and year five, respectively, of the term of the Notes.

      The Subordinated Notes rank subordinate in right of payment to Senior
Indebtedness (as defined) and senior to all other financings (other than any
allowed capital leases and purchase money financings) of the Company. The
Subordinated Notes are secured by a second lien against substantially all of the
natural gas and oil properties and other tangible assets of the Company. The
Subordinated Notes may be prepaid at any time, in whole or in part, without
premium or penalty, provided that all partial prepayments must be pro rata to
the various holders of the Subordinated Notes. The Subordinated Notes were
issued pursuant to an indenture (the "Indenture") that contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur additional indebtedness, pay dividends, make
distributions, enter into certain sale and leaseback transactions, enter into
certain transactions with affiliates, dispose of certain assets, incur liens,
and engage in mergers and consolidations.

      In March 1999, the Company and Chase Bank of Texas, National Association,
as trustee (the "Trustee") for the holders of the Subordinated Notes, entered
into an amendment to the Indenture. This amendment provides the Company with the
option to pay interest due on the Subordinated Notes in kind, for any reason,
through the second quarter of 2000. In addition, certain financial and other
covenants were amended. The amendment also provides for a reduction in the
exercise price per share of the Warrants from $10.45 per share to $3.50 per
share and extended the term of the Warrants from seven to ten years.

      The Indenture governing the Subordinated Notes has certain financial
covenants including current and interest coverage ratios, as defined. The
Company and the holders of the Subordinated Notes effected the recent amendment
to the Indenture to enable the Company to comply with certain financial
covenants of the Indenture that parallel those of the Credit Facility, including
the minimum current ratio and the minimum interest coverage ratio. Should the
Company be unable to comply with certain of the financial covenants, the holders
of the Subordinated Notes may be unwilling to waive compliance or amend the
covenants in the future. In such instance, the Company's liquidity may be

                                       24
<PAGE>   27
adversely affected, which could in turn have an adverse impact on the Company's
future financial position and results of operations.

     At June 30, 1999 and August 12, 1999, the Company had $42.6 million
principal amount of Subordinated Notes outstanding.

Capital Expenditures

     As a result of the Company's limited available capital resources, Brigham
has significantly reduced its planned capital expenditure budget for 1999 from
the Company's previously anticipated levels in an effort to match its current
and expected future capital resources. The Company's current 1999 capital budget
is estimated to be $28 million, or approximately 34% of 1998 expenditures. The
Company's budgeted 1999 capital expenditures consist of approximately $18.5
million to drill an estimated 25 to 30 gross wells, $5.5 million for seismic and
land costs, consisting primarily of previous year commitments and obligations to
acquire 3-D data and acreage, and $4 million for capitalized general and
administrative expenses and other fixed asset expenditures. Brigham expects that
its 1999 drilling expenditures will be allocated to prospects identified among
its 3-D projects primarily in its Anadarko Basin and Gulf Coast provinces, and
such expenditures will be devoted to the drilling of the highest grade prospects
in the Company's inventory of identified potential drilling locations. The
Company intends to fund these budgeted capital expenditures through a
combination of cash flow from operations, available borrowings under its Credit
Facility and the sales of certain assets and equity interests (including the
Anadarko Basin property divestitures completed in late June 1999, the sale of
interests in certain 3-D seismic projects for $11.5 million completed in January
1999 and the potential sales of additional interests in certain 3-D seismic
projects during the second half of 1999). The Company's capital availability
during 1999 will depend to a large extent on its success raising additional
financing through its planned and potential strategic initiatives discussed
above, and therefore the Company's actual 1999 capital expenditures may differ
from its current estimates. In the event additional financing is not available
in the amounts or timing needed, the Company may be required to curtail its
planned exploration activities in 1999 and take further measures to reduce the
size and scope of its business.

OTHER MATTERS

Year 2000 Issues

      Many computer software systems, as well as certain hardware and equipment
using date-sensitive data, were structured to use a two-digit date field meaning
that they may not be able to properly recognize dates in the year 2000. The
Company has developed a plan to address this issue and is taking steps to review
its information technology systems, such as computer hardware and software, as
well as non information technology systems, including computer controlled
equipment and electronic devices used to operate equipment involved in
processing and interpreting 3-D seismic data.

      The Company has completed the initial phases of its plan by identifying
all computerized systems and substantially completing an inventory of its
equipment and component parts. Both information technology and non information
technology systems may contain embedded technology, which complicates the
Company's Year 2000 identification, assessment, remediation and testing efforts.
The Company continues to inventory its equipment and facilities to determine if
they contain embedded date-sensitive technology. The Company is currently
reviewing all of its systems to determine which are not Year 2000 compliant and
will need to be replaced or modified. This current phase includes comparisons of
inventory to manufacturer's information and/or performance testing. If problems
are identified, the Company will undertake remediation, replacement or


                                       25
<PAGE>   28

alternative procedures for non-compliant equipment or facilities on a business
priority basis. The Company's identification and assessment efforts to date have
not identified any computer equipment or software it currently uses which will
require replacement or modification, except that one of the word processing
software programs the Company uses may be non-compliant and may need to be
discontinued or upgraded. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that are Year 2000 compliant. The Company currently anticipates that its
identification, assessment, remediation and testing efforts will continue and,
depending upon the results of the assessment efforts, be completed by September
30, 1999.

      As of June 30, 1999, all costs incurred by the Company in connection with
its Year 2000 compliance efforts were included within the Company's normal
general and administrative expenses (for example, regular maintenance of
software programs). The Company is currently expensing as incurred all costs
related to the assessment and remediation of the Year 2000 issue, and these
costs are being funded through operating cash flow. However, in certain
instances the Company may determine that replacing existing equipment may be
appropriate and may capitalize such replacements. The Company is unable
currently to estimate the amount of its total out-of-pocket costs to become Year
2000 compliant, but the Company currently expects that such costs will not have
a material adverse effect on the Company's financial condition, operations or
liquidity.

      The foregoing timetable and assessment of costs to become Year 2000
compliant reflect management's current best estimates. These estimates are based
on many assumptions, including assumptions about the cost, availability and
ability of resources to locate, remediate and modify affected systems, equipment
and facilities. Based upon its activities to date, the Company does not
currently believe that these factors will cause results to differ significantly
from those estimated. However, the Company cannot reasonably estimate the
potential impact on its financial condition and operations if key third parties
including, among others, suppliers, contractors, joint venture participants,
financial institutions, customers and governments do not become Year 2000
compliant on a timely basis. The Company is currently identifying third parties
whose business significantly impacts the Company, has contacted some significant
third parties to determine the extent to which interfaces with such entities are
vulnerable to Year 2000 issues, and will contact others as it completes the
identification phase.

      In the event that the Company is unable to complete the remediation or
replacement of its critical systems, facilities and equipment, establish
alternative procedures in a timely manner, or if those with whom the Company
conducts business are unsuccessful in implementing timely solutions, Year 2000
issues could have a material adverse effect on the Company's liquidity and
results of operations. At this time, the potential effect in the event the
Company and/or third parties are unable to timely resolve their Year 2000
problems is not determinable. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not yet been clearly identified. However, the Company currently believes
that it will be able to resolve its own Year 2000 issues in a timely manner.

      The disclosure set forth in this section is provided pursuant to
Securities Act Release No. 33-7558. As such it is protected as a forward-looking
statement under the Private Securities Litigation Reform Act of 1995. See
"Forward-Looking Information." This disclosure is also subject to protection
under the Year 2000 Information and Readiness Disclosure Act of 1998, Public Law
105-271, as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as
defined therein.

Forward Looking Information

      The Company may make forward looking statements, oral or written,




                                       26
<PAGE>   29
including statements in this report, press releases and other filings with the
SEC, relating to the Company's drilling plans, its potential drilling locations,
capital expenditures, use of offering proceeds, the ability of expected sources
of liquidity to support working capital and capital expenditure requirements and
the Company's financial position, business strategy and other plans and
objectives for future operations. Such statements involve risks and
uncertainties, including those relating to the Company's dependence on
exploratory drilling activities, the volatility of natural gas and oil prices,
the risks associated with growth (including the risk of reduced availability of
seismic gathering and drilling services in the face of growing demand), the
substantial capital requirements of the Company's exploration and development
projects, operating hazards and uninsured risks and other factors detailed in
the Company's registration statement and other filings with the SEC. All
subsequent oral and written forward looking statements attributable to the
Company are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update these statements.



                                       27
<PAGE>   30

PART II.  OTHER INFORMATION:

Item 2.   Changes in Securities

          Pursuant to the Company's agreement dated March 30, 1999 with Veritas
          DGC Land, Inc. ("Veritas"), in July 1999 the Company exchanged 119,550
          shares of newly issued Brigham Exploration Company common stock valued
          at $3.50 per share for approximately $420,000 of payment obligations
          due to Veritas in 1999 for certain seismic acquisition and processing
          services previously performed. These shares were issued pursuant to
          the exemption provided by Section 4(2) of the Securities Act of 1933,
          as amended. Veritas represented its intention to acquire the shares
          for investment purposes only and not for the purpose of resale or
          distribution, and appropriate legends were affixed to the certificate
          issued in such transaction. Veritas was given access to information
          about the Company.

Item 4.   Submission of Matters to a Vote of Security Holders

          (a)     The annual meeting of stockholders of the Company was held at
                  10:00 a.m., local time, on Thursday, May 13, 1999 in Austin,
                  Texas.

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

          (c)     Out of a total of 14,309,071 shares of common stock of the
                  Company outstanding and entitled to vote, 11,210,288 shares
                  were present in person or by proxy, representing approximately
                  78 percent.

<TABLE>
<CAPTION>
                                                                                                Number of Shares
                                                          Number of Shares                    WITHHOLDING AUTHORITY
                                                         Voting FOR Election                  to Vote for Election
                                                             As Director                           As Director
                                                             -----------                           -----------
<S>                                                      <C>                                  <C>
                  Ben M. Bud Brigham                         11,182,788                              27,500
                  Anne L. Brigham                            11,182,788                              27,500
                  Jon L. Glass                               11,182,688                              27,600
                  Harold D. Carter                           11,182,688                              27,600
                  Alexis M. Cranberg                         11,182,688                              27,600
                  W. Craig Childers                          11,182,688                              27,600
                  Stephen P. Reynolds                        11,182,688                              27,600
</TABLE>

                  The proposal to appoint PricewaterhouseCoopers, LLP as the
                  Company's independent auditors for 1999 was voted upon as
                  follows: 11,156,588 shares voted FOR; 2,000 shares voted
                  AGAINST; and 51,700 shares WITHHOLDING AUTHORITY to vote.


                                       28
<PAGE>   31

Item 6.   Exhibits and Reports on Form 8-K

          (a)     Exhibits

                      10.1 Third amendment to Credit Agreement dated as of July
                           19, 1999 among Brigham Oil & Gas, L.P., Bank of
                           Montreal, as Agent, and the lenders signatory
                           thereto.

                      10.2 Fourth amendment to Guaranty Agreement dated as of
                           July 19, 1999 between Brigham Exploration Company and
                           Bank of Montreal, as Agent for the lenders party to
                           the Credit Agreement.

                      27   Financial Data Schedule

          (b)     Reports on Form 8-K

                      The Company filed a report on Form 8-K on July 12, 1999,
                      to report the closing on June 25, 1999 of the sale of its
                      entire interest in certain producing and non-producing
                      natural gas and oil properties in the Company's Anadarko
                      Basin province. The Form 8-K included unaudited pro forma
                      financial statements presented to reflect the divestiture.

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto, duly authorized, in the City of Austin, State of Texas,
on the 13th day of August, 1999.

                                        BRIGHAM EXPLORATION COMPANY


                                 By:       /s/ BEN M. BRIGHAM
                                        ----------------------------------------
                                        Ben M. Brigham
                                        Chief Executive Officer, President and
                                           Chairman of the Board



                                 By:       /s/ CRAIG M. FLEMING
                                        ----------------------------------------
                                        Craig M. Fleming
                                        Chief Financial Officer




                                       29
<PAGE>   32
                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
    EXHIBIT
      NO.          DESCRIPTION
      ---          -----------
<S>                <C>

      10.1         Third amendment to Credit Agreement dated as of July 19, 1999
                   among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent,
                   and the lenders signatory thereto.

      10.2         Fourth amendment to Guaranty Agreement dated as of
                   July 19, 1999 between Brigham Exploration Company and Bank
                   of Montreal, as Agent for the lenders party to the Credit
                   Agreement.

      27           Financial Data Schedule
</TABLE>