##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-22433
 Brigham Exploration Company
  Delaware
    
    1311
    
    75-2692967(State of other jurisdiction
    
    (Primary Standard Industrial
    
    (I.R.S. Employerof incorporation or organization)
    
    Classification Code Number)
    
    Identification Number)
 6300 Bridge Point Parkway, Building 2, Suite 500, Austin, Texas 78730
 (512) 427-3300
 þ o
  o þ o
 o þ
 Class
    
    OutstandingCommon Stock, par value $.01 per share as of November 4, 2007
    
    45,740,160




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##### 



Brigham Exploration Company
 Third Quarter 2007 Form 10-Q Report
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets  September 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Operations  Three and nine months ended September 30, 2007
and 2006
    
    
    2Consolidated Statement of Stockholders Equity  Nine months ended September 30, 2007
    
    
    3Consolidated Statements of Cash Flows  Nine months ended September 30, 2007 and 2006
    
    
    4Notes to the Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    33ITEM 4. CONTROLS AND PROCEDURES
    
    
    36PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    37ITEM 1.A. RISK FACTORS
    
    
    37ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    37ITEM 3. DEFALTS UPON SENIOR SECURITIES
    
    
    37ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
    
    
    37ITEM 5. OTHER INFORMATION
    
    
    37ITEM 6. EXHIBITS
    
    
    37SIGNATURES
    
    
    38Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 (Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,496
    
    
    $
    4,300Accounts receivable
    
    
    17,991
    
    
    
    18,352Derivative assets
    
    
    2,766
    
    
    
    5,676Other current assets
    
    
    2,809
    
    
    
    2,390Property held for sale
    
    
    
    
    
    
    500Total current assets
    
    
    34,062
    
    
    
    31,218Oil and natural gas properties, using the full cost method includingProved, net
    
    
    422,272
    
    
    
    410,474Unproved
    
    
    65,560
    
    
    
    75,051487,832
    
    
    
    485,525Other property and equipment, net
    
    
    1,072
    
    
    
    936Deferred loan fees
    
    
    3,858
    
    
    
    3,420Other noncurrent assets
    
    
    1,646
    
    
    
    1,488Total assets
    
    $
    528,470
    
    
    $
    522,587LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,657
    
    
    $
    19,464Royalties payable
    
    
    6,700
    
    
    
    5,012Accrued drilling costs
    
    
    3,568
    
    
    
    23,310Participant advances received
    
    
    670
    
    
    
    3,990Other current liabilities
    
    
    10,490
    
    
    
    5,677Total current liabilities
    
    
    38,085
    
    
    
    57,453Senior Notes
    
    
    158,432
    
    
    
    123,434Senior credit facility
    
    
    
    
    
    
    25,900Series A Preferred Stock, mandatorily redeemable, $.01 par value,
$20 stated and redemption value, 2,250,000 shares authorized,
505,051 shares issued and outstanding at September 30, 2007 and
December 31, 2006
    
    
    10,101
    
    
    
    10,101Deferred income taxes
    
    
    38,394
    
    
    
    34,609Other taxes payable
    
    
    2,159
    
    
    
    Other noncurrent liabilities
    
    
    5,034
    
    
    
    5,075Commitments and contingencies (Note 3)Stockholders equity:Common stock, $.01 par value, 90 million shares authorized,
45,225,529 and 45,090,398 shares issued and 45,121,806 and
44,011,362 shares outstanding at September 30, 2007 and
December 31, 2006, respectively
    
    
    452
    
    
    
    451Additional paid-in capital
    
    
    206,500
    
    
    
    203,643Treasury stock, at cost; 103,723 and 79,036 shares at September
30, 2007 and December 31, 2006, respectively
    
    
    (836
    )
    
    
    (662
    )Accumulated other comprehensive income (loss)
    
    
    206
    
    
    
    1,006Retained earnings
    
    
    69,943
    
    
    
    61,577Total stockholders equity
    
    
    276,265
    
    
    
    266,015Total liabilities and stockholders equity
    
    $
    528,470
    
    
    $
    522,587
   1




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Oil and natural gas sales
    
    $
    29,481
    
    
    $
    26,089
    
    
    $
    92,250
    
    
    $
    78,019Gain (loss) on derivatives, net
    
    
    1,648
    
    
    
    (123
    )
    
    
    420
    
    
    
    (709
    )Other revenue
    
    
    17
    
    
    
    57
    
    
    
    73
    
    
    
    8731,146
    
    
    
    26,023
    
    
    
    92,743
    
    
    
    77,397Costs and expenses:Lease operating
    
    
    2,564
    
    
    
    2,672
    
    
    
    8,458
    
    
    
    7,938Production taxes
    
    
    951
    
    
    
    1,259
    
    
    
    1,573
    
    
    
    3,455General and administrative
    
    
    2,514
    
    
    
    1,985
    
    
    
    6,973
    
    
    
    5,936Depletion of oil and natural gas properties
    
    
    14,776
    
    
    
    11,910
    
    
    
    45,347
    
    
    
    33,272Impairment of oil and natural gas properties
    
    
    
    
    
    
    
    
    
    
    6,505
    
    
    
    Depreciation and amortization
    
    
    147
    
    
    
    140
    
    
    
    468
    
    
    
    376Accretion of discount on asset retirement obligations
    
    
    87
    
    
    
    80
    
    
    
    298
    
    
    
    22921,039
    
    
    
    18,046
    
    
    
    69,622
    
    
    
    51,206Operating income
    
    
    10,107
    
    
    
    7,977
    
    
    
    23,121
    
    
    
    26,191Other income (expense):Interest income
    
    
    271
    
    
    
    518
    
    
    
    536
    
    
    
    1,072Interest expense, net
    
    
    (3,976
    )
    
    
    (2,669
    )
    
    
    (11,071
    )
    
    
    (6,899
    )Other income (expense)
    
    
    105
    
    
    
    2,507
    
    
    
    1,007
    
    
    
    4,394(3,600
    )
    
    
    356
    
    
    
    (9,528
    )
    
    
    (1,433
    )Income before income taxes
    
    
    6,507
    
    
    
    8,333
    
    
    
    13,593
    
    
    
    24,758Income tax expense:Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    (2,324
    )
    
    
    (3,087
    )
    
    
    (5,227
    )
    
    
    (9,971
    )(2,324
    )
    
    
    (3,087
    )
    
    
    (5,227
    )
    
    
    (9,971
    )Net income
    
    $
    4,183
    
    
    $
    5,246
    
    
    $
    8,366
    
    
    $
    14,787Net income per share available to common stockholders:Basic
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.33Diluted
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.18
    
    
    $
    0.33Weighted average shares outstanding:Basic
    
    
    45,123
    
    
    
    45,027
    
    
    
    45,085
    
    
    
    45,005Diluted
    
    
    45,477
    
    
    
    45,294
    
    
    
    45,490
    
    
    
    45,451
   2




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BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amounts
    
    
    Capital
    
    
    Stock
    
    
    Income (Loss)
    
    
    Earnings
    
    
    EquityBalance, December 31, 2006
    
    
    45,090
    
    
    $
    451
    
    
    $
    203,643
    
    
    $
    (662
    )
    
    $
    1,006
    
    
    $
    61,577
    
    
    $
    266,015Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,366
    
    
    
    8,366Net (gains) losses
included in net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,231
    )
    
    
    
    
    
    
    (1,231
    )Tax benefit (provision)
related to hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    431
    
    
    
    
    
    
    
    431Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,566Exercises of employee
stock options
    
    
    57
    
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230Vesting of restricted stock
    
    
    78
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    2,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,628Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    (174
    )Balance, September 30, 2007
    
    
    45,225
    
    
    $
    452
    
    
    $
    206,500
    
    
    $
    (836
    )
    
    $
    206
    
    
    $
    69,943
    
    
    $
    276,265
   3




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    8,366
    
    
    $
    14,787Adjustments to reconcile net income to cash provided by operating
activities:Depletion of oil and natural gas properties
    
    
    45,347
    
    
    
    33,272Impairment of oil and natural gas properties
    
    
    6,505
    
    
    
    Depreciation and amortization
    
    
    468
    
    
    
    376Stock based compensation
    
    
    1,455
    
    
    
    1,134Write-off of deferred loan costs
    
    
    
    
    
    
    965Amortization of deferred loan fees and debt issuance costs
    
    
    713
    
    
    
    508Market value adjustment for derivative instruments
    
    
    2,985
    
    
    
    (2,926
    )Accretion of discount on asset retirement obligations
    
    
    298
    
    
    
    229Deferred income taxes
    
    
    5,227
    
    
    
    9,971Other noncash items
    
    
    (4
    )
    
    
    64Changes in operating assets and liabilities:Accounts receivable
    
    
    361
    
    
    
    7,926Other current assets
    
    
    77
    
    
    
    (1,378
    )Accounts payable
    
    
    (2,807
    )
    
    
    4,928Royalties payable
    
    
    1,688
    
    
    
    (1,585
    )Participant advances received
    
    
    (3,320
    )
    
    
    248Other current liabilities
    
    
    5,593
    
    
    
    6,032Other noncurrent assets
    
    
    514
    
    
    
    Other noncurrent liabilities
    
    
    (114
    )
    
    
    (256
    )Net cash provided by operating activities
    
    
    73,352
    
    
    
    74,295Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (108,453
    )
    
    
    (125,054
    )Proceeds from the sale of oil and natural gas properties
    
    
    35,435
    
    
    
    Purchases of short term investments
    
    
    
    
    
    
    (52,409
    )Sales and redemptions of short term investments
    
    
    
    
    
    
    51,405Additions to other property and equipment
    
    
    (600
    )
    
    
    (335
    )Decrease (increase) in drilling advances paid
    
    
    (1,545
    )
    
    
    254Net cash used by investing activities
    
    
    (75,163
    )
    
    
    (126,139
    )Cash flows from financing activities:Proceeds from senior notes offering
    
    
    34,825
    
    
    
    123,286Increase in senior credit facility
    
    
    46,400
    
    
    
    24,200Repayment of senior credit facility
    
    
    (72,300
    )
    
    
    (57,300
    )Repayment of senior subordinated notes
    
    
    
    
    
    
    (30,000
    )Deferred loan fees paid and equity costs
    
    
    (974
    )
    
    
    (2,868
    )Proceeds from issuance of stock, net of issuance costs
    
    
    
    
    
    
    37Proceeds from exercise of employee stock options
    
    
    230
    
    
    
    339Repurchases of common stock
    
    
    (174
    )
    
    
    (211
    )Net cash provided by financing activities
    
    
    8,007
    
    
    
    57,483Net increase (decrease) in cash and cash equivalents
    
    
    6,196
    
    
    
    5,639Cash and cash equivalents, beginning of year
    
    
    4,300
    
    
    
    3,975Cash and cash equivalents, end of period
    
    $
    10,496
    
    
    $
    9,614
   4




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##### Table of Contents



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




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average common shares
outstanding  basic
    
    
    45,123
    
    
    
    45,027
    
    
    
    45,085
    
    
    
    45,005Plus: Potential common sharesStock options and restricted stock
    
    
    354
    
    
    
    267
    
    
    
    405
    
    
    
    446Weighted average common shares
outstanding  
diluted
    
    
    45,477
    
    
    
    45,294
    
    
    
    45,490
    
    
    
    45,451Stock options excluded from diluted
EPS due to the 
anti-dilutive effect
    
    
    2,595
    
    
    
    2,633
    
    
    
    2,525
    
    
    
    1,700
 5.      Income Taxes
  September 30,
    
    
    September 30,2007
    
    
    2006Current income taxes:Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Deferred income taxes:Federal
    
    
    4,926
    
    
    
    8,630State
    
    
    301
    
    
    
    1,341$
    5,227
    
    
    $
    9,971
    6




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  (In thousands)Increases (decreases) resulting from adoption of FIN 48
    
    $
    2,139Increases (decreases) resulting from tax positions taken in the current period
    
    
    20Decreases relating to settlements with taxing authorities
    
    
    Reductions resulting from the lapse of applicable statutes of limitations
    
    
    Unrecognized tax benefits at 09/30/2007
    
    $
    2,159
   6.      Derivative Instruments and Hedging Activities
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Natural GasAverage price per Mcf realized excluding gas hedging results
    
    $
    6.71
    
    
    $
    6.48
    
    
    $
    7.23
    
    
    $
    6.78Average price per Mcf including gas hedging settlement results
    
    $
    7.31
    
    
    $
    6.99
    
    
    $
    7.56
    
    
    $
    7.12Increase (decrease) in revenue, in thousands
    
    $
    1,996
    
    
    $
    1,328
    
    
    $
    3,313
    
    
    $
    2,619Average price per Mcf including gas hedging settlement
results and any unrealized gains (losses)
    
    $
    7.31
    
    
    $
    7.02
    
    
    $
    7.34
    
    
    $
    7.08Increase (decrease) in revenue, in thousands
    
    $
    1,967
    
    
    $
    1,427
    
    
    $
    1,121
    
    
    $
    2,307OilAverage price per Bbl realized excluding oil hedging results
    
    $
    73.65
    
    
    $
    71.86
    
    
    $
    66.95
    
    
    $
    67.22Average price per Bbl including oil hedging settlement results
    
    $
    73.43
    
    
    $
    72.36
    
    
    $
    67.26
    
    
    $
    67.22Increase (decrease) in revenue, in thousands
    
    $
    (21
    )
    
    $
    52
    
    
    $
    92
    
    
    $
    2Average price per Bbl including oil hedging settlement
results and any unrealized gains (losses)
    
    $
    70.35
    
    
    $
    72.36
    
    
    $
    64.60
    
    
    $
    67.29Increase (decrease) in revenue, in thousands
    
    $
    (319
    )
    
    $
    52
    
    
    $
    (701
    )
    
    $
    27
  7




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Increase (decrease) in earnings due to ineffectiveness
    
    $
    
    
    
    $
    2,336
    
    
    $
    
    
    
    $
    3,213
 Natural Gas and Crude Oil Derivative Contracts
 Cash-flow hedges
    September 30,2007
    
    
    2006Fair value of undesignated written put options
    
    $
    
    
    
    $
    (293
    )
  8




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Increase (decrease)
in earnings due to
changes in fair
value of written
put options
    
    $
    
    
    
    $
    115
    
    
    $
    
    
    
    $
    (168
    )
  Natural
    
    
    
    
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexNatural Gas Costless Collars10/01/07 - 10/31/07
    
    
    150,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    10.2010/01/07 - 10/31/07
    
    
    40,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    15.4510/01/07 - 10/31/07
    
    
    40,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    15.2510/01/07 - 10/31/07
    
    
    40,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    14.8510/01/07 - 10/31/07
    
    
    100,000
    
    
    
    
    
    
    $
    7.50
    
    
    $
    11.0010/01/07 - 10/31/07
    
    
    50,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    11.6010/01/07 - 10/31/07
    
    
    50,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.1010/01/07 - 10/31/07
    
    
    50,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.6010/01/07 - 10/31/07
    
    
    100,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.5510/01/07 - 10/31/07
    
    
    30,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.3511/01/07 - 12/31/07
    
    
    60,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.2011/01/07 - 03/31/08
    
    
    250,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    13.4011/01/07 - 03/31/08
    
    
    300,000
    
    
    
    
    
    
    $
    8.85
    
    
    $
    15.0011/01/07 - 03/31/08
    
    
    300,000
    
    
    
    
    
    
    $
    9.30
    
    
    $
    15.0011/01/07 - 03/31/08
    
    
    500,000
    
    
    
    
    
    
    $
    7.50
    
    
    $
    13.3011/01/07 - 03/31/08
    
    
    150,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    10.2011/01/07 - 03/31/08
    
    
    250,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    12.6511/01/07 - 03/31/08
    
    
    250,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    13.1504/01/08 - 09/30/08
    
    
    420,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.7504/01/08 - 09/30/08
    
    
    540,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.6804/01/08 - 10/31/08
    
    
    350,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    10.40Oil Costless Collars10/01/07 - 04/30/08
    
    
    
    
    
    
    14,000
    
    
    $
    60.00
    
    
    $
    74.7510/01/07 - 12/31/07
    
    
    
    
    
    
    3,000
    
    
    $
    55.00
    
    
    $
    79.0010/01/07 - 12/31/07
    
    
    
    
    
    
    4,000
    
    
    $
    60.00
    
    
    $
    76.0010/01/07 - 12/31/07
    
    
    
    
    
    
    7,000
    
    
    $
    55.00
    
    
    $
    80.3010/01/07 - 10/31/07
    
    
    
    
    
    
    2,500
    
    
    $
    58.00
    
    
    $
    90.5010/01/07 - 12/31/07
    
    
    
    
    
    
    9,000
    
    
    $
    59.20
    
    
    $
    90.0010/01/07 - 02/28/08
    
    
    
    
    
    
    12,000
    
    
    $
    65.00
    
    
    $
    82.1010/01/07 - 03/31/08
    
    
    
    
    
    
    18,000
    
    
    $
    56.00
    
    
    $
    89.9510/01/07 - 03/31/08
    
    
    
    
    
    
    6,000
    
    
    $
    65.00
    
    
    $
    80.2511/01/07 - 03/31/08
    
    
    
    
    
    
    10,000
    
    
    $
    68.40
    
    
    $
    90.0001/01/08 - 03/31/08
    
    
    
    
    
    
    7,500
    
    
    $
    57.60
    
    
    $
    90.0001/01/08 - 12/31/08
    
    
    
    
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    75.5002/01/08 - 06/30/08
    
    
    
    
    
    
    5,000
    
    
    $
    65.00
    
    
    $
    82.6004/01/08 - 06/30/08
    
    
    
    
    
    
    9,000
    
    
    $
    62.00
    
    
    $
    81.6004/01/08 - 10/31/08
    
    
    
    
    
    
    21,000
    
    
    $
    65.70
    
    
    $
    90.0004/01/08 - 12/31/08
    
    
    
    
    
    
    18,000
    
    
    $
    57.50
    
    
    $
    76.0007/01/08 - 08/31/08
    
    
    
    
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6011/01/08 - 06/30/09
    
    
    
    
    
    
    24,000
    
    
    $
    62.00
    
    
    $
    81.75
  9




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMBTU)
    
    
    Nymex
    
    
    Nymex
    
    
    NymexNatural Gas Collars04/01/08 - 06/30/08
    
    
    120,000
    
    
    $
    7.00
    
    
    $
    9.00
    
    
    $
    07/01/08 - 09/30/08
    
    
    90,000
    
    
    $
    6.75
    
    
    $
    9.62
    
    
    $
    10/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
 Interest rate swap
   Fair values
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Other current liabilities
    
    $
    (373
    )
    
    $
    (5
    )Other noncurrent liabilities
    
    
    (65
    )
    
    
    Current derivative assets
    
    
    2,766
    
    
    
    5,676Other noncurrent assets
    
    
    31
    
    
    
    904$
    2,359
    
    
    $
    6,575
 7.      Senior Notes
   10




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  8.      Oil and Gas Properties
      9.      Asset Retirement Obligations
   11




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Nine Months EndedSeptember 30,2007
    
    
    2006Beginning asset retirement obligations
    
    $
    5,002
    
    
    $
    4,389Liabilities incurred for new wells placed on production
    
    
    325
    
    
    
    395Liabilities settled
    
    
    (41
    )
    
    
    (218
    )Revisions to estimates due to sale of oil and gas properties
    
    
    (615
    )
    
    
    Accretion of discount on asset retirement obligations
    
    
    298
    
    
    
    229$
    4,969
    
    
    $
    4,795
 10.    Stock Based Compensation
   2007
    
    
    2006Risk-free interest rate
    
    
    4.6
    %
    
    
    4.6
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    49
    %
    
    
    74 - 87
    %Expected dividend yield
    
    
    
    
    
    
    Weighted average fair value per share of stock compensation
    
    $
    2.97
    
    
    $
    6.54
    12




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Pre-tax stock based compensation expense
    
    $
    1,100
    
    
    $
    516
    
    
    $
    2,628
    
    
    $
    2,072Capitalized stock based compensation
    
    
    (481
    )
    
    
    (225
    )
    
    
    (1,171
    )
    
    
    (938
    )Tax benefit
    
    
    (217
    )
    
    
    (102
    )
    
    
    (510
    )
    
    
    (397
    )Stock based compensation expense, net
    
    $
    402
    
    
    $
    189
    
    
    $
    947
    
    
    $
    737
  Stock Based Plan Descriptions and Share Information
    2007
    
    
    2006Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding at the beginning of the
year
    
    
    3,243,566
    
    
    $
    7.08
    
    
    
    2,946,333
    
    
    $
    6.96Granted
    
    
    35,000
    
    
    $
    6.18
    
    
    
    20,000
    
    
    $
    9.73Forfeited or cancelled
    
    
    (145,300
    )
    
    $
    8.06
    
    
    
    (194,067
    )
    
    $
    4.84Exercised
    
    
    (57,000
    )
    
    $
    4.05
    
    
    
    (48,600
    )
    
    $
    5.99Options outstanding at the end of the quarter
    
    
    3,076,266
    
    
    $
    7.08
    
    
    
    2,723,666
    
    
    $
    7.15Options exercisable at the end of the quarter
    
    
    1,645,366
    
    
    $
    6.34
    
    
    
    1,021,733
    
    
    $
    5.58
  13




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-
    
    
    
    
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Average
    
    
    Weighted-
    
    
    Exercisable at
    
    
    Average
    
    
    Weighted-September 30,
    
    
    Remaining
    
    
    Average
    
    
    September 30,
    
    
    Remaining
    
    
    AverageExercise Price
    
    2007
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    2007
    
    
    Contractual Life
    
    
    Exercise Price$   3.05 to $3.41
    
    
    220,366
    
    
    1.2 years
    
    $
    3.35
    
    
    
    220,366
    
    
    1.2 years
    
    $
    3.353.66 to 5.08
    
    
    444,400
    
    
    1.9 years
    
    $
    4.23
    
    
    
    407,700
    
    
    1.7 years
    
    $
    4.236.10 to 6.73
    
    
    1,255,000
    
    
    4.1 years
    
    $
    6.49
    
    
    
    524,000
    
    
    3.4 years
    
    $
    6.617.22 to 8.84
    
    
    776,500
    
    
    4.3 years
    
    $
    8.54
    
    
    
    403,300
    
    
    4.0 years
    
    $
    8.708.93 to 12.31
    
    
    380,000
    
    
    5.1 years
    
    $
    11.50
    
    
    
    90,000
    
    
    4.8 years
    
    $
    11.12$   3.05 to $12.31
    
    
    3,076,266
    
    
    3.8 years
    
    $
    7.08
    
    
    
    1,645,366
    
    
    2.9 years
    
    $
    6.34
   Restricted Stock
   2007
    
    
    2006Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceRestricted shares outstanding at the
beginning of the year
    
    
    391,367
    
    
    $
    8.60
    
    
    
    397,650
    
    
    $
    7.37Shares granted
    
    
    379,550
    
    
    $
    5.78
    
    
    
    129,595
    
    
    $
    10.84Lapse of restrictions
    
    
    (78,131
    )
    
    $
    6.46
    
    
    
    (65,000
    )
    
    $
    5.23Forfeitures
    
    
    (27,053
    )
    
    $
    8.35
    
    
    
    (27,500
    )
    
    $
    8.05Shares outstanding at the end of the quarter
    
    
    665,733
    
    
    $
    7.25
    
    
    
    434,745
    
    
    $
    8.68
  14




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##### Table of Contents



BRIGHAM
EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11.    Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    4,183
    
    
    $
    5,246
    
    
    $
    8,366
    
    
    $
    14,787Unrealized gains (losses) on cash flow
hedges
    
    
    
    
    
    
    3,527
    
    
    
    
    
    
    
    8,015Net (gains) losses included in net income
    
    
    (68
    )
    
    
    
    
    
    
    (1,231
    )
    
    
    Tax benefits (provisions) related to
cash flow hedges
    
    
    24
    
    
    
    (417
    )
    
    
    431
    
    
    
    (1,681
    )Reclassification adjustments for settled
hedging positions
    
    
    
    
    
    
    (2,336
    )
    
    
    
    
    
    
    (3,213
    )Other Comprehensive Income, net
    
    $
    4,139
    
    
    $
    6,020
    
    
    $
    7,566
    
    
    $
    17,908
 12.    New Accounting Pronouncements
     15




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  General Overview
    
    
    focus on core provinces and trends;
    
    internally generate inventory of high quality exploratory prospects;
    
    leverage our operational expertise;
    
    evaluate and selectively pursue new potential plays;
    
    capitalize on exploration successes through development of our field discoveries;
    
    continue to actively drill our multi-year prospect inventory; and
    
    enhance returns through operational control.
 Overview of Third Quarter and First Nine Months 2007 Financial Results
    16




---



##### Table of Contents



Overview of Third Quarter 2007 Operational Results
 Onshore Gulf Coast
 Vicksburg
   Southern Louisiana
   Anadarko Basin
   17




---



##### Table of Contents



Rocky Mountains
 Williston Basin
     Powder River Basin
  Third Quarter and First Nine Months 2007 Results
 Comparison of the three-month and nine month periods ended September 30, 2007 and 2006.
 Production volumes
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Oil (MBbls)
    
    
    97
    
    
    
    (8
    %)
    
    
    105
    
    
    
    298
    
    
    
    (10
    %)
    
    
    330Natural gas (MMcf)
    
    
    3,327
    
    
    
    27
    %
    
    
    2,616
    
    
    
    9,997
    
    
    
    28
    %
    
    
    7,789Total (MMcfe)(1)
    
    
    3,909
    
    
    
    20
    %
    
    
    3,245
    
    
    
    11,784
    
    
    
    21
    %
    
    
    9,766Average daily production ( MMcfe/d)(2)
    
    
    43.4
    
    
    
    
    
    
    
    36.1
    
    
    
    43.6
    
    
    
    
    
    
    
    36.2
 
 (1)
    
    MMcfe is defined as one million cubic feet equivalent of natural gas, determined using
the ratio of six MMcf of natural gas to one MBbl of crude oil, condensate or natural gas
liquids.(2)
    
    Average daily production calculated using 30 days per calendar month.  18




---



##### Table of Contents



Revenue, Commodity Prices and Hedging
  Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Oil revenue:Oil revenue
    
    $
    7,145
    
    
    
    (5
    %)
    
    $
    7,541
    
    
    $
    19,953
    
    
    
    (10
    %)
    
    $
    22,150Oil derivative settlement gains (losses)
    
    
    (21
    )
    
    NM
    

    
    
    52
    
    
    
    92
    
    
    
    4500
    %
    
    
    2Oil revenue including oil derivative settlements
    
    $
    7,124
    
    
    
    (6
    %)
    
    $
    7,593
    
    
    $
    20,045
    
    
    
    (10
    %)
    
    $
    22,152Oil derivative unrealized gains (losses)
    
    
    (299
    )
    
    NM
    


    
    
    
    
    
    
    (793
    )
    
    NM
    


    
    
    23Oil revenue including derivative settlements
and unrealized gains (losses)
    
    $
    6,825
    
    
    
    (10
    %)
    
    $
    7,593
    
    
    $
    19,252
    
    
    
    (13
    %)
    
    $
    22,175Natural gas revenue:Natural gas revenue
    
    $
    22,336
    
    
    
    32
    %
    
    $
    16,946
    
    
    $
    72,297
    
    
    
    37
    %
    
    $
    52,827Natural gas derivative settlement gains (losses)
    
    
    1,996
    
    
    
    50
    %
    
    
    1,328
    
    
    
    3,313
    
    
    
    26
    %
    
    
    2,619Natural gas revenue including derivative
settlements
    
    $
    24,332
    
    
    
    33
    %
    
    $
    18,274
    
    
    $
    75,610
    
    
    
    36
    %
    
    $
    55,446Natural gas derivative unrealized gains (losses)
    
    
    (28
    )
    
    NM
    


    
    
    99
    
    
    
    (2,192
    )
    
    
    605
    %
    
    
    (311
    )Natural gas revenue including derivative
settlements and unrealized gains (losses)
    
    $
    24,304
    
    
    
    32
    %
    
    $
    18,373
    
    
    $
    73,418
    
    
    
    33
    %
    
    $
    55,135Oil and natural gas revenue:Oil and natural gas revenue
    
    $
    29,481
    
    
    
    20
    %
    
    $
    24,487
    
    
    $
    92,250
    
    
    
    23
    %
    
    $
    74,977Oil and natural gas derivative settlement gains
(losses)
    
    
    1,975
    
    
    
    43
    %
    
    
    1,380
    
    
    
    3,405
    
    
    
    30
    %
    
    
    2,621Oil and natural gas revenue including
derivative settlement gains (losses)
    
    
    31,456
    
    
    
    22
    %
    
    
    25,867
    
    
    
    95,655
    
    
    
    23
    %
    
    
    77,598Oil and natural gas derivative unrealized gains
(losses)
    
    
    (327
    )
    
    NM
    


    
    
    99
    
    
    
    (2,985
    )
    
    
    936
    %
    
    
    (288
    )Oil and natural gas revenue including
derivative settlements and unrealized gains
(losses)
    
    
    31,129
    
    
    
    20
    %
    
    
    25,966
    
    
    
    92,670
    
    
    
    20
    %
    
    
    77,310Other revenue
    
    
    17
    
    
    
    (70
    %)
    
    
    57
    
    
    
    73
    
    
    
    (16
    %)
    
    
    87Total revenue
    
    $
    31,146
    
    
    
    20
    %
    
    $
    26,023
    
    
    $
    92,743
    
    
    
    20
    %
    
    $
    77,397
  19




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Average oil prices:Oil price (per Bbl)
    
    $
    73.65
    
    
    
    2
    %
    
    $
    71.86
    
    
    $
    66.95
    
    
    
    (0
    %)
    
    $
    67.22Oil price including derivative
settlement gains (losses) (per Bbl)
    
    
    73.43
    
    
    
    1
    %
    
    
    72.36
    
    
    
    67.26
    
    
    
    0
    %
    
    
    67.22Oil price including derivative
settlements and unrealized gains
(losses) (per Bbl)
    
    
    70.35
    
    
    
    (3
    %)
    
    
    72.36
    
    
    
    64.60
    
    
    
    (4
    %)
    
    
    67.29Average natural gas prices:Natural gas price (per Mcf)
    
    $
    6.71
    
    
    
    4
    %
    
    $
    6.48
    
    
    $
    7.23
    
    
    
    7
    %
    
    $
    6.78Natural gas price including derivative
settlement gains (losses) (per Mcf)
    
    
    7.31
    
    
    
    5
    %
    
    
    6.99
    
    
    
    7.56
    
    
    
    6
    %
    
    
    7.12Natural gas price including derivative
settlements and unrealized gains
(losses) (per Mcf)
    
    $
    7.31
    
    
    
    4
    %
    
    $
    7.02
    
    
    $
    7.34
    
    
    
    4
    %
    
    $
    7.08Average equivalent prices:Natural gas equivalent price (per Mcfe)
    
    $
    7.54
    
    
    
    0
    %
    
    $
    7.55
    
    
    $
    7.83
    
    
    
    2
    %
    
    $
    7.68Natural gas equivalent price including
derivative settlement gains (losses)
(per Mcfe)
    
    
    8.05
    
    
    
    1
    %
    
    
    7.97
    
    
    
    8.12
    
    
    
    2
    %
    
    
    7.95Natural gas equivalent price including
derivative settlements and unrealized
gains (losses) (per Mcfe)
    
    $
    7.96
    
    
    
    (1
    %)
    
    $
    8.00
    
    
    $
    7.86
    
    
    
    (1
    %)
    
    $
    7.92
 For the three
    
    
    For the ninemonth periods
    
    
    month periodsended September 30,
    
    
    ended September 30,2007 and 2006
    
    
    2007 and 2006Change in revenue from the sale of oilVolume variance impact
    
    $
    (570
    )
    
    $
    (2,117
    )Price variance impact
    
    
    174
    
    
    
    (80
    )Cash settlement of hedging contracts
    
    
    (73
    )
    
    
    90Unrealized hedge gain or loss
    
    
    (299
    )
    
    
    (816
    )Total change
    
    $
    (768
    )
    
    $
    (2,923
    )Change in revenue from the sale of natural gasVolume variance impact
    
    $
    4,613
    
    
    $
    14,951Price variance impact
    
    
    777
    
    
    
    4,519Cash settlement of hedging contracts
    
    
    668
    
    
    
    694Unrealized hedge gain or loss
    
    
    (127
    )
    
    
    (1,881
    )Total change
    
    $
    5,931
    
    
    $
    18,283Change in revenue from the sale of oil and natural gasVolume variance impact
    
    $
    4,043
    
    
    $
    12,834Price variance impact
    
    
    951
    
    
    
    4,439Cash settlement of hedging contracts
    
    
    595
    
    
    
    784Unrealized hedge gain or loss
    
    
    (426
    )
    
    
    (2,697
    )Total change
    
    $
    5,163
    
    
    $
    15,360
  20




---



##### Table of Contents




    
    a 27% increase in natural gas production partially offset by an 8% decrease in oil
production resulted in an overall $4.0 million increase in oil and natural gas revenue;
    
    a 4% increase in the sales price for natural gas and a 2% increase in the sales price for
oil resulted in a $1.0 million increase in our oil and natural gas revenue;
    
    a $2.0 million derivative settlement gain in the third quarter 2007 versus a $1.4 million
derivative settlement gain in third quarter 2006 increased revenue by $0.6 million; and
    
    a $0.3 million unrealized derivative loss in third quarter 2007 versus a $0.1 million
unrealized derivative gain in third quarter 2006 decreased revenue by $0.4 million.
  
    
    a 28% increase in natural gas production partially offset by a 10% decrease in oil
production resulted in a $12.8 million increase in oil and natural gas revenue;
    
    a 7% increase in the sales price for natural gas and a minimal change in the sales price
for oil resulted in a $4.4 million increase in oil and natural gas revenue;
    
    a $3.4 million derivative settlement gain in the first nine months 2007 versus a $2.6
million derivative settlement gain in third quarter 2006 increased revenue by $0.8 million;
and
    
    a $3.0 million unrealized derivative loss in first nine months 2007 versus a $0.3 million
unrealized derivative loss in the first nine months 2006 decreased revenue by $2.7 million.
 Hedging.
  21




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Oil collarsVolumes (Bbls)
    
    
    58,500
    
    
    
    31
    %
    
    
    44,500
    
    
    
    207,500
    
    
    
    80
    %
    
    
    115,500Average floor price ($  per Bbl)
    
    $
    56.00
    
    
    
    (4
    %)
    
    $
    58.20
    
    
    $
    56.01
    
    
    
    2
    %
    
    $
    55.18Average ceiling price ($  per Bbl)
    
    $
    82.00
    
    
    
    6
    %
    
    $
    77.45
    
    
    $
    80.86
    
    
    
    10
    %
    
    $
    73.80Gain (loss) upon settlement ($ in thousands)
    
    $
    (21
    )
    
    NM
    


    
    $
    52
    
    
    $
    92
    
    
    
    4500
    %
    
    $
    2Oil written putsVolumes (Bbls)
    
    
    
    
    
    
    (100
    %)
    
    
    15,000
    
    
    
    
    
    
    
    (100
    %)
    
    
    40.500Average price ($  per Bbl)
    
    $
    
    
    
    
    (100
    %)
    
    $
    48.00
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    43.56Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    
    
    
    
    0
    %
    
    $
    Total oilGain (loss) upon settlement ($ in thousands)
    
    $
    (21
    )
    
    NM
    


    
    $
    52
    
    
    $
    92
    
    
    
    4500
    %
    
    $
    2Natural gas basis swapsVolumes (MMbtu)
    
    
    
    
    
    
    (100
    %)
    
    
    840,000
    
    
    
    
    
    
    
    (100
    %)
    
    
    840,000Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    (106
    )
    
    $
    
    
    
    
    (100
    %)
    
    $
    (106
    )Natural gas collarsVolumes (MMbtu)
    
    
    2,090,000
    
    
    
    71
    %
    
    
    1,220,000
    
    
    
    5,885,000
    
    
    
    99
    %
    
    
    2,960,000Average floor price ($  per MMbtu)
    
    $
    7.10
    
    
    
    (7
    %)
    
    $
    7.60
    
    
    $
    7.25
    
    
    
    (9
    %)
    
    $
    7.94Average ceiling price ($  per MMbtu)
    
    $
    10.89
    
    
    
    (18
    %)
    
    $
    13.23
    
    
    $
    12.44
    
    
    
    (4
    %)
    
    $
    12.94Gain (loss) upon settlement ($ in thousands)
    
    $
    1,996
    
    
    
    29
    %
    
    $
    1,549
    
    
    $
    3,313
    
    
    
    9
    %
    
    $
    3,039Natural gas written putsVolumes (MMbtu)
    
    
    
    
    
    
    (100
    %)
    
    
    390,000
    
    
    
    
    
    
    
    (100
    %)
    
    
    1,380,000Average price ($  per MMbtu)
    
    $
    
    
    
    
    (100
    %)
    
    $
    6.65
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    6.83Gain (loss) upon settlement ($ in thousands)
    
    $
    
    
    
    
    (100
    %)
    
    $
    (115
    )
    
    $
    
    
    
    
    (100
    %)
    
    $
    (314
    )Total gasGain (loss) upon settlement ($ in thousands)
    
    $
    1,996
    
    
    
    29
    %
    
    $
    1,328
    
    
    $
    3,313
    
    
    
    9
    %
    
    $
    2,619
 Other revenue
 Operating costs and expenses
 Production costs.
 Unit-of-Production
    
    
    Amount(Per Mcfe)
    
    
    (In thousands)Three months ended September 30,
    
    
    Three months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Production costs:Operating & maintenance
    
    $
    0.48
    
    
    
    (25
    %)
    
    $
    0.64
    
    
    $
    1,847
    
    
    
    (11
    %)
    
    $
    2,076Expensed workovers
    
    
    0.07
    
    
    
    75
    %
    
    
    0.04
    
    
    
    292
    
    
    
    118
    %
    
    
    134Ad valorem taxes
    
    
    0.11
    
    
    
    (21
    %)
    
    
    0.14
    
    
    
    425
    
    
    
    (8
    %)
    
    
    462Lease operating expenses
    
    $
    0.66
    
    
    
    (20
    %)
    
    $
    0.82
    
    
    $
    2,564
    
    
    
    (4
    %)
    
    $
    2,672Production taxes
    
    
    0.24
    
    
    
    (38
    %)
    
    
    0.39
    
    
    
    951
    
    
    
    (24
    %)
    
    
    1,259Production costs
    
    $
    0.90
    
    
    
    (26
    %)
    
    $
    1.21
    
    
    $
    3,515
    
    
    
    (11
    %)
    
    $
    3,931
  22




---



##### Table of Contents




    
    Per unit operating and maintenance (O&M) expense
decreased by $0.16 per Mcfe, or 25%, from the
corresponding period last year because of decreases in salt water disposal costs attributable to our Granite Wash sale, chemical treating,
and compressor and equipment rental expense;
    
    Production tax expense decreased $0.15 per Mcfe, or 38%, from the third quarter 2006. The
decrease was due to an increase in tax credits associated with high
cost gas production tax abatements. The increase
in tax credits is partially attributable to the fact that we are recording credits immediately upon commencing production
from our Vicksburg and Mills Ranch wells given our 100% success rate in applying for credits. We now book credits
immediately rather than deferring recognition until receiving approval from the relevant government authority.
    
    Ad valorem taxes decreased $0.03 per Mcfe, or 21%, due to a decrease in estimated property
valuations for our oil and natural gas properties; and
    
    These decreases were offset by an increase in expensed workovers of $0.03 per Mcfe, or 75%,
due to an increase in workover activity as compared to that in the third quarter 2006.
 Unit-of-Production
    
    
    Amount(Per Mcfe)
    
    
    (In thousands)Nine months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006Production costs:Operating & maintenance
    
    $
    0.56
    
    
    
    (11
    %)
    
    $
    0.63
    
    
    $
    6,585
    
    
    
    7
    %
    
    $
    6,127Expensed workovers
    
    
    0.05
    
    
    
    25
    %
    
    
    0.04
    
    
    
    616
    
    
    
    50
    %
    
    
    411Ad valorem taxes
    
    
    0.11
    
    
    
    (21
    %)
    
    
    0.14
    
    
    
    1,257
    
    
    
    (10
    %)
    
    
    1,400Lease operating expenses
    
    $
    0.72
    
    
    
    (11
    %)
    
    $
    0.81
    
    
    $
    8,458
    
    
    
    7
    %
    
    $
    7,938Production taxes
    
    
    0.13
    
    
    
    (63
    %)
    
    
    0.35
    
    
    
    1,573
    
    
    
    (54
    %)
    
    
    3,455Production costs
    
    $
    0.85
    
    
    
    (27
    %)
    
    $
    1.16
    
    
    $
    10,031
    
    
    
    (12
    %)
    
    $
    11,393
  
    
    Production taxes decreased $0.22 per Mcfe, or 63%, due to an increase in tax credits partially attributable to the aforementioned change in
recording production tax credits;
    
    O&M expense decreased $0.07 per Mcfe, or 11% because of decreases in salt water disposal
and chemical treating expense; and
    
    Ad valorem taxes decreased $0.03 per Mcfe, or 21%, due to a decrease in estimated property
valuations for our oil and natural gas properties.
 General and administrative expenses.
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006(In thousands, except per unit measurements)General and administrative costs
    
    $
    4,636
    
    
    
    25
    %
    
    $
    3,702
    
    
    $
    13,163
    
    
    
    21
    %
    
    $
    10,878Capitalized general and administrative costs
    
    
    (2,122
    )
    
    
    24
    %
    
    
    (1,717
    )
    
    
    (6,190
    )
    
    
    25
    %
    
    
    (4,942
    )General and administrative expenses
    
    $
    2,514
    
    
    
    27
    %
    
    $
    1,985
    
    
    $
    6,973
    
    
    
    17
    %
    
    $
    5,936General and administrative expense ($  per Mcfe)
    
    $
    0.64
    
    
    
    5
    %
    
    $
    0.61
    
    
    $
    0.59
    
    
    
    (3
    %)
    
    $
    0.61
  23




---



##### Table of Contents



Depletion of oil and natural gas properties
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006(In thousands, except per unit measurements)Depletion of oil and natural gas properties
    
    $
    14,776
    
    
    
    24
    %
    
    $
    11,910
    
    
    $
    45,347
    
    
    
    36
    %
    
    $
    33,272Depletion of oil and natural gas
properties ($  per Mcfe)
    
    $
    3.78
    
    
    
    3
    %
    
    $
    3.67
    
    
    $
    3.85
    
    
    
    13
    %
    
    $
    3.41
  Impairment of oil and natural gas properties
     24




---



##### Table of Contents



Net interest expense.
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006(In thousands)Interest on Senior Notes
    
    $
    3,490
    
    
    
    16
    %
    
    $
    3,008
    
    
    $
    10,273
    
    
    
    92
    %
    
    $
    5,347Interest on senior credit facility
    
    
    811
    
    
    NM
    


    
    
    
    
    
    
    2,159
    
    
    
    191
    %
    
    
    743Interest on senior subordinated notes (a)
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    (100
    %)
    
    
    699Commitment fees
    
    
    57
    
    
    
    39
    %
    
    
    41
    
    
    
    157
    
    
    
    27
    %
    
    
    124Dividend on mandatorily redeemable preferred stock
    
    
    153
    
    
    
    0
    %
    
    
    153
    
    
    
    453
    
    
    
    0
    %
    
    
    453Amortization of deferred loan and debt issuance cost
    
    
    243
    
    
    
    23
    %
    
    
    197
    
    
    
    686
    
    
    
    (53
    %)
    
    
    1,465Other general interest expense
    
    
    1
    
    
    
    0
    %
    
    
    1
    
    
    
    2
    
    
    
    (67
    %)
    
    
    6Capitalized interest expense
    
    
    (779
    )
    
    
    7
    %
    
    
    (731
    )
    
    
    (2,659
    )
    
    
    37
    %
    
    
    (1,938
    )Net interest expense
    
    $
    3,976
    
    
    
    49
    %
    
    $
    2,669
    
    
    $
    11,071
    
    
    
    60
    %
    
    $
    6,899Weighted average debt outstanding
    
    $
    186,562
    
    
    
    38
    %
    
    $
    135,101
    
    
    $
    183,174
    
    
    
    61
    %
    
    $
    114,067Average interest rate on outstanding indebtedness (b)
    
    
    9.8
    %
    
    
    
    
    
    
    9.5
    %
    
    
    9.6
    %
    
    
    
    
    
    
    8.6
    %
 
 a)
    
    Includes the effects of interest rate swaps.b)
    
    Calculated as the sum of the interest expense on our outstanding indebtedness,
commitment fees that we pay on our unused borrowing capacity and the dividend on our
mandatorily redeemable preferred stock divided by our weighted average debt and
preferred stock outstanding for the period.   Other income (expense).
  25




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change
    
    
    2006(In thousands)Other income (expense):Non-cash gain (loss)
for the ineffective
portion of cash flow
hedges
    
    $
    
    
    
    
    (100
    %)
    
    $
    2,336
    
    
    $
    
    
    
    
    (100
    %)
    
    $
    3,213Non-cash gain (loss)
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    40
    
    
    NM
    
    
    
    Cash income (expense)
    
    
    105
    
    
    
    (39
    %)
    
    
    171
    
    
    
    967
    
    
    
    (18
    %)
    
    
    1,181Total other income
    
    $
    105
    
    
    
    (96
    %)
    
    $
    2,507
    
    
    $
    1,007
    
    
    
    (77
    %)
    
    $
    4,394
  Income taxes.
    Nine months endedSeptember 30, 2007
    
    
    Tax Rate(In thousands)Reconciliation to effective tax rate:Tax at the statutory rate
    
    $
    4,757
    
    
    
    35.00
    %Add the effect of:Non-deductible expenses
    
    
    5
    
    
    
    0.01
    %Preferred stock dividends
    
    
    159
    
    
    
    1.16
    %Incentive stock options not exercised
    
    
    124
    
    
    
    0.91
    %State taxes (after-tax)
    
    
    267
    
    
    
    1.96
    %Adjustments to 2006 tax accruals
    
    
    (165
    )
    
    
    (1.21
    %)Other
    
    
    80
    
    
    
    0.62
    %Total
    
    $
    5,227
    
    
    
    38.45
    %
  26




---



##### Table of Contents



Capital Expenditures
  
    
    cost of acquiring and maintaining our lease acreage position and our seismic resources;
    
    cost of drilling and completing new oil and natural gas wells;
    
    cost of installing new production infrastructure;
    
    cost of maintaining, repairing and enhancing existing oil and natural gas wells;
    
    cost related to plugging and abandoning unproductive or uneconomic wells; and
    
    indirect costs related to our exploration activities, including payroll and other
expenses attributable our exploration professional staff.
  Amount2007
    
    
    Spent Through
    
    
    AmountBudget
    
    
    September 30, 2007
    
    
    Remaining (a)(In millions)Drilling
    
    $
    91.2
    
    
    $
    71.1
    
    
    $
    20.1Net land and seismic
    
    
    11.2
    
    
    
    10.0
    
    
    
    1.2Capitalized costs (b)
    
    
    11.5
    
    
    
    9.1
    
    
    
    2.4Total oil and gas capital expenditures (c)(d)
    
    $
    113.9
    
    
    $
    90.2
    
    
    $
    23.7
 
 (a)
    
    Calculated based on the 2007 capital expenditure budget announced in February
2007 less capital expenditures on a pre-asset sale basis through September 30, 2007.(b)
    
    Capitalized costs include capitalized interest, G&A, stock compensation
expense and asset retirement obligation.(c)
    
    Excludes other property capital expenditures.(d)
    
    Excludes the impact of our September 1, 2007 Anadarko Basin Granite Wash asset
sale. See Analysis of Changes in Cash Flows Used in Investing Activities for
reconciliation of total oil and gas capital expenditures to cash used in investing
activities. Determination of Capital Expenditure Budget
   
    
    changes in commodity prices;
 
    
    variances in forecasted production and the resulting production of our newly drilled
wells;
 
    
    variances in our production levels from our existing oil and gas properties;
 
    
    variances in a prospects risked reserve size;
 
    
    variances in drilling and completion costs, service costs and the availability of
drilling equipment;
 
    
    variances in the availability and timing of drilling and completion services;
 
    
    economic and industry conditions at the time of drilling; and
 
    
    the availability of more economically attractive prospects.
   27




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##### Table of Contents



Liquidity and Capital Resources
 Sources of Capital
  9 5/8% Senior Notes Due 2014
   
    
    rank equally in right of payment with all our existing and future senior
indebtedness;
    
    rank senior to all of our future subordinated indebtedness; and
    
    are effectively junior in right of payment to all of our and the Guarantors
existing and future secured indebtedness, including debt of our senior credit
agreement.
   Senior Credit Agreement
   28




---



##### Table of Contents



Percent of
    
    EurodollarBorrowing Base
    
    Rate
    
    Base RateUtilized
    
    Advances
    
    Advances(1)<50%
    
    1.250%
    
    0.000%50% and < 75%
    
    1.500%
    
    0.000%75% and < 90%
    
    1.750%
    
    0.250%90%
    
    2.000%
    
    0.500%
 
 (1)
    
    Base rate is defined as for any day a fluctuating rate per annum equal to the higher of: (a)
the Federal Funds Rate plus 1/2 of 1% or (b) the rate of interest in effect for such day as
publicly announced from time to time by Bank of America as its prime rate. The prime rate
is a rate set by Bank of America based upon various factors including Bank of Americas costs
and desired return, general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below such announced rate. Any
change in such rate announced by Bank of America shall take effect at the opening of business
on the day specified in the public announcement of such change.  Percent ofBorrowing Base
    
    QuarterlyUtilized
    
    Commitment Fee<50%
    
    0.250%50% and < 75%
    
    0.250%75% and < 90%
    
    0.375%90%
    
    0.375%
   29




---



##### Table of Contents



Mandatorily Redeemable Preferred Stock
  Access to Capital Markets
    Off Balance Sheet Arrangements
  Analysis of Changes in Cash and Cash Equivalents
  Nine months ended September 30,2007
    
    
    % Change
    
    
    2006(In thousands)Net income
    
    $
    8,366
    
    
    
    (43
    %)
    
    $
    14,787Non-cash items
    
    
    62,994
    
    
    
    45
    %
    
    
    43,593Changes in working capital and other items
    
    
    1,992
    
    
    
    (87
    %)
    
    
    15,915Cash flows provided by operating activities
    
    $
    73,352
    
    
    
    (1
    %)
    
    $
    74,295Cash flows used by investing activities
    
    
    (75,163
    )
    
    
    (40
    %)
    
    
    (126,139
    )Cash flows provided by financing activities
    
    
    8,007
    
    
    
    (86
    %)
    
    
    57,483Net increase in cash and cash equivalents
    
    $
    6,196
    
    
    
    10
    %
    
    $
    5,639
 Analysis of net cash provided by operating activities
   30




---



##### Table of Contents



Analysis of changes in cash flows used in investing activities
 Nine months ended September 30,2007
    
    
    % Change
    
    
    2006(In thousands)Capital expenditures for oil and natural gas activities:Drilling
    
    $
    71,068
    
    
    
    (34
    %)
    
    $
    106,931Land and seismic
    
    
    9,969
    
    
    
    (59
    %)
    
    
    24,244Capitalized cost
    
    
    8,849
    
    
    
    22
    %
    
    
    7,273Capitalized asset retirement obligation
    
    
    325
    
    
    
    (18
    %)
    
    
    395Total
    
    $
    90,211
    
    
    
    (35
    %)
    
    $
    138,843Reconciling Items:Asset Sale
Proceeds and ARO liability reduction
    
    $
    (36,050
    )
    
    NM
    
    $
    Change in accrued drilling costs
    
    
    19,742
    
    
    NM

    
    
    (12,453
    )Change in short-term investments
    
    
    
    
    
    
    (100
    %)
    
    
    1,004Other
    
    
    1,260
    
    
    NM
    
    
    (1,255
    )Total Reconciling Items
    
    
    (15,048
    )
    
    
    18
    %
    
    
    (12,704
    )Net cash used in investing activities
    
    $
    75,163
    
    
    
    (40
    %)
    
    $
    126,139
  
    
    Drilling capital expenditures decreased by $35.9 million primarily because of our reduced
level of drilling activity in the first nine months 2007 versus the corresponding period last
year;
 
    
    Land and seismic expenditures decreased by $14.3 million due to a decreased level of land
and seismic acquisitions from 2006, when we acquired large acreage positions in the Bakken and
Mowry Shale;
    
    Our Granite Wash asset sale reduced cash used in investing activities by $36.1 million; and
    
    Offsetting the above decreases was a $32.2 million decrease in our accrued drilling costs,
which increased cash used in investing activities.
 Analysis of changes in cash flows from financing activities
   31




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##### Table of Contents



Common Stock Transactions
  Shares Issued
    
    
    Net Proceeds(In thousands, except share data)2007 common stock transactions:Exercise of employee stock options
    
    
    57,000
    
    
    $
    2312006 common stock transactions:Exercise of employee stock options
    
    
    77,100
    
    
    $
    392
 Other Matters
 Derivative Instruments
   Effects of Inflation and Changes in Prices
  Environmental and Other Regulatory Matters
   32




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##### Table of Contents



New Accounting Pronouncements
    Forward Looking Information
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Management Opinion Concerning Derivative Instruments
   33




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##### Table of Contents



Derivative Instruments and Hedging Activities
        34




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##### Table of Contents



Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars10/01/07 - 10/31/07
    
    
    40,000
    
    
    $
    7.00
    
    
    $
    15.4510/01/07 - 10/31/07
    
    
    40,000
    
    
    $
    7.25
    
    
    $
    15.2510/01/07 - 10/31/07
    
    
    40,000
    
    
    $
    7.00
    
    
    $
    14.8510/01/07 - 10/31/07
    
    
    100,000
    
    
    $
    7.50
    
    
    $
    11.0010/01/07 - 10/31/07
    
    
    50,000
    
    
    $
    7.00
    
    
    $
    11.6010/01/07 - 10/31/07
    
    
    50,000
    
    
    $
    7.00
    
    
    $
    9.1010/01/07 - 10/31/07
    
    
    50,000
    
    
    $
    7.25
    
    
    $
    9.6010/01/07 - 10/31/07
    
    
    100,000
    
    
    $
    7.00
    
    
    $
    9.5510/01/07 - 10/31/07
    
    
    150,000
    
    
    $
    7.00
    
    
    $
    10.2010/01/07 - 10/31/07
    
    
    30,000
    
    
    $
    7.00
    
    
    $
    9.3511/01/07 - 11/30/07
    
    
    50,000
    
    
    $
    8.00
    
    
    $
    10.2011/01/07 - 11/30/07
    
    
    40,000
    
    
    $
    7.25
    
    
    $
    9.2011/01/07 - 03/31/08
    
    
    250,000
    
    
    $
    8.00
    
    
    $
    13.4011/01/07 - 03/31/08
    
    
    300,000
    
    
    $
    8.85
    
    
    $
    15.0011/01/07 - 03/31/08
    
    
    300,000
    
    
    $
    9.30
    
    
    $
    15.0011/01/07 - 03/31/08
    
    
    500,000
    
    
    $
    7.50
    
    
    $
    13.3011/01/07 - 03/31/08
    
    
    250,000
    
    
    $
    8.00
    
    
    $
    12.6511/01/07 - 03/31/08
    
    
    250,000
    
    
    $
    8.00
    
    
    $
    13.1512/01/07 - 12/31/07
    
    
    20,000
    
    
    $
    7.25
    
    
    $
    9.2012/01/07 - 12/31/07
    
    
    40,000
    
    
    $
    8.00
    
    
    $
    10.2001/01/08 - 01/31/08
    
    
    30,000
    
    
    $
    8.00
    
    
    $
    10.2002/01/08 - 02/29/08
    
    
    20,000
    
    
    $
    8.00
    
    
    $
    10.2003/01/08 - 03/31/08
    
    
    10,000
    
    
    $
    8.00
    
    
    $
    10.2004/01/08 - 09/30/08
    
    
    420,000
    
    
    $
    6.75
    
    
    $
    9.7504/01/08 - 09/30/08
    
    
    540,000
    
    
    $
    7.00
    
    
    $
    9.6804/01/08 - 10/31/08
    
    
    350,000
    
    
    $
    7.25
    
    
    $
    10.40
 Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Oil Costless Collars10/01/07 - 10/31/07
    
    
    2,500
    
    
    $
    58.00
    
    
    $
    90.5010/01/07 - 10/31/07
    
    
    3,000
    
    
    $
    55.00
    
    
    $
    80.3010/01/07 - 10/31/07
    
    
    2,000
    
    
    $
    60.00
    
    
    $
    76.0010/01/07 - 11/31/07
    
    
    6,000
    
    
    $
    65.00
    
    
    $
    82.1010/01/07 - 12/31/07
    
    
    9,000
    
    
    $
    59.20
    
    
    $
    90.0010/01/07 - 12/31/07
    
    
    3,000
    
    
    $
    55.00
    
    
    $
    79.0010/01/07 - 03/31/08
    
    
    18,000
    
    
    $
    56.00
    
    
    $
    89.9510/01/07 - 03/31/08
    
    
    6,000
    
    
    $
    65.00
    
    
    $
    80.2510/01/07 - 04/31/08
    
    
    14,000
    
    
    $
    60.00
    
    
    $
    74.7511/01/07 - 12/31/07
    
    
    4,000
    
    
    $
    55.00
    
    
    $
    80.3011/01/07 - 12/31/07
    
    
    2,000
    
    
    $
    60.00
    
    
    $
    76.0011/01/07 - 03/31/08
    
    
    10,000
    
    
    $
    68.40
    
    
    $
    90.0012/01/07 - 12/31/07
    
    
    2,000
    
    
    $
    65.00
    
    
    $
    82.1001/01/08 - 01/31/08
    
    
    3,000
    
    
    $
    65.00
    
    
    $
    82.1001/01/08 - 03/31/08
    
    
    7,500
    
    
    $
    57.60
    
    
    $
    90.0001/01/08 - 12/31/08
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    75.5002/01/08 - 02/29/08
    
    
    1,000
    
    
    $
    65.00
    
    
    $
    82.1002/01/08 - 06/30/08
    
    
    5,000
    
    
    $
    65.00
    
    
    $
    82.6004/01/08 - 06/30/08
    
    
    9,000
    
    
    $
    62.00
    
    
    $
    81.6004/01/08 - 10/31/08
    
    
    21,000
    
    
    $
    65.70
    
    
    $
    90.0004/01/08 - 12/31/08
    
    
    18,000
    
    
    $
    57.50
    
    
    $
    76.00
  35




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##### Table of Contents



Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Oil Costless Collars (continued)07/01/08 - 08/31/08
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6007/01/08 - 08/31/08
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6011/01/08 - 06/31/09
    
    
    24,000
    
    
    $
    62.00
    
    
    $
    81.75
  Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars04/01/08 - 06/30/08
    
    
    120,000
    
    
    $
    7.00
    
    
    $
    9.0007/01/08 - 09/30/08
    
    
    90,000
    
    
    $
    6.75
    
    
    $
    9.62
 Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Three Way Costless Collars10/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   36




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 31.1
    
    Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. § 135032.2
    
    Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. § 1350
  37




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##### Table of Contents



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

Chief Financial Officer  38




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1
    
    Certification of Chief Executive Officer of the Company pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer of the Company pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer of the Company pursuant
to 18 U.S.C. § 135032.2
    
    Certification of Chief Financial Officer of the Company pursuant
to 18 U.S.C. § 1350
  39