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U.S. Securities And Exchange Commission
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-6529
 DOUBLE EAGLE PETROLEUM CO.
  Maryland
    
    83-0214692(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 777 Overland Trail (P.O. Box 766) Casper, Wyoming
    
    82601(Address of principal executive offices)
    
    (Zip Code)
  
   Title of each class
    
    Name of each exchange on which registeredNone
    
    None
 $.10 Par Value Common Stock
  o þ
  o þ
 þ o
 þ
  o þ o
 o þ




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##### 



PART IItem 1.
    
    Description of Business
    
    
    2Item 1a.
    
    Risk Factors
    
    
    12Item 1b
    
    Unresolved Staff Comments
    
    
    14Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    26Item 6.
    
    Selected Financial Data
    
    
    28Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 7a.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8.
    
    Financial Statements and Supplementary Data
    
    
    38Item 9
    
    Changes and Disagreements with Accountants On Accounting and Financial Disclosure
    
    
    38Item 9a.
    
    Controls and Procedures
    
    
    38Item 9b.
    
    Other Information
    
    
    41PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    41Item 11.
    
    Executive Compensation
    
    
    44Item 12.
    
    Security Ownership of Certain Beneficial Owners And Management and Related Stockholder Matters
    
    
    47Item 13.
    
    Certain Relationships and Related Transactions
    
    
    49Item 14.
    
    Principal Accountant Fees and Services
    
    
    49PART IVItem 15.
    
    Exhibits and Financial Statement Schedule
    
    
    51Consent of Hein & Associates LLPConsent of Netherland, Sewell & AssociatesCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  1




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PART I
  
 ITEM 1. DESCRIPTION OF BUSINESS
 Overview
  
    
    the Green River Basin in southwestern Wyoming;
    
    the Wind River Basin in central Wyoming
    
    Christmas Meadows area in northeastern Utah.
    Business Strategy
   2




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Marketing and Major Customers
    Title to Properties
  3




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Seasonality
  Competition
  Government Regulations
   Regulation of Natural Gas and Oil Exploration and Production
  
    
    require permits for the drilling of wells
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
    
    mandate that we maintain bonding requirements in order to drill or operate wells
    
    regulate the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled, the plugging
and abandoning of wells, temporary storage tank operations, air emissions from
flaring, compression, and access roads, sour gas management, and the disposal of
fluids used in connection with operations.
  Regulation of Sales and Transportation of Natural Gas
    5




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Oil Price Controls and Transportation Rates
  Environmental Laws and Regulations
   6




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Employees and Office Space
  8




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Cautionary Statement about Forward-Looking Statements
    
    
    failure to obtain, or a decline in, oil or gas production, or a decline in oil or gas prices,
    
    incorrect estimates of required capital expenditures,
    
    increases in the cost of drilling, completion and gas collection or other
costs of production and operations,
    
    an inability to meet growth projections, and
    
    other risk factors set forth under Risk Factors in this annual report.
 Available Information
 www.dble.us
  9




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Double Eagle Petroleum Co.Corporate Secretary777 Overland TrailCasper, WY 82601
 Glossary
  3-D seismic or 3-D data
 Bbl
 Bcf
 Bcfe
 Boe
 Development well
 Dry hole.
 Estimated net proved reserves
 Exploratory well.
 Finding cost
 Gross acres
 Gross well
 MBbl
 Mcf
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Mcfe
 MMcf
 MMcfe
 MMBtu
 Net acres or net wells
 PV-10 value
 Productive well.
 Proved developed reserves
 Proved undeveloped reserves
 Recompletion
 Royalty
 Royalty interest
 Undeveloped acreage
 Working interest
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ITEM 1a RISK FACTORS
  We cannot predict the future price of oil and natural gas and an extended decline in prices could
hurt our business prospects.
  We could be adversely impacted by a variety of changes in the oil and gas market which are beyond
our control.
  We may be unable to find additional reserves which would adversely impact our revenues.
  We may not be able to fund our planned capital expenditures.
  12




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Oil and gas operations are inherently risky.
  New government regulation and environmental risks could increase our cost of doing business.
  
    
    prevention of waste
    
    discharge of materials into the environment
    
    conservation of oil and natural gas, pollution, permits for drilling operations,
drilling bonds, reports concerning operations
    
    spacing of wells
    
    unitization and pooling of properties
  Our prices may be impacted adversely by new taxes.
  Our reserves and future net revenues may differ significantly from our estimates.
  We depend on a key employee.
  13




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There is limited liquidity in our shares.
  
 ITEM 1b. UNRESOLVED STAFF COMMENTS
  14




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ITEM 2. PROPERTIES
 SUMMARY
   December 31, 2005Basin
    
    Gross Acres
    
    
    Net AcresGreen River Basin
    
    
    193,152
    
    
    
    69,036Wind River Basin
    
    
    26,487
    
    
    
    2,068Hanna Basin
    
    
    35,330
    
    
    
    6,332Powder River Basin
    
    
    46,779
    
    
    
    6,568Huntington Basin
    
    
    129,575
    
    
    
    127,340Other
    
    
    73,576
    
    
    
    6,066Total
    
    
    504,899
    
    
    
    217,410
 EASTERN WASHAKIE COAL BED NATURAL GAS PROJECT
  15




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History
  Cow Creek Field
  Sun Dog Unit
  Doty Mountain - Unit
  16




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Other Units
  Eastern Washakie Exploratory Tests
 Cow Creek Deep
  South Fillmore
  GREEN RIVER BASIN
 Pinedale Anticline
 Summary
  History
  17




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Christmas Meadows
   18




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WIND RIVER BASIN
  Madden Anticline
  Madden Field and Long Butte Field
   19




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South Sand Draw
  POWDER RIVER BASIN
 Rattlesnake Prospect
    Nevada
  Mining Claims
 Zeolite Claims
  20




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Acreage
   Developed
    
    
    UndevelopedAcres (1)
    
    
    Acres (2)
    
    
    Total AcresState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetColorado
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    80
    
    
    
    80
    
    
    
    80Montana
    
    
    29
    
    
    
    1
    
    
    
    1,892
    
    
    
    1,135
    
    
    
    1,921
    
    
    
    1,136North Dakota
    
    
    2,240
    
    
    
    49
    
    
    
    2,560
    
    
    
    64
    
    
    
    4,800
    
    
    
    113Utah
    
    
    637
    
    
    
    16
    
    
    
    45,742
    
    
    
    26,092
    
    
    
    46,379
    
    
    
    26,108Wyoming
    
    
    75,287
    
    
    
    4,489
    
    
    
    145,571
    
    
    
    55,777
    
    
    
    220,858
    
    
    
    60,266Nevada
    
    
    
    
    
    
    
    
    
    
    129,575
    
    
    
    127,340
    
    
    
    129,575
    
    
    
    127,340Total
    
    
    78,193
    
    
    
    4,555
    
    
    
    325,420
    
    
    
    210,488
    
    
    
    403,613
    
    
    
    215,043
  Developed
    
    
    UndevelopedAcres (1)
    
    
    Acres (2)
    
    
    Total AcresState
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetColorado
    
    
    155
    
    
    
    5
    
    
    
    1,920
    
    
    
    320
    
    
    
    2,075
    
    
    
    325Mississippi
    
    
    160
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    1Montana
    
    
    611
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    611
    
    
    
    15North Dakota
    
    
    1,523
    
    
    
    40
    
    
    
    5,313
    
    
    
    243
    
    
    
    6,836
    
    
    
    283Oklahoma
    
    
    640
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    2Utah
    
    
    
    
    
    
    
    
    
    
    51,311
    
    
    
    51
    
    
    
    51,311
    
    
    
    51Wyoming
    
    
    10,464
    
    
    
    162
    
    
    
    29,189
    
    
    
    1,528
    
    
    
    39,653
    
    
    
    1,690Total
    
    
    13,553
    
    
    
    225
    
    
    
    87,733
    
    
    
    2,142
    
    
    
    101,286
    
    
    
    2,367
 
 (1)
    
    Developed acreage is acreage assigned to producing wells for the spacing unit of the
producing formation. Developed acreage in certain of the Companys properties that include
multiple formations with different well spacing requirements may be considered undeveloped for
certain formations, but have only been included as developed acreage in the presentation
above.(2)
    
    Undeveloped acreage is lease acreage on which wells have not been drilled or completed to a
point that would permit the production of commercial quantities of oil and gas regardless of
whether such acreage contains proved reserves.
  21




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Expiring AcreageYear Ending
    
    Gross
    
    
    NetDecember 31, 2006
    
    
    13,536
    
    
    
    3,724December 31, 2007
    
    
    12,066
    
    
    
    3,966December 31, 2008 and later
    
    
    479,297
    
    
    
    209,720Total
    
    
    504,899
    
    
    
    217,410
 Reserves
   As of December 31,2005
    
    
    2004
    
    
    2003Proved Developed Oil Reserves (Bbls)
    
    
    199,931
    
    
    
    181,397
    
    
    
    179,228Proved Undeveloped Oil Reserves (Bbls)
    
    
    128,821
    
    
    
    96,658
    
    
    
    29,729Total Proved Oil Reserves (Bbls)
    
    
    328,752
    
    
    
    278,055
    
    
    
    208,957Proved Developed Gas Reserves (Mcf)
    
    
    23,032,277
    
    
    
    17,161,577
    
    
    
    16,055,045Proved Undeveloped Gas Reserves (Mcf)
    
    
    24,202,058
    
    
    
    17,773,169
    
    
    
    6,763,935Total Proved Gas Reserves (Mcf)
    
    
    47,234,335
    
    
    
    34,934,746
    
    
    
    22,818,980Total Proved Gas Equivalents (Mcfe) (3)
    
    
    49,206,846
    
    
    
    36,603,076
    
    
    
    24,072,722Present Value of Estimated Future Net Revenues
Before Income Taxes, Discounted At 10% (2)(4)
    
    $
    126,776,052
    
    
    $
    68,604,700
    
    
    $
    56,325,300
 
 (1)
    
    The Companys annual reserve reports are prepared as of the last day of the Companys
fiscal year.
 (2)
    
    The present value of estimated future net revenues as of each date shown was calculated using
oil and gas prices being received by each respective property as of that date. The average
prices utilized for December 31, 2003, 2004, and 2005 respectively, were $5.75 per Mcf and
$30.20 per barrel of oil (2003), $5.51 per Mcf and $40.04 per barrel of oil (2004) and 8.11
per Mcf and $57.57 per barrel of oil (2005).
 (3)
    
    Oil is converted to Mcf of gas equivalent at one barrel equals 6,000 cubic feet.
 (4)
    
    The Present Value of Estimated Future Net Revenues After Income Taxes, Discounted At 10%, is
referred to as the Standardized Measure shown on pages F-33 and F-34.
 22




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Production
  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003QuantitiesOil (Bbls)
    
    
    15,470
    
    
    
    16,886
    
    
    
    17,344Gas (MMcf)
    
    
    2,976
    
    
    
    2,560
    
    
    
    1,321Average Sales PriceOil ($/Bbl)
    
    
    49.27
    
    
    
    37.59
    
    
    
    28.37Gas ($/Mcf)
    
    
    6.62
    
    
    
    4.85
    
    
    
    4.23Average Production Cost ($/Mcfe)
    
    
    1.24
    
    
    
    0.81
    
    
    
    0.72Average Production Tax ($/Mcfe)
    
    
    0.82
    
    
    
    0.62
    
    
    
    0.51
  PriceQuantity Per Day
    
    Term
    
    
    ($/MMbtu)1,000 MMbtu
    
    
    1/06 - 10/06
    
    
    
    5.50500 MMbtu
    
    
    1/06 - 1/06
    
    
    
    5.30500 MMbtu
    
    
    1/06 - 1/06
    
    
    
    5.301,000 MMbtu
    
    
    1/06 - 3/07
    
    
    
    6.00
  Productive Wells
  23




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Oil
    
    
    GasGross
    
    
    Net
    
    
    Gross
    
    
    NetColorado
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    .0590Mississippi
    
    
    2
    
    
    
    .0009
    
    
    
    
    
    
    
    Montana
    
    
    2
    
    
    
    .0960
    
    
    
    
    
    
    
    North Dakota
    
    
    23
    
    
    
    .2965
    
    
    
    
    
    
    
    Oklahoma
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Utah
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    .0200Wyoming
    
    
    86
    
    
    
    5.9940
    
    
    
    508
    
    
    
    25.0259Total
    
    
    113
    
    
    
    6.3874
    
    
    
    513
    
    
    
    25.1049
 Drilling Activity
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetExploratory
Oil
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Gas*
    
    
    25
    
    
    
    .62
    
    
    
    38
    
    
    
    6.61
    
    
    
    1
    
    
    
    .02Dry Holes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    .86Water Injection
    
    
    3
    
    
    
    2.02
    
    
    
    2
    
    
    
    .52
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    28
    
    
    
    2.64
    
    
    
    41
    
    
    
    7.13
    
    
    
    2
    
    
    
    .88Development
Oil
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    .03
    
    
    
    2
    
    
    
    .04Gas
    
    
    75
    
    
    
    1.13
    
    
    
    64
    
    
    
    2.78
    
    
    
    34
    
    
    
    5.37Dry Holes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Water Injection
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1.14
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    .05
    
    
    
    
    
    
    
    Subtotal
    
    
    75
    
    
    
    1.13
    
    
    
    70
    
    
    
    4.00
    
    
    
    36
    
    
    
    5.41Total
    
    
    103
    
    
    
    3.77
    
    
    
    111
    
    
    
    11.13
    
    
    
    38
    
    
    
    6.29
 
 *
    
    Of the 64 gas exploratory gross wells drilled during this period, 61 of the wells were coal bed
wells that were drilled in pod groups of 24 wells, 24 wells, and 13 wells, respectively.
  Reserve Replacement Costs
  24




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2005
    
    
    2004
    
    
    2003Proved developed (MMcfe)
    
    
    9,051
    
    
    
    3,900
    
    
    
    5,681Proved undeveloped (MMcfe)
    
    
    6,622
    
    
    
    11,411
    
    
    
    1,649Total proved reserves added
    
    
    15,673
    
    
    
    15,311
    
    
    
    7,330
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  25




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Market Information .
  Common Stock (DBLE)($ / Share)Quarter Ended
    
    High
    
    LowMarch 31, 2005
    
    
    21.94
    
    
    
    17.13June 30, 2005
    
    
    22.75
    
    
    
    16.50September 30, 2005
    
    
    25.10
    
    
    
    17.15December 31, 2005
    
    
    24.75
    
    
    
    17.87March 31, 2004
    
    
    16.60
    
    
    
    12.26June 30, 2004
    
    
    15.45
    
    
    
    12.20September 30, 2004
    
    
    18.36
    
    
    
    13.60December 31, 2004
    
    
    20.43
    
    
    
    14.48March 31, 2003
    
    
    7.65
    
    
    
    5.54June 30, 2003
    
    
    7.95
    
    
    
    6.04September 30, 2003
    
    
    12.20
    
    
    
    7.40December 31, 2003
    
    
    16.46
    
    
    
    10.11
    Equity Compensation Plan Information
  26




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(a)
    
    
    (b)

    
    
    (c)Number of securitiesNumber of
    
    
    Weighted-
    
    
    remaining available forsecurities to be
    
    
    average exercise
    
    
    future issuance underissued upon exercise
    
    
    price of
    
    
    equity compensation plansof outstanding
    
    
    outstanding
    
    
    (excluding securitiesPlan category
    
    options
    
    
    options
    
    
    reflected in column (a)Equity Compensation
plans approved by
security holders
    
    
    349,243
    
    
    $
    15.78
    
    
    
    228,371
    (1)Equity
Compensation plans
not approved by
security holders
    
    
    5,000
    (2)
    
    
    6.26
    
    
    
    Total
    
    
    354,243
    
    
    
    15.38
    
    
    
    228,371
 
   Recent Sales of Unregistered Securities
  27




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ITEM 6. SELECTED FINANCIAL DATA
  (In thousands, except per share data)Years Ended December 31,
    
    
    Years Ended August 31,2005
    
    
    2004
    
    
    2003
    
    
    2002 (1)
    
    
    2001 (1)Statement of Operations DataRevenues:Oil and gas sales
    
    $
    20,451
    
    
    $
    13,058
    
    
    $
    6,081
    
    
    $
    2,256
    
    
    $
    2,568Other
    
    
    51
    
    
    
    209
    
    
    
    58
    
    
    
    14
    
    
    
    14Total revenues
    
    
    20,502
    
    
    
    13,267
    
    
    
    6,139
    
    
    
    2,270
    
    
    
    2,582Costs and expenses
    
    
    14,486
    
    
    
    8,769
    
    
    
    5,003
    
    
    
    5,093
    
    
    
    2,248Income from Operations
    
    
    6,016
    
    
    
    4,498
    
    
    
    1,136
    
    
    
    (2,823
    )
    
    
    335Net Income
    
    
    3,965
    
    
    
    4,029
    
    
    
    971
    
    
    
    (2,847
    )
    
    
    251Net Income per share:Basic
    
    
    .46
    
    
    
    .47
    
    
    
    .14
    
    
    
    (.47
    )
    
    
    .05Fully diluted
    
    
    .46
    
    
    
    .47
    
    
    
    .14
    
    
    
    (.47
    )
    
    
    .05Cash Flow DataNet Cash provided by (used in):Operating activities
    
    
    10,319
    
    
    
    7,435
    
    
    
    3,239
    
    
    
    119
    
    
    
    1,556Investing activities
    
    
    (16,259
    )
    
    
    (7,377
    )
    
    
    (8,769
    )
    
    
    (5,034
    )
    
    
    (2,536
    )Financing activities
    
    
    3,701
    
    
    
    692
    
    
    
    8,318
    
    
    
    4,923
    
    
    
    901Other Financial informationBalance Sheet InformationTotal assets
    
    
    44,211
    
    
    
    30,969
    
    
    
    23,955
    
    
    
    9,765
    
    
    
    7,672Current assets
    
    
    5,896
    
    
    
    6,170
    
    
    
    4,021
    
    
    
    616
    
    
    
    397Current liabilities
    
    
    8,700
    
    
    
    5,460
    
    
    
    3,740
    
    
    
    1,138
    
    
    
    1,109Working capital
    
    
    (2,804
    )
    
    
    710
    
    
    
    281
    
    
    
    (522
    )
    
    
    (715
    )Total stockholders equity
    
    
    29,778
    
    
    
    24,927
    
    
    
    19,856
    
    
    
    6,377
    
    
    
    5,536
 
   28




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Years Ended December 31,
    
    
    Years Ended August 31,2005
    
    
    2004
    
    
    2003
    
    
    2002 (1)
    
    
    2001 (1)Proved ReservesGas (MMcf)
    
    
    47,234
    
    
    
    34,935
    
    
    
    22,819
    
    
    
    11,502
    
    
    
    9,606Oil (Bbls)
    
    
    328,752
    
    
    
    278,055
    
    
    
    208,957
    
    
    
    183,004
    
    
    
    189,432MMcfe
    
    
    49,207
    
    
    
    36,603
    
    
    
    24,073
    
    
    
    12,600
    
    
    
    10,743Production VolumesGas (MMcf)
    
    
    2,976
    
    
    
    2,560
    
    
    
    1,321
    
    
    
    1,010
    
    
    
    518Oil (MBbls)
    
    
    15.5
    
    
    
    16.9
    
    
    
    17.3
    
    
    
    20.6
    
    
    
    18.6MMcfe
    
    
    3,069
    
    
    
    2,661
    
    
    
    1,425
    
    
    
    1,133
    
    
    
    630Average Daily
production (MMcfe)
    
    
    8.41
    
    
    
    7.29
    
    
    
    3.89
    
    
    
    3.11
    
    
    
    1.73
 
  Forward-Looking Statements
  OVERVIEW
    29




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##### Table of Contents




    
    In 2005, we added 15.7 Bcfe of proved reserves and produced 3.1 Bcfe. Our
year-end proved reserves increased 34% to 49.2 Bcfe at December 31, 2005 from 36.6
Bcfe at December 31, 2004. We replaced over 500% of our production in 2005 at a
finding and development cost of $0.66 per Mcfe without acquiring existing reserves
from third parties.
    
    Oil and gas sales increased 56% to $20.5 million in 2005 from $13.1 million in
2004. Higher prices accounted for 63% of the increase, and higher production volumes
accounted for the remaining 37% increase.
    
    Production increased 15% to 3.1 Bcfe in 2005 from 2.7 Bcfe in 2004. The increase
is primarily attributable to increases in the coal bed natural gas production at the
Cow Creek field and production increases from the Mesa field on the Pinedale
Anticline.
    
    Income from operations increased 33% to $6.0 million in 2005 from $4.5 million in
2004. However, the additional $1.6 million of deferred income taxes recognized in
2005 resulted in a 1.6% decrease in net income. Net cash provided by operating
activities increased 39%, to $10.3 million in 2005 from $7.4 million in 2004.
    
    We incurred $18.2 million in capital expenditures during the year, including $3.9
million at Cow Creek to expand power generation, compression and water processing
facilities and to drill and develop additional water injection wells. We also
participated in new development drilling in the Mesa Field on the Pinedale Anticline
for $3.1 million and additional drilling and development in the Eastern Washakie
Basin for $3.6 million. During the fourth quarter of 2005, we constructed and
completed a 13 mile pipeline to transport our Cow Creek production to an interstate
pipeline. The $5.4 million pipeline became operational in January 2006
 FACTORS AFFECTING FINANCIAL CONDITION AND LIQUIDITY
 Liquidity and Capital Resources
   30




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##### Table of Contents



Capital Requirements
   Line of Credit
  Analysis of Liquidity and Cash Flow Changes Between 2004 and 2003
  Off Balance Sheet Transactions, Arrangements, or Obligations
  31




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##### Table of Contents



RESULTS OF OPERATIONS
 Year Ended December 31, 2005 Compared with the Year Ended December 31, 2004
 Oil and gas sales volume and price comparisons
 Year Ended
    
    Year Ended
    
    Percent
    
    PercentDecember 31, 2005
    
    December 31, 2004
    
    Change
    
    ChangeProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Volume
    
    PriceGas
    
    
    2,976,094
    
    
    $
    6.62
    
    
    
    2,559,557
    
    
    $
    4.85
    
    
    
    +16
    %
    
    
    +36
    %Oil (bbls)
    
    
    15,470
    
    
    
    49.27
    
    
    
    16,846
    
    
    
    37.59
    
    
    
    -8
    %
    
    
    +31
    %Mcfe
    
    
    3,068,915
    
    
    $
    6.66
    
    
    
    2,660,871
    
    
    $
    4.91
    
    
    
    +15
    %
    
    
    +36
    %
   Oil and gas production expenses
  32




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##### Table of Contents



Per Mcfe2005
    
    2004Average revenue
    
    
    6.66
    
    
    
    4.91Production cost & taxes
    
    
    2.06
    
    
    
    1.43Depreciation, depletion and amortization
    
    
    1.33
    
    
    
    1.09Total operating costs
    
    
    3.39
    
    
    
    2.52Gross margin
    
    
    3.27
    
    
    
    2.39
    Daily
    
    
    
    
    
    Average PriceProperty
    
    Volume
    
    Production
    
    Term
    
    ($ Mcf)Cow Creek
    
    
    304,000
    
    
    
    1,000
    
    
    
    1/0610/06
    
    
    $
    5.5015,500
    
    
    
    500
    
    
    
    1/061/06
    
    
    
    5.30455,000
    
    
    
    1,000
    
    
    
    1/063/07
    
    
    
    6.00Total Cow Creek
    
    
    774,500Mesa
    
    
    15,500
    
    
    
    500
    
    
    
    1/061/06
    
    
    $
    5.30Total Company
    
    
    790,000
  General and administrative expense
  33




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##### Table of Contents



Depreciation, depletion & amortization
  Income Taxes
  Net Income
  Year Ended December 31, 2004 Compared with the Year Ended December 31, 2003
  Year Ended
    
    Year Ended
    
    Percent
    
    
    
    
    
    PercentDecember 31, 2004
    

December 31, 2003
    
    Change
    
    
    
    
    
    ChangeProduct
    
    Volume
    
    Price
    
    Volume
    
    Price
    
    Volume
    
    
    
    
    
    PriceGas
    
    
    2,559,557
    
    
    $
    4.85
    
    
    
    1,320,850
    
    
    $
    4.23
    
    
    
    +94
    %
    
    
    
    
    
    
    +15
    %Oil (bbls)
    
    
    16,846
    
    
    $
    37.59
    
    
    
    17,344
    
    
    $
    28.30
    
    
    
    -3
    %
    
    
    
    
    
    
    +33
    %Mcfe
    
    
    2,660,871
    
    
    $
    4.91
    
    
    
    1,424,914
    
    
    $
    4.26
    
    
    
    +87
    %
    
    
    
    
    
    
    +15
    %
  34




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##### Table of Contents



Per Mcfe2004
    
    2003Average revenue
    
    
    4.91
    
    
    
    4.27Production cost & taxes
    
    
    1.43
    
    
    
    1.23Depreciation, depletion and amortization
    
    
    1.09
    
    
    
    1.11Total operating costs
    
    
    2.52
    
    
    
    2.34Gross margin
    
    
    2.39
    
    
    
    1.93
  Gas Sales Contracts
  Mesa C Carried Working Interest
  Other Expenses
   35




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##### Table of Contents



Income Taxes
  Net Income
  Critical Accounting Policies and Estimates
   Reclassification
   Reserve Estimates
  36




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##### Table of Contents




    
    the amount and timing of actual production
    
    supply and demand for natural gas
    
    curtailments or increases in consumption by natural gas purchasers
    
    changes in governmental regulations or taxation
 Property, Equipment and Depreciation
    Asset Retirement Obligation
  Stock-based compensation
  37




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##### Table of Contents



Contractual Obligations
  Payments due by periodTotal
    
    
    Less than
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than1 year
    
    
    
    
    
    
    
    
    
    
    5 yearsLine of credit obligation
    
    
    3,354,000
    
    
    
    202,500
    
    
    
    3,151,500
    
    
    $
    
    
    
    
    Operating lease
obligations
    
    
    163,700
    
    
    
    60,300
    
    
    
    103,400
    
    
    
    
    
    
    
    Total
    
    
    3,517,700
    
    
    
    262,800
    
    
    
    3,242,900
    
    
    $
    
    
    
    $
    
  
 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9a. CONTROLS AND PROCEDURES
   38




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
       Internal Control-Integrated
Framework
   Dated: March 14, 2006
    /s/  Stephen H. HollisStephen H. Hollis,Chief Executive Officer Date:  March 14, 2006
    /s/ David C. MilholmDavid C. Milholm, Chief Financial Officer 39




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 40




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##### Table of Contents



ITEM 9b.
    
    OTHER INFORMATION
 .
 
 PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
   Name
    
    Age
    
    PositionsStephen H. Hollis
    
    
    55
    
    
    Chairman of The Board; President; and Chief
Executive OfficerDavid C. Milholm
    
    
    56
    
    
    Vice President of Finance; Chief Financial
OfficerD. Steven Degenfelder
    
    
    49
    
    
    Vice President of LandC. K. Adams
    
    
    65
    
    
    Vice President of Engineering and ProductionCarol A. Osborne
    
    
    54
    
    
    Corporate SecretarySigmund Balaban
    
    
    64
    
    
    DirectorRichard Dole
    
    
    60
    
    
    DirectorRoy G. Cohee
    
    
    56
    
    
    Director
    41




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##### Table of Contents



42




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##### Table of Contents



Committees of the Board of Directors
   Audit Committee Financial Expert
  Audit Committee Charter
  Code of Ethics
  Section 16(a) Beneficial Ownership Reporting Compliance
  43




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##### Table of Contents



ITEM 11.
    
    EXECUTIVE COMPENSATION
   Annual Compensation
 Long-TermCompensationLong-Term
    
    SecuritiesName and
    
    Year
    
    Salary (1)
    
    Bonus
    
    Compensation
    
    Underlying
    
    Other AnnualPrincipal Position
    
    Ended
    
    ($)
    
    ($)
    
    Restricted Stock
    
    Options
    
    Compensation ($)Stephen H. Hollis,
Chief Executive
    
    
    2005
    
    
    
    175,000
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    Officer and
    
    
    2004
    
    
    
    135,000
    
    
    
    35,000
    
    
    
    
    
    
    
    35,000
    
    
    
    President
    
    
    2003
    
    
    
    108,000
    
    
    
    68,592
    
    
    
    
    
    
    
    12,000
    
    
    
    C.K. Adams, Vice
President,
    
    
    2005
    
    
    
    146,667
    
    
    
    40,000
    
    
    
    
    
    
    
    25,000
    
    
    
    Engineering &
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David C. Milholm,
    
    
    2005
    
    
    
    125,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    Chief Financial
    
    
    2004
    
    
    
    97,500
    
    
    
    19,500
    
    
    
    
    
    
    
    40,000
    
    
    
    Officer
    
    
    2003
    
    
    
    60,000
    
    
    
    10,000
    
    
    
    
    
    
    
    6,743
    
    
    
    D. Steven
    
    
    2005
    
    
    
    125,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    Degenfelder, Vice
    
    
    2004
    
    
    
    97,500
    
    
    
    19,500
    
    
    
    
    
    
    
    30,000
    
    
    
    President, Land
    
    
    2003
    
    
    
    91,250
    
    
    
    26,849
    
    
    
    
    
    
    
    10,000
    
    
    
    Beth McBride Vice
    
    
    2005
    
    
    
    113,474
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    President,
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exploration (2)
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The dollar value of base salary (cash and non-cash) received(2)
    
    Ms. McBrides employment with the Company terminated on October 17, 2005 Option Grants Table
  44




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##### Table of Contents



Option Grants for Year Ended December 31, 2005
 % of TotalNumber
    
    Options GrantedOptions
    
    to Employees During
    
    Exercise or Base
    
    ExpirationName
    
    Granted
    
    the Year
    
    Price ($/Shares)
    
    DateBeth McBride Vice
President,
Exploration (2)
    
    
    25,000
    
    
    
    11.8
    %
    
    $
    18.01
    
    
    
    (1
    )C. K. Adams, Vice
President,
Engineering and
Production
    
    
    25,000
    
    
    
    11.8
    %
    
    $
    18.01
    
    
    
    (1
    )
 
 (1)
    
    20% of the options issued vested immediately and the remaining options vest 20% each year for
four years beginning May 05, 2005.(2)
    
    Ms. McBrides employment terminated on October 17, 2005. Therefore, only the 20% of options
issued that vested immediately are exercisable to Ms. McBride. Each option will expire within
90 days of her termination. Aggregated Option Exercises and Year-End Option Value Table
  Value ofNumber of
    
    UnexercisedUnexercised Options
    
    In-The-MoneyNumber of Shares
    
    
    
    
    
    at Fiscal
    
    Options atAcquired
    
    Value
    
    Year-End
    
    Fiscal Year-EndName
    
    On Exercise (1)
    
    Realized (2)
    
    Exercisable
    
    Exercisable (3)Stephen H. Hollis,
    
    
    25,000
    
    
    $
    350,250
    
    
    
    47,000
    
    
    $
    215,800Chief Executive
Officer and
PresidentD. Steven
Degenfelder,
    
    
    20,000
    
    
    $
    279,400
    
    
    
    40,000
    
    
    $
    180,900Vice President, LandCarol Osborne,
    
    
    10,000
    
    
    $
    135,000
    
    
    
    26,000
    
    
    $
    111,100Corporate Secretary
 
 (1)
    
    The number of shares received upon exercise of options during the year ended December 31,
2005.(2)
    
    With respect to options exercised during the Companys year ended December 31, 2005, the
dollar value of the difference between the option exercise price and the market value of the
option shares purchased on the date of the exercise of the options.(3)
    
    For all unexercised options held as of December 31, 2005, the aggregate dollar value of
the excess of the market value of the stock underlying those options over the exercise price
of those unexercised options, based on the closing price of the Companys Common Stock on
December 31, 2005. The closing bid price for the Companys Common Stock on December 31, 2005 was $20.40 per share. 45




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##### Table of Contents



Stock Option Plans
 The 1996 Stock Option Plan
  The 2000 Stock Option Plan
  The 2002 Stock Option Plan
  2003 Stock Option and Compensation Plan
  46




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##### Table of Contents



Compensation of Outside Directors
  Compensation Interlocks and Insider Participation in Compensation Decisions
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  47




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##### Table of Contents



As of March 7, 2006Percentage ofClassName And Address of
    
    Number of
    
    BeneficiallyBeneficial Owner
    
    Shares
    
    OwnedStephen H. Hollis
777 Overland Trail
Casper, Wyoming 82601
    
    
    720,200
    (1)
    
    
    8.3
    %Roy G. Cohee
777 Overland Trail
Casper, Wyoming 82601
    
    
    43,825
    (2)
    
    
    *Richard Dole
777 Overland Trail
Casper, Wyoming 82601
    
    
    8,300
    (3)
    
    
    *Sigmund Balaban
777 Overland Trail
Casper, Wyoming 82601
    
    
    8,300
    (3)
    
    
    *D. Steven Degenfelder
777 Overland Trail
Casper, Wyoming 82601
    
    
    103,070
    (4)
    
    
    1.2
    %Carol Osborne
777 Overland Trail
Casper, Wyoming 82601
    
    
    30,270
    (5)
    
    
    *David C. Milholm
1625 Broadway Suite 2200
Denver, CO 80202
    
    
    19,409
    (6)
    
    
    *C.K. Adams
777 Overland Trail
Casper, Wyoming 82601
    
    
    5,000
    
    
    
    *Directors and Officers as a group
(Seven Persons)
    
    
    938,374
    
    
    
    10.8
    %
 
 *
    
    Less than one percent. (1)
    
    Includes options held by Mr. Hollis to purchase 7,000 shares for $14.00 that expire on
March 23, 2010 and that became exercisable on March 23, 2005. In addition to 363,200
shares owned directly by Mr. Hollis, the table above includes 350,000 shares of common
stock owned by Hollis Oil & Gas Co. Mr. Hollis is an officer, director and 51 percent
owner of Hollis Oil & Gas Co.(2)
    
    Includes options to purchase 5,000 shares for $13.56 per share that expire on June 9,
2007 and options to purchase 5,000 shares for $18.52 per share that expire on June 14,
2008.(3)
    
    Includes options held by Messrs. Dole and Balaban to purchase 1,000 shares each for
$20.21 per share that will expire on March 24, 2008 and options to purchase 5,000 shares
for $18.52 that will expire of June 14, 2008.
 48




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##### Table of Contents



(4)
    
    Includes options held by Mr. Degenfelder to purchase 6,000 shares for $14.00 per share
that will expire March 23, 2010.(5)
    
    Includes options to purchase 4,000 shares for $14 per share that expire on March 23,
2010.(6)
    
    Includes options held by Mr. Milholm to purchase 6,743 shares at $14.83 that will
expire November 11, 2006; 3,333 options at $6.31 per share that will expire on May 1,
2009, and 6,000 options at $14.00 that will expire on March 23, 2010.
 
 ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICE
           49




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50




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##### Table of Contents



PART IV
 
 ITEM 15.      EXHIBITS AND REPORTS ON FORM 8-K
  Audit Report of Independent Registered Public Accounting Firm
    
    F1Balance Sheets
    
    F2Statements of Operations
    
    F3Statements of Stockholders Equity
    
    F4Statements of Cash Flows
    
    F5Notes to Financial Statements
    
    F6
  Exhibits.
 Exhibit No.
    
    Description3.1(a)
    
    Articles of Incorporation filed with the Maryland Secretary of State on January 23, 2001
(incorporated by reference from Exhibit 3.1(a) of the Companys Annual Report on Form
10-K for the year ended August 31, 2001).3.1(b)
    
    Certificate of Correction filed with the Maryland Secretary of State on February 15, 2001
concerning the Articles of Incorporation (incorporated by reference from Exhibit 3.1(b) of
the Companys Annual Report on Form 10-K for the year ended August 31, 2001).3.1(c)
    
    Articles of Merger filed with the Maryland Secretary of State on February 15, 2001
(incorporated by reference from Exhibit 3.1(c) of the Companys Annual Report on Form 10-K
for the year ended August 31, 2001).3.1(d)
    
    Certificate of Correction filed with the Maryland Secretary of State (incorporated by
reference from Exhibit 3 of the Companys Quarterly Report on Form 10-QSB for the quarter
ended November 30, 2001).3.2
    
    Bylaws (incorporated by reference from Exhibit 3.2 of the Companys Annual Report on Form
10-K for the year ended August 31, 2001).4.1
    
    Form of Warrant Agreement concerning Common Stock Purchase Warrants (incorporated by
reference from Exhibit 4.3 of the Amendment No. 1 to the Registrants Registration
Statement on Form SB-2 filed on November 27, 1996, SEC Registration No. 333-14011).23.1
    
    Consent of Hein & Associates LLP.23.2
    
    Consent of Netherland, Sewell & Associates.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
 51




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##### Table of Contents



SIGNATURES
  DOUBLE EAGLE PETROLEUM CO.
 Date:
March 14, 2006
    
    /s/ Stephen H. HollisStephen H. Hollis,Chief Executive Officer,President and Director
  Date:March 14, 2006
    
    /s/ Stephen H. HollisStephen H. Hollis,Chief Executive Officer,President and DirectorDate:March 14, 2006
    
    /s/ David C. MilholmDavid C. MilholmChief Financial OfficerDate: March 14, 2006
    
    /s/ Richard DoleRichard Dole, DirectorDate: March 14, 2006
    
    /s/ Sigmund BalabanSigmund Balaban, DirectorDate: March 14, 2006
    
    /s/ Roy G. CoheeRoy G. Cohee, Director
 52




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##### Table of Contents



F-1




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##### Table of Contents



December 31,2005
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,430,977
    
    
    $
    3,669,950Accounts receivable
    
    
    4,247,573
    
    
    
    2,171,102Other current assets
    
    
    217,703
    
    
    
    328,677Total current assets
    
    
    5,896,253
    
    
    
    6,169,729Oil and gas properties and equipment, successful efforts methodDeveloped properties
    
    
    41,145,800
    
    
    
    32,293,958Wells in progress
    
    
    2,946,260
    
    
    
    Gas Pipeline
    
    
    5,378,589
    
    
    
    Undeveloped properties
    
    
    3,212,955
    
    
    
    3,026,168Corporate and other assets
    
    
    748,432
    
    
    
    624,15353,432,036
    
    
    
    35,944,279Less accumulated depreciation, depletion and impairment
    
    
    (15,173,628
    )
    
    
    (11,185,792
    )Net properties and equipment
    
    
    38,258,408
    
    
    
    24,758,487Other assets
    
    
    56,079
    
    
    
    41,125Total assets
    
    $
    44,210,740
    
    
    $
    30,969,341LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,009,527
    
    
    $
    1,597,224Accrued expenses
    
    
    5,033,521
    
    
    
    2,890,630Accrued production taxes
    
    
    1,657,164
    
    
    
    971,710Total current liabilities
    
    
    8,700,212
    
    
    
    5,459,564Noncurrent liabilitiesLine of credit
    
    
    3,000,000
    
    
    
    Asset retirement obligation
    
    
    513,272
    
    
    
    406,865Deferred tax liability
    
    
    2,219,000
    
    
    
    176,000Total noncurrent liabilities
    
    
    5,732,272
    
    
    
    582,865Total liabilities
    
    
    14,432,484
    
    
    
    6,042,429Commitments and contingencies (note 3, 4 and 7)
Stockholders EquityCommon stock, $.10 par value; 50,000,000 shares authorized; issued and
outstanding 8,590,604 shares in 2005 and 8,488,404 in 2004
    
    
    859,060
    
    
    
    848,840Capital in excess of par value
    
    
    22,100,867
    
    
    
    21,224,393Retained earnings
    
    
    6,818,329
    
    
    
    2,853,679Total stockholders equity
    
    
    29,778,256
    
    
    
    24,926,912Total liabilities and stockholders equity
    
    $
    44,210,740
    
    
    $
    30,969,341
  F-2




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##### Table of Contents



Year Ended December 31,2005
    
    
    2004
    
    
    2003RevenuesOil and gas sales
    
    $
    20,450,856
    
    
    $
    13,057,906
    
    
    $
    6,080,880Other income
    
    
    51,391
    
    
    
    209,167
    
    
    
    57,532Total revenues
    
    
    20,502,247
    
    
    
    13,267,073
    
    
    
    6,138,412Costs and ExpensesProduction costs
    
    
    3,800,205
    
    
    
    2,155,600
    
    
    
    1,026,591Production taxes
    
    
    2,522,732
    
    
    
    1,644,770
    
    
    
    731,418Exploration expenses, including dry holes
    
    
    746,913
    
    
    
    323,822
    
    
    
    231,244General and administrative
    
    
    2,990,370
    
    
    
    1,581,192
    
    
    
    1,249,520Depreciation, depletion, and amortization of oil
and gas properties
    
    
    4,068,584
    
    
    
    2,908,058
    
    
    
    1,582,603Impairment of producing properties
    
    
    357,000
    
    
    
    155,321
    
    
    
    170,309Cost of non-producing leases sold
    
    
    
    
    
    
    
    
    
    
    10,776Total costs and expenses
    
    
    14,485,804
    
    
    
    8,768,763
    
    
    
    5,002,461Income from operations
    
    
    6,016,443
    
    
    
    4,498,310
    
    
    
    1,135,951Other income (expense)Interest income (expense)
    
    
    (1,939
    )
    
    
    26,928
    
    
    
    (174,629
    )Other
    
    
    (6,854
    )
    
    
    (47,035
    )
    
    
    Total other income (expense)
    
    
    (8,793
    )
    
    
    (20,107
    )
    
    
    (174,629
    )Income before income taxes and cumulative effect of
change in accounting principle
    
    
    6,007,650
    
    
    
    4,478,203
    
    
    
    961,322Income tax expense
    
    
    2,043,000
    
    
    
    450,000
    
    
    
    Income before cumulative effect of change in
accounting principle
    
    
    3,964,650
    
    
    
    4,028,203
    
    
    
    961,322Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    10,500Net income
    
    $
    3,964,650
    
    
    $
    4,028,203
    
    
    $
    971,822Income per share before cumulative effect of change
in accounting principle  basic and diluted
    
    
    .46
    
    
    
    .47
    
    
    $
    .14Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    Net income
per common share  basic and diluted
    
    $
    .46
    
    
    $
    .47
    
    
    $
    .14Weighted
average shares outstanding  basic
    
    
    8,564,228
    
    
    
    8,469,852
    
    
    
    7,027,426Weighted
average shares outstanding  diluted
    
    
    8,628,476
    
    
    
    8,599,020
    
    
    
    7,163,206
  F-3




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##### Table of Contents



Additional
    
    
    
    
    
    
    
    
    
    TotalOutstanding
    
    Common
    
    Paid In
    
    
    
    
    
    
    
    
    
    StockholdersShares
    
    Stock
    
    Capital
    
    Retained Earnings
    
    
    
    
    
    EquityBalance at December 31, 2002
    
    
    6,521,518
    
    
    $
    652,152
    
    
    $
    7,786,183
    
    
    $
    (2,146,346
    )
    
    
    
    
    
    $
    6,291,989Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    971,822
    
    
    
    
    
    
    
    971,822Common stock issued:Private placement
    
    
    1,295,000
    
    
    
    129,500
    
    
    
    11,464,785
    
    
    
    
    
    
    
    
    
    
    
    11,594,285Exercise of warrants
    
    
    300,500
    
    
    
    30,050
    
    
    
    383,138
    
    
    
    
    
    
    
    
    
    
    
    413,188Options exercised and
shares issued for
compensation
    
    
    217,386
    
    
    
    21,738
    
    
    
    563,284
    
    
    
    
    
    
    
    
    
    
    
    585,022Balance at
December 31, 2003
    
    
    8,334,404
    
    
    
    833,440
    
    
    
    20,197,390
    
    
    
    (1,174,524
    )
    
    
    
    
    
    
    19,856,306Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,028,203
    
    
    
    
    
    
    
    4,028,203Options exercised and
shares issued for
compensation
    
    
    154,000
    
    
    
    15,400
    
    
    
    1,027,003
    
    
    
    
    
    
    
    
    
    
    
    1,042,403Balance at
December 31, 2004
    
    
    8,488,404
    
    
    
    848,840
    
    
    
    21,224,393
    
    
    
    2,853,679
    
    
    
    
    
    
    
    24,926,912Options exercised and
shares issued for
compensation
    
    
    102,200
    
    
    
    10,220
    
    
    
    876,474
    
    
    
    
    
    
    
    
    
    
    
    886,694Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,964,650
    
    
    
    
    
    
    
    3,964,650Balance at December 31, 2005
    
    
    8,590,604
    
    
    $
    859,060
    
    
    $
    22,100,867
    
    
    $
    6,818,329
    
    
    
    
    
    
    $
    29,778,256
  F-4




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##### Table of Contents



Year ended December 31,2005
    
    
    2004
    
    
    2003Cash Flows from Operating ActivitiesNet income
    
    $
    3,964,650
    
    
    $
    4,028,203
    
    
    $
    971,822Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation, depletion, amortization and accretion
of asset retirement obligation
    
    
    4,088,434
    
    
    
    2,923,479
    
    
    
    1,588,603Abandonments and impairments
    
    
    462,922
    
    
    
    289,963
    
    
    
    190,154Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (10,500
    )(Gain) loss on sale of other assets
    
    
    6,854
    
    
    
    (141,451
    )
    
    
    (24,296
    )Directors fees paid in stock
    
    
    160,286
    
    
    
    54,240
    
    
    
    24,600Employee stock option expense
    
    
    25,600
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    2,043,000
    
    
    
    450,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,076,471
    )
    
    
    (1,121,459
    )
    
    
    (175,748
    )Prepaid expenses
    
    
    110,974
    
    
    
    (277,947
    )
    
    
    (25,565
    )Accounts payable and accrued expenses
    
    
    847,194
    
    
    
    602,039
    
    
    
    500,824Accrued production taxes
    
    
    685,454
    
    
    
    627,476
    
    
    
    198,991Net cash provided by operating activities
    
    
    10,318,897
    
    
    
    7,434,543
    
    
    
    3,238,885Cash Flows from investing activitiesProceeds from sales of properties and assets
    
    
    571,232
    
    
    
    269,143
    
    
    
    35,072Other asset
    
    
    (14,954
    )
    
    
    10,000
    
    
    
    (40,000
    )Additions of producing properties and equipment
    
    
    (16,247,989
    )
    
    
    (7,331,311
    )
    
    
    (6,478,831
    )Additions of corporate and non-producing properties
    
    
    (566,967
    )
    
    
    (325,236
    )
    
    
    (2,284,923
    )Net cash used in investing activities
    
    
    (16,258,678
    )
    
    
    (7,377,404
    )
    
    
    (8,768,682
    )Cash flows from financing activitiesIssuance of common stock
    
    
    
    
    
    
    
    
    
    
    11,594,285Exercise of options and warrants
    
    
    700,808
    
    
    
    714,162
    
    
    
    973,610Net borrowings under line of credit arrangements
    
    
    3,000,000
    
    
    
    
    
    
    
    2,850,000Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    (7,100,000
    )Other
    
    
    
    
    
    
    (22,197
    )
    
    
    Net cash provided by financing activities
    
    
    3,700,808
    
    
    
    691,965
    
    
    
    8,317,895Increase (decrease) in cash and cash equivalents
    
    
    (2,238,973
    )
    
    
    749,104
    
    
    
    2,788,098Cash and cash equivalents at beginning of year
    
    
    3,669,950
    
    
    
    2,920,846
    
    
    
    132,748Cash and cash equivalents at end of year
    
    $
    1,430,977
    
    
    $
    3,669,950
    
    
    $
    2,920,846Supplemental disclosures of cash and non-cash transactionsCash paid during the year for interest
    
    $
    56,905
    
    
    $
    503
    
    
    $
    193,508Additions to developed properties included in accounts
payable and accrued liabilities
    
    $
    4,758,000
    
    
    $
    3,050,000
    
    
    $
    1,980,000Additions to developed properties for retirement obligations
    
    $
    86,507
    
    
    $
    55,141
    
    
    $
    352,500Additions to other assets included in accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    580,062Directors fees paid in stock
    
    $
    160,286
    
    
    $
    54,240
    
    
    $
    24,600Cashless exercise of options
    
    $
    
    
    
    $
    
    
    
    $
    164,430
 
 F-5




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##### Table of Contents



1.
    
    BusinessDouble Eagle Petroleum Co. (Double Eagle or the Company) explores for, develops, produces
and sells crude oil and natural gas. The Companys operations are conducted entirely in the
continental United States, primarily in the Rocky Mountains.2.
    
    Summary of Significant Accounting PoliciesCash and Cash EquivalentsCash in excess of daily requirements is invested in money markets and certificates of deposit
with maturities of 90 days or less. Such investments are deemed to be cash equivalents for
purposes of the financial statements.Accounts ReceivableThe Company records estimated oil and gas revenue receivable from third parties at its net
revenue interest. The Company also reflects costs incurred on behalf of joint interest partners
in accounts receivable. No allowance for doubtful accounts was considered necessary at December
31, 2005, 2004 and 2003.Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of oil and gas reserves, assets and liabilities and disclosure on
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.Concentration of Credit RiskFinancial instruments which expose the Company to credit risk consist of accounts receivables
and cash. Substantially all of the Companys receivables are within the oil and gas industry,
primarily from the Companys third party marketing company. Collectability is dependent upon
the financial wherewithal of each individual company as well as the general economic conditions
of the industry. The receivables are not collateralized. To date, the Company has had minimal
bad debts.The Company maintains its cash accounts with one bank in Casper, Wyoming. Although the cash
balances maintained with this bank exceeds the federally insured limit, the Company believes its
risk is limited due to the credit worthiness of the bank.Revenue RecognitionThe Company recognizes oil and gas revenues for only its ownership percentage of total
production in the period delivered under the entitlement method.Oil and Gas Producing ActivitiesDouble Eagle uses the successful efforts method of accounting for its oil and gas producing
activities. Under this method of accounting, all property acquisition costs and costs of
exploration and development wells are capitalized when incurred, pending determination of
whether the well has found proved reserves. If an exploratory well does not find proved
reserves, the costs of drilling the well are charged to expense. The costs of development wells
are capitalized whether productive or nonproductive. The Company had no exploratory well costs
that had been suspended for one year or more as of December 31, 2005, 2004 or 2003.Geological and geophysical costs, and the costs of carrying and retaining unproved are expensed
as incurred. The Company limits the total amount of unamortized capitalized costs for each
property to the value of future net revenues, based on current prices and costs.Depreciation, depletion and amortization (DD&A) of capitalized costs for producing oil and
gas properties is provided on a field-by-field basis using the units-of-production method based
on proved oil and gas reserves.
 F-6




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##### Table of Contents



DD&A takes into consideration restoration, dismantlement and
abandonment costs and the anticipated proceeds for equipment salvage.Effective January 1,
2003, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations, which provides guidance on accounting for dismantlement and
abandonment costs (see Note 7Asset Retirement Obligation)Depletion, depreciation and amortization of oil and gas properties for the years ended December
31, 2005, 2004 and 2003, was $4.1 million, $2.9 million and $1.6 million, respectively.Double Eagle invests in unevaluated oil and gas properties for the purpose of exploration and
development of proved reserves. The costs of unproved leases which become productive are
reclassified to proved properties when proved reserves are discovered on the property. Unproved
oil and gas interests are carried at the lower of cost or estimated fair market value and are
not subject to amortization.Impairment of Long-Lived AssetsSFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that an asset
be evaluated for impairment when the carrying amount of an asset exceeds the sum of the
undiscounted estimated future cash flows of the asset. In accordance with the provisions of
SFAS 144, the Company reviews the carrying values of its long-lived assets whenever events or
changes in circumstances indicate that such carrying values may not be recoverable. If, upon
review, the sum of the undiscounted pretax cash flows is less than the carrying value of the
asset group, the carrying value is written down to estimated fair value. Individual assets are
grouped for impairment purposes at the lowest level for which there are identifiable cash flows
that are largely independent of the cash flows of other groups of assets, generally on a
field-by-field basis. The fair value of impaired assets is determined based on quoted market
prices in active markets, if available, or upon the present values of expected future cash flows
using discount rates commensurate with the risks involved in the asset group. The long-lived
assets of the Company, which are subject to evaluation, consist primarily of oil and gas
properties. The Company recognized a non-cash charge on producing properties during the years
ending December 31, 2005, 2004 and 2003 of $357,000, $155,000 and $170,000, respectively for
those properties with carrying values exceeding the expected undiscounted future net cash flows.Pipeline transportation lines are recorded at cost. Pipelines are depreciated on a straight line
bases over an estimated useful life of between 15 and 25 years. The useful life may be limited
to the useful life of current and future recoverable reserves serviced by the pipeline.Corporate and Other AssetsOffice facilities, equipment and vehicles are recorded at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of 10 to 30 years for office
facilities, 3 to 10 years for office equipment, and 7 years for vehicles. Depreciation expense
for the years ended December 31, 2005, 2004 and 2003 were $100,000, $51,000 and $32,000,
respectively.Major CustomersSales to one major unaffiliated customer for years ended December 31, 2005, 2004 and 2003, were
$14.0 million, $9.9 million and $4.6 million, respectively. The Company, however, believes that
it is not dependent upon this customer due to the nature of its product, but as described in
Note 4, has entered into sales contracts with this customer to deliver gas. The Company has no
other single customer that accounted for 10% or more of revenues in 2005, 2004 or 2003.Employee Benefit PlanThe Company maintains a Simplified Employee Pension Plan covering substantially all employees
meeting minimum eligibility requirements. Employer contributions are determined solely at
managements discretion. Employer contributions for years ended 2005, 2004 and 2003 were
$63,000, $39,000 and $24,000, respectively.
 F-7




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##### Table of Contents



Income TaxesDeferred income taxes are provided on the difference between the tax basis of an asset or
liability and its carrying amount in the financial statements. This difference will result in
taxable income or deduction in future periods when the reported amount of the asset or liability
is recover or settled, respectively.Earnings Per ShareBasic net income per share is computed by dividing net income
by the weighted-average common shares outstanding during each period. Diluted net income per share is computed by dividing net
income by the weighted-average of common shares outstanding, including the effect of dilution
that would occur if stock options or other contracts such as outstanding warrants to issue
common stock were exercised.The treasury stock method is used to measure the dilutive impact of stock options. The following
table sets forth the computation of basic and diluted earnings per share.
 Year Ended December 31,2005
    
    2004
    
    2003Numerator:Numerator for basic and diluted
earnings per sharenet income
    
    $
    3,964,651
    
    
    $
    4,028,203
    
    
    $
    971,822Denominator:Denominator for basic earnings
per shareweighted average
shares outstanding
    
    
    8,564,228
    
    
    
    8,469,852
    
    
    
    7,027,426Effect of dilutive stock options
    
    
    64,248
    
    
    
    129,168
    
    
    
    135,780Denominator for diluted earnings
per share
    
    
    8,628,476
    
    
    
    8,599,020
    
    
    
    7,163,206Basic net income per common share
    
    $
    0.46
    
    
    $
    0.47
    
    
    $
    0.14Diluted net income per common
share
    
    $
    0.46
    
    
    $
    0.47
    
    
    $
    0.14
  Year Ended December 31,2005
    
    2004
    
    2003Number of options
    
    
    
    
    
    
    
    
    
    
    23,486Price range of options
    
    $
    
    
    
    $
    
    
    
    $
    14.83
 F-8




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##### Table of Contents



Stock Based CompensationThe Company accounts for stock-based compensation using the intrinsic value recognition and
measurement principles prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25) and related interpretations. No compensation expense
is reflected in net income for stock options as all stock options had an exercise price equal to
the market value of the underlying common stock on the date of grant. The alternative fair
market value accounting provided for under Statement of Financial Accounting Standards (SFAS)
No. 123 requires use of grant valuation models that were not developed for use in valuing
employee stock options and grants. If compensation costs for the Companys stock-based
compensation plans had been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, then the Companys net income and
net income per share would have been adjusted to the pro forma amounts indicated below:
 For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Net income as reported
    
    $
    3,964,651
    
    
    $
    4,028,203
    
    
    $
    971,822Deduct: stock based
compensation cost under SFAS
123
    
    
    (686,386
    )
    
    
    (233,323
    )
    
    
    (62,963
    )Pro Forma net income
    
    $
    3,278,265
    
    
    $
    3,794,880
    
    
    $
    908,859Reported net income per
common share  basic and
diluted
    
    $
    .46
    
    
    $
    .47
    
    
    $
    .14Pro forma net income per
common share  basic and
diluted
    
    $
    .40
    
    
    $
    .44
    
    
    $
    .13
   Year Ended December 31,2005
    
    2004
    
    2003Volatility
    
    
    42
    %
    
    
    71
    %
    
    
    55
    %Expected life of options (in years)
    
    
    5
    
    
    
    8
    
    
    
    3Dividend yield
    
    
    
    
    
    
    
    
    
    
    Risk free interest rate
    
    
    3.5
    %
    
    
    3.0
    %
    
    
    2.6
    %
 Fair Value of Financial Instruments
  F-9




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##### Table of Contents



New Accounting Pronouncements
 Financial Accounting and Reporting by Oil and Gas
Producing Companies,
 Accounting Changes and Error Corrections
 Accounting for Conditional
Asset Retirement Obligations
 Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140, SFAS No. 155
 Line of Credit
  F-10




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##### Table of Contents



Commitments and Contingencies
 Gas Sales Commitments
  PriceQuantity Per Day
    
    Term
    
    
    ($/MMbtu)1,000 MMbtu
    
    
    1/06 - 10/06
    
    
    
    5.50500 MMbtu
    
    
    1/06 - 1/06
    
    
    
    5.30500 MMbtu
    
    
    1/06 - 1/06
    
    
    
    5.301,000 MMbtu
    
    
    1/06 - 3/07
    
    
    
    6.00
 Lease Commitments
  Years Ending
    
    LeaseDecember 31,
    
    Commitments2006
    
    $
    60,3002007
    
    
    72,5002008
    
    
    30,9002009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    $
    163,700
 F-11




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##### Table of Contents



Income Taxes
  For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Current taxes
    
    $
    
    
    
    $
    
    
    
    $
    Deferred taxes
    
    
    2,043,000
    
    
    
    450,000
    
    
    
    Total income tax expense
    
    $
    2,043,000
    
    
    $
    450,000
    
    
    $
    
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Deferred tax assets:Net operating loss carry-forward
    
    $
    4,339,000
    
    
    $
    1,700,000
    
    
    $
    1,921,000Percentage depletion carry-forward
    
    
    146,000
    
    
    
    146,000
    
    
    
    160,000Asset retirement obligation
    
    
    14,000
    
    
    
    7,000
    
    
    
    2,000Stock option expense carry forward
    
    
    17,000
    
    
    
    
    
    
    
    4,516,000
    
    
    
    1,853,000
    
    
    
    2,083,000Deferred tax
liability  net
difference in oil and gas properties
    
    
    (6,735,000
    )
    
    
    (2,029,000
    )
    
    
    (1,035,000
    )Net deferred tax asset (liability)
    
    
    (2,219,000
    )
    
    
    (176,000
    )
    
    
    1,048,000Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (1,048,000
    )Net deferred tax liability
    
    $
    (2,219,000
    )
    
    $
    (176,000
    )
    
    $
    
   2005
    
    
    2004
    
    
    2003Expected federal tax rate
    
    
    35
    %
    
    
    34
    %
    
    
    34
    %Change in valuation allowance
    
    
    
    
    
    
    (24
    %)
    
    
    (34
    %)Other
    
    
    (1
    %)
    
    
    
    
    
    
    Effective tax rate
    
    
    34
    %
    
    
    10
    %
    
    
    0
    %
 F-12




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##### Table of Contents



Stockholders Equity
 Sale
of Common Stock  Private Placement
  Stock Option Plans
   December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceBeginning of year
    
    
    270,843
    
    
    $
    14.32
    
    
    
    175,626
    
    
    $
    5.43
    
    
    
    203,786
    
    
    $
    3.75Granted
    
    
    249,500
    
    
    
    18.43
    
    
    
    176,100
    
    
    
    13.90
    
    
    
    56,486
    
    
    
    8.19Exercised/purchased
    
    
    (93,600
    )
    
    
    7.52
    
    
    
    (74,140
    )
    
    
    4.75
    
    
    
    (84,646
    )
    
    
    3.20Expired/cancelled
    
    
    (77,500
    )
    
    
    17.00
    
    
    
    (6,743
    )
    
    
    14.83
    
    
    
    
    
    
    
    End of year
    
    
    349,243
    
    
    $
    15.53
    
    
    
    270,843
    
    
    $
    14.32
    
    
    
    175,626
    
    
    $
    5.43Shares available
for grant, end of
year
    
    
    228,371
    
    
    
    
    
    
    
    395,371
    
    
    
    
    
    
    
    564,728Number of shares
exercisable, end of
year
    
    
    202,743
    
    
    $
    13.48
    
    
    
    156,676
    
    
    $
    5.44
    
    
    
    180,626
    
    
    $
    4.54Weighted-average
fair value of
options granted
during the year
    
    
    
    
    
    $
    14.25
    
    
    
    
    
    
    $
    10.09
    
    
    
    
    
    
    $
    3.07
  F-13




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##### Table of Contents



December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceBeginning of year
    
    
    5,000
    
    
    $
    6.15
    
    
    
    80,860
    
    
    $
    4.54
    
    
    
    305,964
    
    
    $
    4.49Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised for cash
    
    
    
    
    
    
    
    
    
    
    75,860
    
    
    
    4.44
    
    
    
    (91,854
    )
    
    
    3.25Cashless exercise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,886
    )
    
    
    Expired/cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,364
    )
    
    
    4.68End of year
    
    
    5,000
    
    
    $
    6.15
    
    
    
    5,000
    
    
    $
    6.15
    
    
    
    80,860
    
    
    $
    4.54
   Options Outstanding
    
    
    
    
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrices
    
    Outstanding
    
    
    Life (in years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$  6.15-$14.83
    
    
    169,743
    
    
    
    4.63
    
    
    $
    12.10
    
    
    
    71,077
    
    
    $
    10.07$14.84-$19.44
    
    
    184,500
    
    
    
    4.46
    
    
    $
    18.63
    
    
    
    41,000
    
    
    $
    18.54Total
    
    
    354,243
    
    
    
    
    
    
    
    
    
    
    
    112,007
  F-14




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##### Table of Contents



7.
    
    Asset Retirement ObligationsIn June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The standard applies to
legal obligations associated with the retirement of long-lived assets that result from the
acquisition, construction, development and normal use of the asset. The Companys asset
retirement obligations relate primarily to the retirement of oil and gas properties and related
production facilities, lines and other equipment used in the field operations.SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred, if a reasonable estimate of fair value can be
made. The fair value of the liability is added to the carrying amount of the associated asset.
This additional carrying amount is then depreciated over the life of the asset. The liability
increases due to the passage of time based on the time value of money until the obligation is
settled.SFAS No. 143 was adopted by the Company as of July 1, 2003. The implementation of SFAS No. 143
resulted in a cumulative effect of change in accounting principle of $10,500. During 2003, an
increase of $353,000 in oil and gas properties reflected the present value of the future asset
retirement obligation and an offsetting increase in liabilities represents the establishment of
an asset retirement obligation liability. For the years ended December 31, 2005, 2004 and 2003,
an expense of $19,000, $15,000 and $6,000, respectively was recorded as accretion expense on the
liability. During 2005 and 2004, the Company recorded an additional
$87,000 and $55,000 increase respectively, in oil and gas
properties and asset retirement obligation liability to reflect the present value of plugging
liability on new wells.A reconciliation of the Companys asset retirement obligation liability is as follows:
 As of December 31,2005
    
    
    2004
    
    
    2003Beginning asset retirement obligation
    
    $
    406,865
    
    
    $
    358,500
    
    
    $
    Liability from SFAS 143 adoption
    
    
    
    
    
    
    
    
    
    
    352,500Liabilities incurred
    
    
    39,062
    
    
    
    32,944
    
    
    
    Changes in estimates
    
    
    47,445
    
    
    
    
    
    
    
    Accretion expense
    
    
    19,900
    
    
    
    15,421
    
    
    
    6,000Ending asset retirement obligation
    
    $
    513,272
    
    
    $
    406,865
    
    
    $
    358,500
 8.
    
    Related Party TransactionsA company owned by an individual who was a member of the board of
directors until June 8, 2004 acted as the operator on a property owned by Double Eagle. That
company also performed services on other producing properties in which Double Eagle owned an
interest and on drilling projects in which Double Eagle participated. Amounts paid by Double
Eagle to the company were $50,205 and $68,241 for the years ended December 31, 2004 and 2003,
respectively. The Company was not required to make any such payments in 2005 and had no other
related party transactions in 2005.9.
    
    Oil and Gas Activities (Unaudited)Capitalized Costs Relating to Oil and Gas Producing ActivitiesThe aggregate amount of capitalized costs relating to crude oil and natural gas producing
activities and the aggregate amount of related accumulated depreciation, depletion and
amortization at December 31, 2005.
 F-15




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##### Table of Contents



December 31,2005
    
    
    2004
    
    
    2003Developed properties
    
    $
    41,145,800
    
    
    $
    32,293,958
    
    
    $
    24,376,469Undeveloped properties
    
    
    3,212,955
    
    
    
    3,026,168
    
    
    
    3,017,95444,358,755
    
    
    
    35,320,126
    
    
    
    27,394,423Accumulated
depreciation,
depletion and
impairment allowance
    
    
    (14,853,467
    )
    
    
    (10,947,541
    )
    
    
    (8,346,123
    )Net capitalized costs
    
    $
    29,505,288
    
    
    $
    24,372,585
    
    
    $
    19,048,300
 Costs incurred in Oil and Gas Property Acquisitions, Exploration and Development Activities
  December 31,2005
    
    
    2004
    
    
    2003Property
acquisitions  unproved
    
    $
    407,202
    
    
    $
    297,323
    
    
    $
    2,287,510Exploration
    
    
    3,693,173
    
    
    
    323,822
    
    
    
    231,244Development
    
    
    14,872,711
    
    
    
    8,366,749
    
    
    
    7,564,244Total
    
    $
    18,973,086
    
    
    $
    8,987,894
    
    
    $
    10,082,998
 F-16




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##### Table of Contents



For the years ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Beginning balance at January 1,
    
    $
    
    
    
    $
    
    
    
    $
    Capitalized exploratory well costs charged to
expense upon the adoption of FSP FAS 19-1
    
    
    
    
    
    
    
    
    
    
    Additions to capitalized exploratory well costs
pending the determination of proved reserves
    
    
    2,941
    
    
    
    
    
    
    
    Reclassification to wells, facilities, and equipment
based on the determination of proved reserves
    
    
    
    
    
    
    
    
    
    
    Capitalized exploratory well costs charged to expense
    
    
    
    
    
    
    
    
    
    
    Ending balance as December 31,
    
    $
    2,941
    
    
    $
    
    
    
    $
    
  F-17




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##### Table of Contents



Results of Operations from Oil and Gas Producing Activities
  Year ended December 31,(Unaudited)2005
    
    
    2004
    
    
    2003Operating revenues
    
    $
    20,450,856
    
    
    $
    13,057,906
    
    
    $
    6,080,880Costs and expensesProduction
    
    
    6,322,937
    
    
    
    3,800,370
    
    
    
    1,758,009Exploration
    
    
    746,913
    
    
    
    323,822
    
    
    
    231,244Depreciation, depletion and impairment
    
    
    4,325,975
    
    
    
    3,012,692
    
    
    
    1,720,548Total costs and expenses
    
    
    11,395,825
    
    
    
    7,136,884
    
    
    
    3,709,801Income before income taxes
    
    $
    9,055,031
    
    
    $
    5,921,022
    
    
    $
    2,371,079
 Oil and Gas Reserves (Unaudited):
  F-18




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##### Table of Contents



Year ended December 31,(Unaudited)Natural Gas (Mcf)
    
    2005
    
    
    2004
    
    
    2003Beginning of year
    
    
    34,934,746
    
    
    
    22,818,980
    
    
    
    16,810,164Revisions of prior estimates
    
    
    (198,036
    )
    
    
    13,606
    
    
    
    (2,013,517
    )Extensions and discoveries
    
    
    15,473,719
    
    
    
    14,661,717
    
    
    
    9,343,183Production
    
    
    (2,976,094
    )
    
    
    (2,559,557
    )
    
    
    (1,320,850
    )End of year
    
    
    47,234,335
    
    
    
    34,934,746
    
    
    
    22,818,980Proved developed reserves
    
    
    23,032,277
    
    
    
    17,161,577
    
    
    
    16,055,045% of proved developed reserves
    
    
    49%
    
    
    
    49%
    
    
    
    70%
 Year ended December 31,(Unaudited)Oil (Barrels)
    
    2005
    
    
    2004
    
    
    2003Beginning of year
    
    
    278,055
    
    
    
    208,957
    
    
    
    222,473Revisions of prior estimates
    
    
    7,451
    
    
    
    16,062
    
    
    
    (25,115
    )Extensions and discoveries
    
    
    58,716
    
    
    
    89,886
    
    
    
    28,943Sales of reserves in place
    
    
    
    
    
    
    (19,964
    )
    
    
    Production
    
    
    (15,470
    )
    
    
    (16,886
    )
    
    
    (17,344
    )End of year
    
    
    328,752
    
    
    
    278,055
    
    
    
    208,957Proved developed reserves
    
    
    199,931
    
    
    
    163,765
    
    
    
    179,228% of proved developed reserves
    
    
    61%
    
    
    
    59%
    
    
    
    86%
  F-19




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##### Table of Contents



Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
(Unaudited)
      2005
    
    
    2004
    
    
    2003(Unaudited)Future cash inflows
    
    $
    400,671,000
    
    
    $
    202,358,000
    
    
    $
    136,525,000Future production costs
    
    
    (112,025,000
    )
    
    
    (60,424,000
    )
    
    
    (34,734,000
    )Future development costs
    
    
    (19,168,000
    )
    
    
    (9,465,000
    )
    
    
    (3,593,000
    )Future income tax
    
    
    (74,738,000
    )
    
    
    (32,972,000
    )
    
    
    (23,508,000
    )Future net cash flows
    
    
    194,740,000
    
    
    
    99,497,000
    
    
    
    74,690,00010% discount
    
    
    (103,447,000
    )
    
    
    (47,967,000
    )
    
    
    (31,849,000
    )Discounted future net cash flows
    
    $
    91,293,000
    
    
    $
    51,530,000
    
    
    $
    42,841,000
 F-20




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(Unaudited)Balance, beginning of the year
    
    $
    51,530,000
    
    
    $
    42,841,000
    
    
    $
    14,563,000Sales of oil and gas, net of production costs
    
    
    (14,128,000
    )
    
    
    (9,258,000
    )
    
    
    (4,323,000
    )Extensions and discoveries
    
    
    43,610,000
    
    
    
    28,865,000
    
    
    
    23,423,000Net change in sales prices, net of production costs
    
    
    34,004,000
    
    
    
    (4,122,000
    )
    
    
    21,171,000Previously estimated development cost incurred
    
    
    1,290,000
    
    
    
    2,115,000
    
    
    
    670,000Changes in future development costs
    
    
    (9,816,000
    )
    
    
    (6,958,000
    )
    
    
    (1,307,000
    )Sales of reserves in place
    
    
    
    
    
    
    (766,000
    )
    
    
    Revisions of quantity estimates
    
    
    (384,000
    )
    
    
    329,000
    
    
    
    (2,760,000
    )Accretion of discount
    
    
    5,153,000
    
    
    
    4,284,000
    
    
    
    1,456,000Net change in income taxes
    
    
    (19,580,000
    )
    
    
    (4,902,000
    )
    
    
    (9,538,000
    )Changes in rates of production and other
    
    
    (386,000
    )
    
    
    (898,000
    )
    
    
    (514,000
    )Balance, end of the year
    
    $
    91,293,000
    
    
    $
    51,530,000
    
    
    $
    42,841,000
 Quarterly Financial Data (Unaudited)
  Three Months EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2005
    
    2005
    
    2005
    
    2005Oil and Gas Sales
    
    $
    6,320,072
    
    
    $
    5,233,012
    
    
    $
    4,333,823
    
    
    $
    4,563,950Operating Income
    
    $
    2,115,288
    
    
    $
    1,488,454
    
    
    $
    1,166,780
    
    
    $
    1,245,922Net Income
    
    $
    1,048,159
    
    
    $
    974,529
    
    
    $
    776,114
    
    
    $
    824,514Net income per sharebasic
    
    $
    .16
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.10Net income per sharediluted
    
    $
    .17
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.09
 Three Months EndedDecember 31,
    
    September 30,
    
    June 30,
    
    March 31,2004
    
    2004
    
    2004
    
    2004Oil and Gas Sales
    
    $
    4,229,924
    
    
    $
    3,259,214
    
    
    $
    3,403,504
    
    
    $
    2,165,264Operating Income
    
    $
    1,419,279
    
    
    $
    935,852
    
    
    $
    1,340,674
    
    
    $
    802,505Net Income
    
    $
    936,712
    
    
    $
    941,361
    
    
    $
    1,341,807
    
    
    $
    808,323Net income per sharebasic
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.10Net income per sharediluted
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.09
  F-21




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description3.1(a)
    
    Articles of Incorporation filed with the Maryland Secretary of State on January 23, 2001
(incorporated by reference from Exhibit 3.1(a) of the Companys Annual Report on Form
10-K for the year ended August 31, 2001).3.1(b)
    
    Certificate of Correction filed with the Maryland Secretary of State on February 15, 2001
concerning the Articles of Incorporation (incorporated by reference from Exhibit 3.1(b) of
the Companys Annual Report on Form 10-K for the year ended August 31, 2001).3.1(c)
    
    Articles of Merger filed with the Maryland Secretary of State on February 15, 2001
(incorporated by reference from Exhibit 3.1(c) of the Companys Annual Report on Form 10-K
for the year ended August 31, 2001).3.1(d)
    
    Certificate of Correction filed with the Maryland Secretary of State (incorporated by
reference from Exhibit 3 of the Companys Quarterly Report on Form 10-QSB for the quarter
ended November 30, 2001).3.2
    
    Bylaws (incorporated by reference from Exhibit 3.2 of the Companys Annual Report on Form
10-K for the year ended August 31, 2001).4.1
    
    Form of Warrant Agreement concerning Common Stock Purchase Warrants (incorporated by
reference from Exhibit 4.3 of the Amendment No. 1 to the Registrants Registration
Statement on Form SB-2 filed on November 27, 1996, SEC Registration No. 333-14011).23.1
    
    Consent of Hein & Associates LLP.23.2
    
    Consent of Netherland, Sewell & Associates.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.