##### Table of Contents









UNITED STATES


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, 2004                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-22433





Brigham Exploration Company


(Exact name of Registrant as Specified in its Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 75-2692967                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

6300 Bridge Point Parkway, Building 2, Suite 500,
Austin, Texas 78730


(Address of principal executive offices) (Zip Code)


(512) 427-3300


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | None                                     

Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $.01 par value


(Title of Class)


þ o


o


þ o


sm




DOCUMENTS INCORPORATED BY REFERENCE












---










BRIGHAM EXPLORATION COMPANY


TABLE OF CONTENTS


|                                                  |  |                                                                                                                      |     |      |    | 
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                  |  |                                                                                                                      |     | Page
|                                                  |  |                                                                                                                      |     |     
|Part I                                           
|Item 1.                                           |  | Business                                                                                                             |     |      | 2  | 
|Item 2.                                           |  | Properties                                                                                                           |     |      | 9  | 
|Item 3.                                           |  | Legal Proceedings                                                                                                    |     |      | 19 | 
|Item 4.                                           |  | Submission of Matters to a Vote of Security
    Holders                                                              |     |      | 20 | 
|                                                  |  | Executive Officers of the Registrant                                                                                 |     |      | 20 | 
|Part II                                          
|Item 5.                                           |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |     |      | 21 | 
|Item 6.                                           |  | Selected Consolidated Financial Data                                                                                 |     |      | 25 | 
|Item 7.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |     |      | 27 | 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |     |      | 63 | 
|Item 8.                                           |  | Financial Statements and Supplementary
    Data                                                                      |     |      | 66 | 
|Item 9.                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |     |      | 66 | 
|Item 9A.                                          |  | Controls and Procedures                                                                                              |     |      | 66 | 
|Item 9B.                                          |  | Other Information                                                                                                    |     |      | 68 | 
|Part III                                         
|Item 10.                                          |  | Directors and Executive Officers of the
    Registrant                                                               |     |      | 68 | 
|Item 11.                                          |  | Executive Compensation                                                                                               |     |      | 68 | 
|Item 12.                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |     |      | 68 | 
|Item 13.                                          |  | Certain Relationships and Related
    Transactions                                                                   |     |      | 68 | 
|Item 14.                                          |  | Principal Accounting Fees and Services                                                                               |     |      | 68 | 
|Part IV                                          
|Item 15.                                          |  | Exhibits, Financial Statement Schedules                                                                              |     |      | 69 | 
|Glossary of Oil and Gas Terms                     |  |                                                                                                                      | 70  |     
|Signatures                                        |  |                                                                                                                      | 73  |     
|Index to Financial Statements                     |  |                                                                                                                      | F-1 |     
|3rd Amendment to Two Bridge Point Lease          
|4th Amendment to Two Bridge Point Lease          
|5th Amendment to Two Bridge Point Lease          
|Third Amended Credit Agreement                   
|Second Amendment to Subordinated Credit Agreement
|Subsidiaries of the Registrant                   
|Consent of PricewaterhouseCoopers LLP            
|Consent of Cawley Gillespie & Associates, Inc.   
|Certification of CEO Pursuant to Section 302     
|Certification of CFO Pursuant to Section 302     
|Certification of CEO Pursuant to Section 1350    
|Certification of CFO Pursuant to Section 1350    



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


2004 ANNUAL REPORT ON FORM 10-K





PART I







|        |         
|------- | --------
|Item 1. | Business

Overview














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Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focus on Core Provinces and Trends.We have accumulated
    and continue to add to a multi-year inventory of 3-D seismic and
    geologic data and have developed a strong technical knowledge
    base in the following geologic trends within our core provinces:
    the Vicksburg and Frio trends in the onshore Texas Gulf Coast,
    the Springer and Hunton trends in the Anadarko Basin and the
    Horseshoe Atoll trend of West Texas. During 2004, we added
    approximately 655 square miles of 3-D seismic data to our
    corporate database.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Further, we believe our focus on these five proven onshore
    trends within our three core provinces provides us with
    important drilling investment diversification. Since 1999, our
    drilling success in these trends has resulted in six significant
    field discoveries and a multi-year inventory of development
    drilling locations. We plan to focus a majority of our near term
    capital expenditures in these trends, where we believe our
    accumulated data and knowledge base provide a substantial
    competitive advantage.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Internally Generate Inventory of High Quality Exploratory
    Prospects. We utilize 3-D seismic and other advanced
    technologies, including computer-aided exploration, to generate
    and maintain a large multi-year inventory of high quality
    exploratory prospects. Our highly skilled staff of 13
    geophysicists and geologists generates substantially all of our
    prospects. We do not rely on third party generated
    opportunities, which usually involve the payment of
    consideration over and above the costs incurred to generate and
    drill the prospect. We believe that our six significant field
    discoveries and our history of achieving low all-sources finding
    costs over the last three, five and seven years, averaging
    $3.69, $2.44 and $2.12 per Mcfe, respectively, reflect the
    quality and depth of our 3-D delineated prospect inventory as
    well our ability to continue to generate such opportunities.                                
|
| |  | Capitalize on Exploration Successes Through Development of
    Field Discoveries.From 1990 to 1999, we grew our reserves
    and production volumes primarily through successful 3-D
    delineated exploration drilling. Due to our exploratory drilling
    success and the resulting growth in our inventory of development
    drilling locations, approximately 68% of our drilling
    expenditures in 2002, 2003 and 2004 were spent on development
    activities. We believe our ability to balance our higher risk
    exploratory drilling with lower risk development drilling has
    reduced our risk profile. For 2005, we intend to allocate
    approximately 51% of our total drilling expenditures to
    development activities. See Item 2. Properties
    and Item 7. Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Capital Commitments  Capital Expenditures for
    additional discussion about capital expenditures for 2005.
|
| |  | Accelerate Drilling of Our Prospect Inventory.To
    capitalize on our multi-year inventory of exploration and
    development locations, our goal is to continue with our
    accelerated level of drilling activity in 2005. In 2004 we spent
    $68.2 million in drilling capital expenditures,
    representing a 94%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | increase over amounts spent in 2003. For 2005 we have budgeted
    $70.3 million in drilling capital expenditures. As has
    historically been the case, our exploratory drilling will test
    several higher risk, but higher reserve potential prospects.
    During 2005, including the Mills Ranch #2-98 which was in
    progress at December 31, 2004, we plan to drill a total of
    eight such high risk high potential exploratory wells, versus
    the five and three we drilled in 2004 and 2003, respectively.
    See Item 2. Properties and Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Capital
    Commitments  Capital Expenditures for
    additional discussion about capital expenditures for 2005.                                                                                                                                                                                           
|
| |  | Enhance Returns Through Operational Control.We seek to
    maintain operational control of our exploration and drilling
    activities. As an operator, we retain more control over the
    timing and selection of drilling prospects, which enhances our
    ability to optimize our finding and development costs and to
    maximize our return on invested capital. Since we generate
    substantially all of our projects, we generally have the ability
    to retain operational control over all phases of our exploration
    and development activities. As of December 31, 2004, we
    operated approximately 64% of the pre-tax PV-10% value of our
    proved developed reserves. Further, in 2004 we operated 50% of
    the wells we drilled, representing 82% of our drilling capital
    expenditures. We expect to operate approximately 73% of the
    wells planned for 2005, representing approximately 95% of our
    budgeted drilling capital expenditures.

Exploration and Development Staff






Oil and Natural Gas Market and Major Customers








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Competition




Operating Hazards and Uninsured Risks




5



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Employees




Facilities




Governmental Regulation






6



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Environmental Matters








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Operations and Operations Staff






Website Access to Our Reports




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|        |           
|------- | ----------
|Item 2. | Properties







|                                                                              |  |            |        |          |  |            |        |       |  |   |       |   |  |   |         |    
|----------------------------------------------------------------------------- |  | ---------- | ------ | -------- |  | ---------- | ------ | ----- |  | - | ----- | - |  | - | ------- | ---
|                                                                              |  | Onshore    |        |          |  |            |        |      
|                                                                              |  | Texas      |        | Anadarko |  | West Texas |        |      
|                                                                              |  | Gulf Coast |        | Basin    |  | & Other    |        | Total
|                                                                              |  |            |        |          |  |            |        |      
|Capital expenditures for drilling, land and seismic in 2004 (in
    millions) |  | $          | 48.5   |          |  | $          | 30.9   |       |  | $ | 1.8   |   |  | $ | 81.2    |    
|                                                                             
|Proved Reserves at December 31, 2004                                          |  |            |        |          |  |            |        |       |  |   |       |   |  |   |         |    
|Pre-tax PV10% value (in millions)                                             |  | $          | 166.4  |          |  | $          | 111.1  |       |  | $ | 17.0  |   |  | $ | 294.5   | (a)
|Oil (MBbls)                                                                   |  |            | 1,848  |          |  |            | 605    |       |  |   | 783   |   |  |   | 3,236   |    
|Natural gas (MMcf)                                                            |  |            | 56,217 |          |  |            | 45,035 |       |  |   | 623   |   |  |   | 101,875 |    
|Natural gas equivalents (MMcfe)                                               |  |            | 67,304 |          |  |            | 48,665 |       |  |   | 5,321 |   |  |   | 121,290 |    
|% Natural gas                                                                 |  |            | 84     | %        |  |            | 93     | %     |  |   | 12    | % |  |   | 84      | %  
|                                                                             
|Average daily production (MMcfe/d)                                            |  |            | 20.9   |          |  |            | 9.7    |       |  |   | 3.5   |   |  |   | 34.1    |    
|                                                                             
|Productive wells at December 31, 2004                                         |  |            |        |          |  |            |        |       |  |   |       |   |  |   |         |    
|Gross                                                                         |  |            | 76     |          |  |            | 168    |       |  |   | 89    |   |  |   | 333     |    
|Net                                                                           |  |            | 28.0   |          |  |            | 35.7   |       |  |   | 25.1  |   |  |   | 88.8    |    
|                                                                             
|3-D Seismic Data (square miles)                                               |  |            | 3,763  |          |  |            | 2,204  |       |  |   | 4,497 |   |  |   | 10,464  |    






|    |                                                                   
|--- | ------------------------------------------------------------------
|(a) | Standardized measure at December 31, 2004, was
    $239.7 million.

Onshore Texas Gulf Coast




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10



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Anadarko Basin














11



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West Texas










12



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3-D Seismic Exploration










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Title to Properties




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Oil and Natural Gas Reserves




|                                                                 |                                |                 |         |         |  |      |         |         |  |   |        |         | 
|---------------------------------------------------------------- | ------------------------------ | --------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------ | ------- | 
|                                                                 |                                | At December 31,
|                                                                 |                                |                
|                                                                 |                                | 2004            |         | 2003    |  | 2002
|                                                                 |                                |                 |         |         |  |     
|Estimated Net Proved Reserves:                                   |                                |                 |         |         |  |      |         |         |  |   |        |        
|Oil (MBbls)                                                      |                                |                 | 3,236   |         |  |      | 4,130   |         |  |   | 3,607  |        
|Natural gas (MMcf)                                               |                                |                 | 101,875 |         |  |      | 109,403 |         |  |   | 99,428 |        
|                                                                 | Natural gas equivalent (MMcfe) |                 |         | 121,290 |  |      |         | 134,182 |  |   |        | 121,070 | 
|Proved developed reserves as a percentage of net proved reserves |                                |                 | 50      | %       |  |      | 50      | %       |  |   | 46     | %      
|Pre-tax PV-10% (in millions)                                     |                                | $               | 294.5   |         |  | $    | 343.8   |         |  | $ | 307.4  |        
|Standardized measure (in millions)                               |                                |                 | 239.7   |         |  |      | 261.6   |         |  |   | 239.7  |        
|Estimated future development cost (in millions)                  |                                |                 | 79.9    |         |  |      | 59.0    |         |  |   | 48.7   |        
|Base price used to calculate reserves(a):                        |                                |                 |         |         |  |      |         |         |  |   |        |        
|Natural gas (per MMbtu)                                          |                                | $               | 6.19    |         |  | $    | 5.83    |         |  | $ | 4.74   |        
|Oil (per Bbl)                                                    |                                |                 | 43.46   |         |  |      | 32.55   |         |  |   | 31.25  |        






|    |  |                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | These base prices were adjusted to reflect applicable
    transportation and quality differentials on a well-by-well basis
    to arrive at realized sales prices used to estimate our reserves
    at these dates.







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Drilling Activities




|                   |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |     | 
|------------------ | ----- | ----------------------- | -- | ---- |  | ------- | ---- | ---- |  | ----- | -- | --- |  |  | --- | --- |  |  | - | -- |  |  | --- | --- | 
|                   |       | Year Ended December 31,
|                   |       |                        
|                   |       | 2004(a)                 |    | 2003 |  | 2002(b)
|                   |       |                         |    |      |  |        
|                   |       | Gross                   |    | Net  |  | Gross   |      | Net  |  | Gross |    | Net
|                   |       |                         |    |      |  |         |      |      |  |       |    |    
|Exploratory wells: |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    
|Natural gas        |       |                         | 9  |      |  |         | 4.4  |      |  |       | 14 |     |  |  | 6.8 |     |  |  | 4 |    |  |  | 0.9 |    
|Oil                |       |                         | 1  |      |  |         | 0.9  |      |  |       | 4  |     |  |  | 1.3 |     |  |  | 6 |    |  |  | 0.9 |    
|Non-productive     |       |                         | 7  |      |  |         | 5.2  |      |  |       | 4  |     |  |  | 1.8 |     |  |  | 1 |    |  |  | 0.7 |    
|                   |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    
|                   | Total |                         |    | 17   |  |         |      | 10.5 |  |       |    | 22  |  |  |     | 9.9 |  |  |   | 11 |  |  |     | 2.5 | 
|                   |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    
|Development wells: |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    
|Natural gas        |       |                         | 35 |      |  |         | 13.9 |      |  |       | 11 |     |  |  | 3.9 |     |  |  | 7 |    |  |  | 2.4 |    
|Oil                |       |                         | 2  |      |  |         | 0.3  |      |  |       | 1  |     |  |  | 0.4 |     |  |  | 4 |    |  |  | 1.7 |    
|Non-productive     |       |                         | 5  |      |  |         | 1.5  |      |  |       | 3  |     |  |  | 1.8 |     |  |  | 1 |    |  |  | 0.3 |    
|                   |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    
|                   | Total |                         |    | 42   |  |         |      | 15.7 |  |       |    | 15  |  |  |     | 6.1 |  |  |   | 12 |  |  |     | 4.4 | 
|                   |       |                         |    |      |  |         |      |      |  |       |    |     |  |  |     |     |  |  |   |    |  |  |     |    






|    |  |                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Excludes one (1.0 net) exploratory well that is currently
    drilling.                                                                                    
|(b) |  | Excludes one (0.2 net) development well that is productive
    but is temporarily abandoned. There are no current plans to put
    this well on production.



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Productive Wells and Acreage


Productive Wells




|                         |       |             |     |     |  |       |      |      |  |       |    |     |  |  |      |      |  |  |     |     |  |  |      |      | 
|------------------------ | ----- | ----------- | --- | --- |  | ----- | ---- | ---- |  | ----- | -- | --- |  |  | ---- | ---- |  |  | --- | --- |  |  | ---- | ---- | 
|                         |       | Natural Gas |     | Oil |  | Total
|                         |       |             |     |     |  |      
|                         |       | Gross       |     | Net |  | Gross |      | Net  |  | Gross |    | Net
|                         |       |             |     |     |  |       |      |      |  |       |    |    
|Onshore Texas Gulf Coast |       |             | 56  |     |  |       | 23.2 |      |  |       | 20 |     |  |  | 4.8  |      |  |  | 76  |     |  |  | 28.0 |     
|Anadarko Basin           |       |             | 149 |     |  |       | 31.9 |      |  |       | 19 |     |  |  | 3.8  |      |  |  | 168 |     |  |  | 35.7 |     
|West Texas and other     |       |             | 13  |     |  |       | 1.6  |      |  |       | 76 |     |  |  | 23.5 |      |  |  | 89  |     |  |  | 25.1 |     
|                         |       |             |     |     |  |       |      |      |  |       |    |     |  |  |      |      |  |  |     |     |  |  |      |     
|                         | Total |             |     | 218 |  |       |      | 56.7 |  |       |    | 115 |  |  |      | 32.1 |  |  |     | 333 |  |  |      | 88.8 | 
|                         |       |             |     |     |  |       |      |      |  |       |    |     |  |  |      |      |  |  |     |     |  |  |      |     



Acreage




|                         |       |           |        |             |  |       |        |        |  |       |        |        |  |  |        |        |  |  |        |         |  |  |        |        | 
|------------------------ | ----- | --------- | ------ | ----------- |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------- |  |  | ------ | ------ | 
|                         |       | Developed |        | Undeveloped |  | Total
|                         |       |           |        |             |  |      
|                         |       | Gross     |        | Net         |  | Gross |        | Net    |  | Gross |        | Net   
|                         |       |           |        |             |  |       |        |        |  |       |        |       
|Onshore Texas Gulf Coast |       |           | 15,255 |             |  |       | 7,591  |        |  |       | 19,512 |        |  |  | 12,532 |        |  |  | 34,767 |         |  |  | 20,123 |       
|Anadarko Basin           |       |           | 50,091 |             |  |       | 27,270 |        |  |       | 26,133 |        |  |  | 14,397 |        |  |  | 76,224 |         |  |  | 41,667 |       
|West Texas               |       |           | 17,762 |             |  |       | 6,255  |        |  |       | 2,160  |        |  |  | 1,627  |        |  |  | 19,922 |         |  |  | 7,882  |       
|Other                    |       |           | 2,732  |             |  |       | 967    |        |  |       |       |        |  |  |       |        |  |  | 2,732  |         |  |  | 967    |       
|                         |       |           |        |             |  |       |        |        |  |       |        |        |  |  |        |        |  |  |        |         |  |  |        |       
|                         | Total |           |        | 85,840      |  |       |        | 42,083 |  |       |        | 47,805 |  |  |        | 28,556 |  |  |        | 133,645 |  |  |        | 70,639 | 
|                         |       |           |        |             |  |       |        |        |  |       |        |        |  |  |        |        |  |  |        |         |  |  |        |       





|                      |       |                |        |        |  |  |        |        | 
|--------------------- | ----- | -------------- | ------ | ------ |  |  | ------ | ------ | 
|                      |       | Acres Expiring
|                      |       |               
|Twelve Months Ending: |       | Gross          |        | Net   
|                      |       |                |        |       
|December 31, 2005     |       |                | 14,271 |        |  |  | 7,449  |       
|December 31, 2006     |       |                | 17,357 |        |  |  | 10,059 |       
|December 31, 2007     |       |                | 9,506  |        |  |  | 6,690  |       
|Thereafter            |       |                | 6,671  |        |  |  | 4,358  |       
|                      |       |                |        |        |  |  |        |       
|                      | Total |                |        | 47,805 |  |  |        | 28,556 | 
|                      |       |                |        |        |  |  |        |       

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|                      |  |                |        |     |  |  |        | 
|--------------------- |  | -------------- | ------ | --- |  |  | ------ | 
|                      |  | Acres Expiring
|                      |  |               
|Twelve Months Ending: |  | Gross          |        | Net
|                      |  |                |        |    
|December 31, 2005     |  |                | 62,638 |     |  |  | 55,767 | 

Volumes, Prices and Production Costs




|                              |                                               |                         |   |        |   |      |   |        |   |  |   |       |  
|----------------------------- | --------------------------------------------- | ----------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ----- | -
|                              |                                               | Year Ended December 31,
|                              |                                               |                        
|                              |                                               | 2004                    |   | 2003   |   | 2002
|                              |                                               |                         |   |        |   |     
|Production:                   |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Oil (MBbls)                                   |                         |   | 573    |   |      |   | 720    |   |  |   | 701   |  
|                              | Natural gas (MMcf)                            |                         |   | 8,830  |   |      |   | 6,356  |   |  |   | 5,791 |  
|                              | Natural gas equivalent (MMcfe)                |                         |   | 12,265 |   |      |   | 10,674 |   |  |   | 9,996 |  
|Average sales price per unit: |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                             
|                              | Oil revenues (per Bbl)                        |                         | $ | 40.13  |   |      | $ | 30.79  |   |  | $ | 25.17 |  
|                              | Effects of hedging activities (per Bbl)       |                         |   | (4.96  | ) |      |   | (2.62  | ) |  |   | (1.62 | )
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Average price (per Bbl)                       |                         | $ | 35.17  |   |      | $ | 28.17  |   |  | $ | 23.55 |  
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Natural gas revenues (per Mcf)                |                         | $ | 6.05   |   |      | $ | 5.68   |   |  | $ | 3.33  |  
|                              | Effects of hedging activities (per Mcf)       |                         |   | (0.21  | ) |      |   | (0.76  | ) |  |   | (0.12 | )
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Average price (per Mcf)                       |                         | $ | 5.84   |   |      | $ | 4.92   |   |  | $ | 3.21  |  
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                             
|                              | Total oil and natural gas revenues (per Mcfe) |                         | $ | 6.23   |   |      | $ | 5.46   |   |  | $ | 3.70  |  
|                              | Effects of hedging activities (per Mcfe)      |                         |   | (0.38  | ) |      |   | (0.63  | ) |  |   | (0.19 | )
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Average price (per Mcfe)                      |                         | $ | 5.85   |   |      | $ | 4.83   |   |  | $ | 3.51  |  
|                              |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                             
|Average production costs:     |                                               |                         |   |        |   |      |   |        |   |  |   |      
|                              | Lease operating expenses (per Mcfe)           |                         | $ | 0.43   |   |      | $ | 0.43   |   |  | $ | 0.32  |  
|                              | Ad valorem taxes (per Mcfe)                   |                         |   | 0.07   |   |      |   | 0.06   |   |  |   | 0.06  |  
|                              | Production taxes (per Mcfe)                   |                         |   | 0.25   |   |      |   | 0.23   |   |  |   | 0.20  |  

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings















19



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



Executive Officers of the Registrant






|                       |  |     |    |          |  |                                                                    
|---------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Ben M. Brigham         |  |     | 45 |          |  | Chief Executive Officer, President and Chairman                    
|Eugene B. Shepherd, Jr |  |     | 46 |          |  | Executive Vice President and Chief Financial Officer               
|David T. Brigham       |  |     | 44 |          |  | Executive Vice President  Land and Administration and
    Director
|A. Lance Langford      |  |     | 42 |          |  | Executive Vice President  Operations                              
|Jeffery E. Larson      |  |     | 46 |          |  | Executive Vice President  Exploration                             

Ben M. Bud Brigham


Eugene B. Shepherd, Jr.


David T. Brigham


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A. Lance Langford


Jeffery E. Larson





PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Price Range of Common Stock and Dividend Policy




|      |                |      |   |        |     |  |   |       | 
|----- | -------------- | ---- | - | ------ | --- |  | - | ----- | 
|      |                | High |   |        | Low | 
|      |                |      |   |        |     | 
|2003: |                |      |   |        |     |  |   |      
|      | First Quarter  |      | $ | 6.000  |     |  |   | 4.400 | 
|      | Second Quarter |      |   | 5.740  |     |  |   | 4.500 | 
|      | Third Quarter  |      |   | 7.200  |     |  |   | 4.750 | 
|      | Fourth Quarter |      |   | 8.410  |     |  |   | 6.260 | 
|2004: |                |      |   |        |     |  |   |      
|      | First Quarter  |      | $ | 8.630  |     |  | $ | 6.600 | 
|      | Second Quarter |      |   | 10.040 |     |  |   | 7.341 | 
|      | Third Quarter  |      |   | 9.890  |     |  |   | 7.560 | 
|      | Fourth Quarter |      |   | 10.050 |     |  |   | 7.720 | 





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Securities Authorized for Issuance under Equity Compensation
Plans




|                                                           |       |                     |           |           |                     |   |                      |                     |  |  |           |           | 
|---------------------------------------------------------- | ----- | ------------------- | --------- | --------- | ------------------- | - | -------------------- | ------------------- |  |  | --------- | --------- | 
|                                                           |       | Number of           |           |           |                     |   | Number of Securities |                    
|                                                           |       | Securities to be    |           |           |                     |   | Remaining Available  |                    
|                                                           |       | Issued upon         |           |           | Weighted-Average    |   |                      | for Future Issuance | 
|                                                           |       | Exercise of         |           |           | Price of            |   |                      | Under Equity        | 
|Plan Category                                              |       | Outstanding Options |           |           | Outstanding Options |   |                      | Compensation Plans  | 
|                                                           |       |                     |           |           |                     |   |                      |                     | 
|Equity compensation plans approved by security holders(a)  |       |                     | 2,676,100 |           |                     | $ | 6.01                 |                     |  |  | 1,730,850 |          
|Equity compensation plans not approved by security holders |       |                     |          |           |                     |   |                     |                     |  |  |          |          
|                                                           |       |                     |           |           |                     |   |                      |                     | 
|                                                           | Total |                     |           | 2,676,100 |                     |   | $                    | 6.01                |  |  |           | 1,730,850 | 
|                                                           |       |                     |           |           |                     |   |                      |                     | 






|    |  |                                                                              
|--- |  | -----------------------------------------------------------------------------
|(a) |  | Does not include 325,000 shares of restricted stock at
    December 31, 2004.

Issuer Purchases of Equity Securities




|             |  |                  |        |  |                |   |       | 
|------------ |  | ---------------- | ------ |  | -------------- | - | ----- | 
|             |  | Total Number of  |        |  | Average Price  |  
|Period       |  | Shares Purchased |        |  | Paid per Share |  
|             |  |                  |        |  |                |  
|October 2004 |  |                  | 15,790 |  |                | $ | 9.205 | 
|January 2004 |  |                  | 19,596 |  |                |   | 7.970 | 
|October 2003 |  |                  | 16,351 |  |                |   | 6.705 | 
|October 2002 |  |                  | 18,665 |  |                |   | 4.030 | 

Recent Issuance of Unregistered Securities


Common Stock








22



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23



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Mandatorily Redeemable
Preferred Stock






24



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data





|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |        |        |       | 
|--------------------------------------------------------------------------------------------- | --------------------------- | ---------------------------------------------------------------------------- | ----------------------- | ----------- | ------ | ----------- | ------ | -------------- | ------ | -------------- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | 
|                                                                                              |                             | Year Ended December 31,                                                     
|                                                                                              |                             |                                                                             
|                                                                                              |                             | 2004                                                                         |                         | 2003        |        | 2002        |        | 2001           |        | 2000          
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |               
|                                                                                              |                             |                                                                              |                         | Restated(1) |        | Restated(1) |        | Restated(1)(2) |        | Restated(1)(2)
|                                                                                              |                             | (In thousands, except per share information)                                
|Statement of Operations Data:                                                                 |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|Oil and natural gas sales                                                                     |                             | $                                                                            | 71,713                  |             |        | $           | 51,545 |                |        | $              | 35,100 |        |        | $     | 32,293 |        |        | $      | 19,143 |       
|Other revenues                                                                                |                             |                                                                              | 515                     |             |        |             | 132    |                |        |                | 76     |        |        |       | 255    |        |        |        | 69     |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Total revenues                                                               |                         |             | 72,228 |             |        |                | 51,677 |                |        |        | 35,176 |       |        |        | 32,548 |        |        |        | 19,212 |      
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|Lease operating expenses                                                                      |                             |                                                                              | 6,173                   |             |        |             | 5,200  |                |        |                | 3,759  |        |        |       | 3,486  |        |        |        | 2,139  |       
|Production taxes                                                                              |                             |                                                                              | 3,107                   |             |        |             | 2,477  |                |        |                | 1,977  |        |        |       | 1,511  |        |        |        | 1,786  |       
|General and administrative expenses                                                           |                             |                                                                              | 5,392                   |             |        |             | 4,500  |                |        |                | 4,971  |        |        |       | 3,638  |        |        |        | 3,100  |       
|Depletion of oil and natural gas properties                                                   |                             |                                                                              | 23,844                  |             |        |             | 16,819 |                |        |                | 14,694 |        |        |       | 13,225 |        |        |        | 7,601  |       
|Depreciation and amortization                                                                 |                             |                                                                              | 722                     |             |        |             | 629    |                |        |                | 440    |        |        |       | 677    |        |        |        | 620    |       
|Accretion of discount on asset retirement obligations                                         |                             |                                                                              | 159                     |             |        |             | 142    |                |        |                |       |        |        |       |       |        |        |        |       |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Total costs and expenses                                                     |                         |             | 39,397 |             |        |                | 29,767 |                |        |        | 25,841 |       |        |        | 22,537 |        |        |        | 15,246 |      
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             |                                                                              | Operating income (loss) |             |        | 32,831      |        |                |        | 21,910         |        |        |        | 9,335 |        |        |        | 10,011 |        |        |        | 3,966 | 
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|Other income (expense)                                                                        |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              | Interest expense, net       |                                                                              |                         | (3,144      | )      |             |        | (4,815         | )      |                |        | (6,238 | )      |       |        | (6,681 | )      |        |        | (9,906 | )     
|                                                                                              | Interest income             |                                                                              |                         | 84          |        |             |        | 45             |        |                |        | 119    |        |       |        | 264    |        |        |        | 108    |       
|                                                                                              | Other income (expense)      |                                                                              |                         | 742         |        |             |        | (601           | )      |                |        | (310   | )      |       |        | 8,080  |        |        |        | (9,504 | )     
|                                                                                              | Debt conversion expense     |                                                                              |                         |            |        |             |        |               |        |                |        | (630   | )      |       |        |       |        |        |        |       |       
|                                                                                              | Gain on refinancing of debt |                                                                              |                         |            |        |             |        |               |        |                |        |       |        |       |        |       |        |        |        | 32,267 |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Total other income (expense)                                                 |                         |             | (2,318 | )           |        |                | (5,371 | )              |        |        | (7,059 | )     |        |        | 1,663  |        |        |        | 12,965 |      
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|Income (loss) before income taxes and cumulative effect of
    change in accounting principle |                             | $                                                                            | 30,513                  |             |        | $           | 16,539 |                |        | $              | 2,276  |        |        | $     | 11,674 |        |        | $      | 16,931 |       
|Income tax benefit (expense)                                                                  |                             |                                                                              | (10,863                 | )           |        |             | 1,223  |                |        |                |       |        |        |       |       |        |        |        |       |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Income (loss) before cumulative effect of change in accounting
    principle |                         |             | 19,650 |             |        |                | 17,762 |                |        |        | 2,276  |       |        |        | 11,674 |        |        |        | 16,931 |      
|Cumulative effect of change in accounting principle                                           |                             |                                                                              |                        |             |        |             | 268    |                |        |                |       |        |        |       |       |        |        |        |       |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Net income (loss)                                                            |                         |             | 19,650 |             |        |                | 18,030 |                |        |        | 2,276  |       |        |        | 11,674 |        |        |        | 16,931 |      
|Preferred dividend and accretion                                                              |                             |                                                                              |                        |             |        |             | 3,448  |                |        |                | 2,952  |        |        |       | 2,450  |        |        |        | 275    |       
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              |                             | Net income (loss) available to common stockholders                           |                         | $           | 19,650 |             |        | $              | 14,582 |                |        | $      | (676   | )     |        | $      | 9,224  |        |        | $      | 16,656 |      
|                                                                                              |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|Net income (loss) per share before cumulative effect of change
    in accounting principle    |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              | Basic                       |                                                                              | $                       | 0.49        |        |             | $      | 0.62           |        |                | $      | (0.04  | )      |       | $      | 0.58   |        |        | $      | 1.03   |       
|                                                                                              | Diluted                     |                                                                              |                         | 0.47        |        |             |        | 0.51           |        |                |        | (0.04  | )      |       |        | 0.44   |        |        |        | 1.03   |       
|Weighted average shares outstanding                                                           |                             |                                                                              |                         |             |        |             |        |                |        |                |        |        |        |       |        |        |        |        |        |       
|                                                                                              | Basic                       |                                                                              |                         | 40,445      |        |             |        | 23,363         |        |                |        | 16,138 |        |       |        | 15,988 |        |        |        | 16,241 |       
|                                                                                              | Diluted                     |                                                                              |                         | 41,616      |        |             |        | 34,354         |        |                |        | 16,138 |        |       |        | 28,205 |        |        |        | 16,241 |       

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|                                                     |                      |                 |         |         |   |      |         |         |   |         |         |         |   |   |         |         |   |   |         |         |  
|---------------------------------------------------- | -------------------- | --------------- | ------- | ------- | - | ---- | ------- | ------- | - | ------- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                     |                      | At December 31,
|                                                     |                      |                
|                                                     |                      | 2004            |         | 2003    |   | 2002 |         | 2001(2) |   | 2000(2)
|                                                     |                      |                 |         |         |   |      |         |         |   |        
|                                                     |                      | (In thousands) 
|Statement of Cash Flows Data:                        |                      |                 |         |         |   |      |         |         |   |         |         |         |   |   |         |         |   |   |         |        
|Net cash provided (used) by:                         |                      |                 |         |         |   |      |         |         |   |         |         |         |   |   |         |         |   |   |         |        
|                                                     | Operating activities |                 | $       | 56,381  |   |      | $       | 41,691  |   |         | $       | 28,973  |   |   | $       | 18,922  |   |   | $       | (4,635  | )
|                                                     | Investing activities |                 |         | (84,645 | ) |      |         | (46,089 | ) |         |         | (27,206 | ) |   |         | (33,571 | ) |   |         | (26,071 | )
|                                                     | Financing activities |                 |         | 24,766  |   |      |         | (5,141  | ) |         |         | 8,439   |   |   |         | 18,924  |   |   |         | 28,801  |  
|Balance Sheet Data:                                  |                      |                 |         |         |   |      |         |         |   |         |         |         |   |   |         |         |   |   |         |        
|Cash and cash equivalents                            |                      | $               | 2,281   |         |   | $    | 5,779   |         |   | $       | 15,318  |         |   | $ | 5,112   |         |   | $ | 837     |        
|Oil and natural gas properties, net (restated)(1)(2) |                      |                 | 261,979 |         |   |      | 198,490 |         |   |         | 166,006 |         |   |   | 153,017 |         |   |   | 130,630 |        
|Total assets (restated)(1)(2)                        |                      |                 | 286,307 |         |   |      | 224,982 |         |   |         | 203,085 |         |   |   | 174,201 |         |   |   | 148,051 |        
|Long-term debt                                       |                      |                 | 41,000  |         |   |      | 39,000  |         |   |         | 81,797  |         |   |   | 91,721  |         |   |   | 82,000  |        
|Series A preferred stock, mandatorily redeemable     |                      |                 | 9,520   |         |   |      | 8,794   |         |   |         | 19,540  |         |   |   | 16,614  |         |   |   | 8,558   |        
|Series B preferred stock, mandatorily redeemable     |                      |                 |        |         |   |      |        |         |   |         | 4,777   |         |   |   |        |         |   |   |        |        
|Total stockholders equity (restated)(1)(2)          |                      |                 | 183,276 |         |   |      | 139,111 |         |   |         | 62,775  |         |   |   | 50,727  |         |   |   | 35,897  |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The historical financial information pertaining to depletion
    expense and accumulated depletion that are a part of our net
    proved oil and natural gas properties has been restated. The
    total cumulative impact of the restatement was an increase of
    our previously reported stockholders equity as of
    September 30, 2004 (the most recent balance sheet filed) of
    approximately $676,000. The cumulative impact includes an
    increase to beginning stockholders equity as of
    January 1, 2002 of approximately $1,126,000. For a further
    discussion of the impact of the restatement on our selected
    financial information, see Item 8. Financial
    Statements and Supplementary Data  Note 2 and
    Item 9A. Controls and Procedures.
|   
|(2) | The impacts of the historical restatement for the year ended
    December 31, 2001 were a decrease in earnings before and
    after income taxes of approximately $14,000 and increases to
    depletion expense and accumulated depletion of $14,000. Basic
    and diluted earnings per share were unchanged for the year ended
    December 31, 2001. The impacts of the historical
    restatement for the year ended December 31, 2000 were an
    increase in earnings before and after income taxes of
    approximately $320,000, basic earnings per share of $0.02,
    diluted earnings per share of $0.02, and decreases to depletion
    expense and accumulated depletion of $320,000.                                                                                   

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview of Our Business






Critical Accounting Policies






| |                     
| | --------------------
| | Oil and Gas Reserves



27



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| |                       
| | ----------------------
| | Property and Equipment











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| |                             
| | ----------------------------
| | Asset Retirement Obligations







| |             
| | ------------
| | Income Taxes









| |                    
| | -------------------
| | Revenue Recognition







29



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| |                                              
| | ---------------------------------------------
| | Derivative Instruments and Hedging Activities









| |                 
| | ----------------
| | Use of Estimates





| |                              
| | -----------------------------
| | New Accounting Pronouncements





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Source of Our Revenues






Components of Our Cost Structure




| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production Costs are the day-to-day costs incurred to
    bring hydrocarbons out of the ground and to the market together
    with the daily costs incurred to maintain our producing
    properties. This includes lease operating expenses and
    production taxes.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lease operating expenses are generally comprised of several
    components including the cost of labor and supervision to
    operate wells and related equipment; repairs and maintenance;
    related materials, supplies, fuel, and supplies utilized in
    operating the wells and related equipment and facilities;
    insurance applicable to wells and related facilities and
    equipment. Lease operating expenses also include the cost for
    expensed workovers. Lease operating expenses are driven in part
    by the type of commodity produced, the level of workover
    activity and the geographical location of the properties. Oil is
    inherently more expensive to produce than natural gas.
|
| |  | Lease operating expenses also include ad valorem taxes, which
    are imposed by local taxing authorities such as school
    districts, cities, and counties or boroughs. The amount of the
    tax is based on a percent of value of the property assessed or
    determined by the taxing authority on an annual basis. When oil
    and natural gas commodity prices rise, the value of our
    underlying property interests increase. This results in higher
    ad valorem taxes.                                                                                                                                                                                                                                  
|
| |  | In the U.S. there are a variety of state and federal taxes
    levied on the production of oil and natural gas. These are
    commonly grouped together and referred to as production taxes.
    The majority of our production tax expense is based on a percent
    of gross value realized at the                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | wellhead at the time the production is sold or removed from the
    lease. As a result, our production tax expense increases with
    increases in crude oil and natural gas commodity prices.                                                                                                                                                                                                                                                                 
|
| |  | Historically, taxing authorities have occasionally encouraged
    oil and natural gas industry to explore for new oil and natural
    gas reserves, or develop high cost reserves through reduced tax
    rates or credits. These incentives have been narrow in scope and
    short-lived. A small number of our wells currently qualify for
    reduced production taxes because they are discoveries based on
    the use of 3-D seismic or high cost wells.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Depreciation, Depletion and Amortizationis the
    systematic expensing of the capital costs incurred to acquire,
    explore and develop natural gas and oil. As a full cost company,
    we capitalize all direct costs associated with our exploration
    and development efforts, including interest and certain general
    and administrative costs, and apportion these costs to each unit
    of production sold through depletion expense. Generally, if
    reserve quantities are revised up or down, our depletion rate
    per unit of production will change inversely. When the
    depreciable base increases or decreases, the depletion rate will
    move in the same direction.
|
| |  | Asset Retirement Accretion Expenseis the systematic,
    monthly accretion of future abandonment costs of tangible assets
    such as wells, service assets, pipelines, and other facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | General and Administrativeis our overhead, and includes
    payroll and benefits for our corporate staff, costs of
    maintaining our headquarters, managing our production and
    development operations and legal compliance. We capitalize
    general and administrative costs directly related to our
    exploration and development activities.                                                                                                                                                                                                                                                                                                                                            
|
| |  | Interest. We rely on our senior credit facility to fund
    our short-term liquidity (working capital) and our long-term
    financing needs. As a result, we incur interest expense that
    correlates to both fluctuations in interest rates and to the
    extent that our cash flows from operations do not exceed our
    spending. We expect to continue to incur interest expense as we
    continue to grow. We capitalize interest directly related to our
    unevaluated properties and certain properties under development,
    which are not being amortized.                                                                                                                        
|
| |  | Income Taxes. We are generally subject to a 35% federal
    income tax rate. For income tax purposes, we are allowed
    deductions for accelerated depreciation, depletion and
    intangible drilling costs that reduce our current tax liability.
    Through 2004, all of our income taxes are deferred.                                                                                                                                                                                                                                                                                                                                                                                        

Capital Commitments






32



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##### 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.



|                             |  |                |        | 
|---------------------------- |  | -------------- | ------ | 
|                             |  | 2005           |       
|                             |  |                |       
|                             |  | (In thousands) |       
|Drilling                     |  | $              | 70,308 | 
|Net land and seismic         |  |                | 13,065 | 
|Capitalized interest and G&A |  |                | 6,184  | 
|Other assets                 |  |                | 615    | 
|                             |  |                |       
|Total                        |  | $              | 90,172 | 
|                             |  |                |       









33



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| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | commodity prices;                                                                                                  
|
| |  | production from our existing producing wells;                                                                      
|
| |  | the results of our current exploration and development drilling
    efforts;                                       
|
| |  | economic and industry conditions at the time of drilling,
    including the availability of drilling equipment; and
|
| |  | the availability of more economically attractive prospects.                                                        









| |                        
| | -----------------------
| | Contractual Obligations



|                                                             |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|------------------------------------------------------------ |  | -------------------- | ------ | ---- |  | ----- | ----- | -------- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                                             |  | Payments Due by Year
|                                                             |  |                     
|                                                             |  | Total                |        |      |  | 2007- |       | 2009 and
|                                                             |  | Outstanding          |        | 2005 |  | 2006  |       | 2008     |  | Thereafter
|                                                             |  |                      |        |      |  |       |       |          |  |           
|                                                             |  | (In thousands)      
|Debt:                                                        |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|Senior credit facility                                       |  | $                    | 21,000 |      |  | $     |      |          |  | $          |      |  |  | $ |      |  |  | $ | 21,000 | 
|Senior subordinated notes                                    |  |                      | 20,000 |      |  |       |      |          |  |            |      |  |  |   |      |  |  |   | 20,000 | 
|Mandatorily redeemable, Series A preferred stock             |  |                      | 9,520  |      |  |       |      |          |  |            |      |  |  |   |      |  |  |   | 9,520  | 
|                                                             |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|Total                                                        |  | $                    | 50,520 |      |  | $     |      |          |  | $          |      |  |  | $ |      |  |  | $ | 50,520 | 
|                                                             |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|Other commitments:                                           |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|Interest, senior credit facility(a)                          |  | $                    | 3,361  |      |  | $     | 800   |          |  | $          | 796   |  |  | $ | 1,591 |  |  | $ | 174    | 
|Interest, senior subordinated notes(b)                       |  |                      | 6,422  |      |  |       | 1,522 |          |  |            | 1,522 |  |  |   | 3,044 |  |  |   | 334    | 
|Dividend Mandatorily redeemable, Series A preferred stock(c) |  |                      | 3,331  |      |  |       | 571   |          |  |            | 571   |  |  |   | 1,142 |  |  |   | 1,047  | 
|Non-cancelable operating leases(d)                           |  |                      | 5,326  |      |  |       | 692   |          |  |            | 709   |  |  |   | 1,385 |  |  |   | 2,540  | 
|Asset Retirement Obligations                                 |  |                      | 2,896  |      |  |       | 242   |          |  |            | 172   |  |  |   | 302   |  |  |   | 2,180  | 
|                                                             |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 
|Total                                                        |  | $                    | 21,336 |      |  | $     | 3,827 |          |  | $          | 3,770 |  |  | $ | 7,464 |  |  | $ | 6,275  | 
|                                                             |  |                      |        |      |  |       |       |          |  |            |       |  |  |   |       |  |  |   |        | 






|    |  |                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Calculation assumes $21 million outstanding under our
    senior credit facility, our senior credit facility matures on
    March 21, 2009 and the following interest rate assumptions.                                                                                                                                  
|   
|    |  |  We paid an interest rate of 4.16% through
    January 20, 2005. This was the interest rate that we paid
    on borrowings outstanding under our senior credit facility at
    December 31, 2004, and the interest rate we paid prior to
    amending and restating our senior credit agreement on
    January 21, 2005.

34



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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |  We pay an interest rate of 3.79% from
    January 21, 2005 through maturity on March 21, 2009.
    This is the interest rate that we are required to pay on
    borrowings under our amended and restated senior credit
    facility. It was calculated assuming that we utilized
    approximately 31% of our available borrowing base and a weighted
    average Eurodollar rate of 2.41% plus a margin of 1.375%. This
    is the weighted average Eurodollar rate we used to calculate the
    interest that we paid on borrowings outstanding under senior
    credit facility at December 31, 2004. The amount of
    interest that we pay on borrowings under our senior credit
    facility will fluctuate over time as borrowings under our senior
    credit facility increase or decrease and as the applicable
    interest rate increases or decreases. See Item 7A
    Quantitative and Qualitative Disclosures About Market
    Risk  Interest Rate Risk.
|   
|(b) |  | Calculated assuming $20 million outstanding, an interest
    rate of 7.61% and the notes mature on March 21, 2009. The
    interest rate on our subordinated notes is fixed using an
    interest rate swap.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(c) |  | At our option, the dividends on our Series A preferred
    stock may be paid in cash at a rate of 6% per annum or paid in
    kind through the issuance of additional shares of preferred
    stock in lieu of cash at a rate of 8% per annum. Our option to
    pay dividends in kind expires on October 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Calculated assuming $9.5 million outstanding, that we elect
    to pay the dividends in cash at a rate 6% per annum and the
    mandatorily redeemable Series A preferred stock matures on
    October 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | If we elect to pay the dividends in kind, we would be required
    to issue approximately 32,476 shares of additional Series A
    preferred and pay approximately $101,269 in cash to pay
    dividends of $750,789 in 2005. This represents dividends on our
    outstanding Series A preferred stock from January 1,
    2005 to October 31, 2005, the date our option to pay
    dividends in kind expires, and two months of cash dividends at
    6%. Thereafter, we would be required to pay an annual cash
    dividend of approximately $610,000 until maturity.                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(d) |  | Not reduced by rental payments that we will receive from a
    non-cancelable sublease of approximately $69,000 due in 2005 and
    $44,000 due in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| |                       
| | ----------------------
| | Senior Credit Facility







35



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##### Table of Contents





|                    |  |            |       |          |  |            |       |   |  |  |       |  
|------------------- |  | ---------- | ----- | -------- |  | ---------- | ----- | - |  |  | ----- | -
|Percent of          |  | Eurodollar |       | Base     |  |           
|Borrowing Base      |  | Rate       |       | Rate     |  | Commitment
|Utilized            |  | Advances   |       | Advances |  | Fees      
|                    |  |            |       |          |  |           
|< 25%               |  |            | 1.250 | %        |  |            | 0.250 | % |  |  | 0.250 | %
|£ 25% and <
    50% |  |            | 1.375 | %        |  |            | 0.375 | % |  |  | 0.250 | %
|£ 50% and <
    75% |  |            | 1.625 | %        |  |            | 0.625 | % |  |  | 0.375 | %
|£ 75% and <
    90% |  |            | 1.875 | %        |  |            | 0.875 | % |  |  | 0.375 | %
|£ 90%               |  |            | 2.000 | %        |  |            | 1.000 | % |  |  | 0.500 | %















| |                          
| | -------------------------
| | Senior Subordinated Notes





36



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##### Table of Contents















| |                                       
| | --------------------------------------
| | Mandatorily Redeemable Preferred Stock









| |                               
| | ------------------------------
| | Off Balance Sheet Arrangements



37



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##### Table of Contents



Capital Resources






| |                                          
| | -----------------------------------------
| | Net cash provided by operating activities





| |                       
| | ----------------------
| | Senior Credit Facility











38



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##### Table of Contents





| |                          
| | -------------------------
| | Access to Capital Markets



Commodity Prices








Results of Operations




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Comparison of the twelve-month periods ended
    December 31, 2004, 2003 and 2002



| |                   
| | ------------------
| | Production volumes

|                                   |  |                         |        |          |  |      |     |          |  |      |        |  |  |  |    |   |  |  |       | 
|---------------------------------- |  | ----------------------- | ------ | -------- |  | ---- | --- | -------- |  | ---- | ------ |  |  |  | -- | - |  |  | ----- | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2004                    |        | % Change |  | 2003 |     | % Change |  | 2002
|                                   |  |                         |        |          |  |      |     |          |  |     
|Oil (MBbls)                        |  |                         | 573    |          |  |      | (20 | )%       |  |      | 720    |  |  |  | 3  | % |  |  | 701   | 
|Natural gas (MMcf)                 |  |                         | 8,830  |          |  |      | 39  | %        |  |      | 6,356  |  |  |  | 10 | % |  |  | 5,791 | 
|Total (MMcfe)(1)                   |  |                         | 12,265 |          |  |      | 15  | %        |  |      | 10,674 |  |  |  | 7  | % |  |  | 9,996 | 
|Average daily production (MMcfe/d) |  |                         | 34.1   |          |  |      |     |          |  |      | 29.7   |  |  |  |    |   |  |  | 27.8  | 






|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mcfe is defined one million cubic feet equivalent of natural
    gas, determined using the ratio of six Mcf of natural gas to one
    Bbl of crude oil, condensate or natural gas liquids.



39



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production from our Gulf Coast province for 2004 increased 14%
    when compared to production from that province in 2003. Gulf
    Coast production represented 61% of our total production in 2004
    versus 62% in 2003. Natural gas represented approximately 74% of
    our total production from the Gulf Coast in 2004 compared to 60%
    in 2003.                                                 
|
| |  | Production from our Anadarko Basin province for 2004 increased
    46% when compared to production from that province in 2003.
    Anadarko Basin production represented 29% of our total
    production in 2004 versus 22% in 2003. Natural gas represented
    approximately 88% of our total production from the Anadarko
    Basin in 2004 compared to 90% in 2003.                                     
|
| |  | Production from our West Texas province for 2004 decreased 26%
    when compared to production from that province in 2003 West
    Texas production represented 10% of our total production versus
    16% in 2003. Production from our West Texas province is
    primarily oil. Oil represented approximately 90% of our total
    production from our West Texas province in 2004 versus 84% in
    2003.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production from our Gulf Coast province for 2003 increased 24%
    when compared to production from that province in 2002. Gulf
    Coast production represented 62% of our total production in 2003
    versus 53% in 2002. Natural gas represented approximately 60% of
    our total production from the Gulf Coast in 2003 compared to 61%
    in 2002.                                                  
|
| |  | Production from our Anadarko Basin province for 2003 decreased
    6% when compared to production from that province in 2002.
    Anadarko Basin production represented 22% of our total
    production in 2003 versus 26% in 2002. Natural gas represented
    approximately 90% of our total production from the Anadarko
    Basin in 2003 and 2002.                                                      
|
| |  | Production from our West Texas province for 2003 decreased 21%
    when compared to production from that province in 2002. West
    Texas production represented 16% of our total production versus
    21% in 2002. Production from our West Texas province is
    primarily oil. Oil represented approximately 84% of our total
    production from our West Texas province in 2003 versus 89% in
    2002.

40



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##### Table of Contents



Hedging, commodity prices and revenues




|                                              |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|--------------------------------------------- |  | ----------------------- | ------ | -------- |  | ---- | --- | -------- |  | ---- | ------ | - |  |  | --- | -- |  | - | ------ | -
|                                              |  | Year Ended December 31,
|                                              |  |                        
|                                              |  | 2004                    |        | % Change |  | 2003 |     | % Change |  | 2002
|                                              |  |                         |        |          |  |      |     |          |  |     
|Oil swaps                                     |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                               |  |                         | 73     |          |  |      | (67 | %)       |  |      | 226    |   |  |  | 78  | %  |  |   | 127    |  
|Average swap price ($ per Bbl)                |  | $                       | 24.65  |          |  |      | 1   | %        |  | $    | 24.51  |   |  |  | (6  | %) |  | $ | 25.96  |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (1,073 | )        |  |      | (28 | %)       |  | $    | (1,488 | ) |  |  | 424 | %  |  | $ | (284   | )
|                                             
|Oil collars                                   |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                               |  |                         | 179    |          |  |      | 294 | %        |  |      | 45     |   |  |  | (78 | %) |  |   | 205    |  
|Average floor price ($ per Bbl)               |  | $                       | 24.92  |          |  |      | 38  | %        |  | $    | 18.00  |   |  |  | 0   | %  |  | $ | 18.00  |  
|Average ceiling price ($ per Bbl)             |  | $                       | 31.21  |          |  |      | 38  | %        |  | $    | 22.56  |   |  |  | 1   | %  |  | $ | 22.36  |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (1,768 | )        |  |      | 345 | %        |  | $    | (397   | ) |  |  | (53 | %) |  | $ | (851   | )
|                                             
|Total oil                                     |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                               |  |                         | 252    |          |  |      | (8  | %)       |  |      | 271    |   |  |  | (18 | %) |  |   | 332    |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (2,841 | )        |  |      | 51  | %        |  | $    | (1,885 | ) |  |  | 66  | %  |  | $ | (1,135 | )
|                                             
|Natural gas swaps                             |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                               |  |                         | 753    |          |  |      | (72 | %)       |  |      | 2,664  |   |  |  | (21 | %) |  |   | 3,359  |  
|Average swap price ($ per MMbtu)              |  | $                       | 4.53   |          |  |      | 19  | %        |  | $    | 3.81   |   |  |  | 22  | %  |  | $ | 3.13   |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (1,066 | )        |  |      | (78 | %)       |  | $    | (4,807 | ) |  |  | 575 | %  |  | $ | (712   | )
|                                             
|Natural gas collars                           |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                               |  |                         | 2,504  |          |  |      | NM  |          |  |      |       |   |  |  | NM  |    |  |   |       |  
|Average floor price ($ per MMbtu)             |  | $                       | 4.54   |          |  |      | NM  |          |  | $    |       |   |  |  | NM  |    |  | $ |       |  
|Average ceiling price ($ per MMbtu)           |  | $                       | 6.85   |          |  |      | NM  |          |  | $    |       |   |  |  | NM  |    |  | $ |       |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (787   | )        |  |      | NM  |          |  | $    |       |   |  |  | NM  |    |  | $ |       |  
|                                             
|Natural gas floors                            |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                               |  |                         |       |          |  |      | 100 | %        |  |      | 1,070  |   |  |  | NM  |    |  |   |       |  
|Average floor price ($ per MMbtu)             |  | $                       |       |          |  |      | 100 | %        |  | $    | 4.50   |   |  |  | NM  |    |  | $ |       |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       |       |          |  |      | 100 | %        |  | $    |       |   |  |  | NM  |    |  | $ |       |  
|                                             
|Total natural gas                             |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                               |  |                         | 3,257  |          |  |      | (13 | %)       |  |      | 3,734  |   |  |  | 11  | %  |  |   | 3,359  |  
|Gain /(loss) upon settlement ($ in thousands) |  | $                       | (1,853 | )        |  |      | (61 | %)       |  | $    | (4,807 | ) |  |  | 575 | %  |  | $ | (712   | )







41



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Commodity prices and revenues




|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |        | 
|--------------------------------------------- | -------------------------------------------------- | -------------------------------------------- | ------ | -------- |  | ---- | --- | -------- | -- | ---- | ------ | ------ |  |  | --- | -- | - | - | ------ | ------ | 
|                                              |                                                    | Year Ended December 31,                     
|                                              |                                                    |                                             
|                                              |                                                    | 2004                                         |        | % Change |  | 2003 |     | % Change |    | 2002
|                                              |                                                    |                                              |        |          |  |      |     |          |    |     
|                                              |                                                    | (In thousands, except per unit measurements)
|Revenue from the sale of oil and natural gas: |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|Oil sales                                     |                                                    | $                                            | 22,976 |          |  |      | 4   | %        |    | $    | 22,157 |        |  |  | 26  | %  |   | $ | 17,644 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (2,841 | )        |  |      | 51  | %        |    |      | (1,885 | )      |  |  | 66  | %  |   |   | (1,135 | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Total revenue from the sale of oil                 |                                              | $      | 20,135   |  |      |     | (1       | %) |      | $      | 20,272 |  |  |     | 23 | % |   | $      | 16,509 | 
|                                             
|Natural gas sales                             |                                                    | $                                            | 53,431 |          |  |      | 48  | %        |    | $    | 36,080 |        |  |  | 87  | %  |   | $ | 19,303 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (1,853 | )        |  |      | (61 | %)       |    |      | (4,807 | )      |  |  | 575 | %  |   |   | (712   | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Total revenue from the sale of natural gas         |                                              | $      | 51,578   |  |      |     | 65       | %  |      | $      | 31,273 |  |  |     | 68 | % |   | $      | 18,591 | 
|                                             
|Oil and natural gas sales                     |                                                    | $                                            | 76,407 |          |  |      | 31  | %        |    | $    | 58,237 |        |  |  | 58  | %  |   | $ | 36,947 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (4,694 | )        |  |      | (30 | %)       |    |      | (6,692 | )      |  |  | 262 | %  |   |   | (1,847 | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Total revenue from the sale of oil and natural gas |                                              | $      | 71,713   |  |      |     | 39       | %  |      | $      | 51,545 |  |  |     | 47 | % |   | $      | 35,100 | 
|                                             
|Average prices:                               |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|Oil sales price (per Bbl)                     |                                                    | $                                            | 40.13  |          |  |      | 30  | %        |    | $    | 30.79  |        |  |  | 22  | %  |   | $ | 25.17  |       
|Gain (loss) due to hedging (per Bbl)          |                                                    |                                              | (4.96  | )        |  |      | 89  | %        |    |      | (2.62  | )      |  |  | 62  | %  |   |   | (1.62  | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Realized oil price (per Bbl)                       |                                              | $      | 35.17    |  |      |     | 25       | %  |      | $      | 28.17  |  |  |     | 20 | % |   | $      | 23.55  | 
|                                             
|Natural gas sales price (per Mcf)             |                                                    | $                                            | 6.05   |          |  |      | 7   | %        |    | $    | 5.68   |        |  |  | 71  | %  |   | $ | 3.33   |       
|Gain (loss) due to hedging (per Mcf)          |                                                    |                                              | (0.21  | )        |  |      | (72 | %)       |    |      | (0.76  | )      |  |  | 533 | %  |   |   | (0.12  | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Realized natural gas price (per Mcf)               |                                              | $      | 5.84     |  |      |     | 19       | %  |      | $      | 4.92   |  |  |     | 53 | % |   | $      | 3.21   | 
|                                             
|Natural gas equivalent sales price (per Mcfe) |                                                    | $                                            | 6.23   |          |  |      | 14  | %        |    | $    | 5.46   |        |  |  | 48  | %  |   | $ | 3.70   |       
|Gain (loss) due to hedging (per Mcfe)         |                                                    |                                              | (0.38  | )        |  |      | (40 | %)       |    |      | (0.63  | )      |  |  | 232 | %  |   |   | (0.19  | )     
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       
|                                              | Realized natural gas equivalent (per Mcfe)         |                                              | $      | 5.85     |  |      |     | 21       | %  |      | $      | 4.83   |  |  |     | 38 | % |   | $      | 3.51   | 
|                                              |                                                    |                                              |        |          |  |      |     |          |    |      |        |        |  |  |     |    |   |   |        |       

|                                       |              |         |        |         |   |   |       |       | 
|-------------------------------------- | ------------ | ------- | ------ | ------- | - | - | ----- | ----- | 
|                                       |              | 2003    |        | 2002   
|                                       |              | to 2004 |        | to 2003
|                                       |              |         |        |        
|Change in revenue from the sale of oil |              |         |        |         |   |   |       |      
|Price variance impact                  |              | $       | 5,348  |         |   | $ | 4,044 |      
|Volume variance impact                 |              |         | (4,529 | )       |   |   | 469   |      
|Cash settlement of hedging contracts   |              |         | (956   | )       |   |   | (750  | )    
|                                       |              |         |        |         |   |   |       |      
|                                       | Total change |         | $      | (137    | ) |   | $     | 3,763 | 
|                                       |              |         |        |         |   |   |       |      

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|                                               |              |         |        |        |         |   |        |        | 
|---------------------------------------------- | ------------ | ------- | ------ | ------ | ------- | - | ------ | ------ | 
|                                               |              | 2003    |        |        | 2002    |  
|                                               |              | to 2004 |        |        | to 2003 |  
|                                               |              |         |        |        |         |  
|Change in revenue from the sale of natural gas |              |         |        |        |         |   |        |       
|Price variance impact                          |              | $       | 3,275  |        |         | $ | 14,914 |       
|Volume variance impact                         |              |         | 14,076 |        |         |   | 1,863  |       
|Cash settlement of hedging contracts           |              |         | 2,954  |        |         |   | (4,095 | )     
|                                               |              |         |        |        |         |  
|                                               | Total change |         | $      | 20,305 |         |   | $      | 12,682 | 
|                                               |              |         |        |        |         |  





| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $9.6 million of the increase in revenue from
    the sale oil and natural gas was due to a 15% increase in our
    production volumes;
|
| |  | Approximately $8.6 million of the increase was due to an
    increase in the sales price we received for oil and natural gas;
    and               
|
| |  | Approximately $2 million of the increase was due a decrease
    in losses due to the cash settlement of derivative commodity
    contracts.         





| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $18.9 million of the increase in oil and
    natural gas sales was due to a $1.76 Mcfe increase in the sales
    price we received for oil and natural gas;
|
| |  | Approximately $2.4 million of the increase in oil and
    natural gas sales was due to an increase in our production
    volumes; and,                                   
|
| |  | These increases were offset by an increase in losses due to the
    cash settlement of derivative commodity contracts of
    $4.9 million.                               

Other revenue.


Operating costs and expenses


Production costs.


|                        |                                |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |       | 
|----------------------- | ------------------------------ | -------------------------------------------- | ----- | -------- |  | ---- | --- | -------- | - | ---- | ----- | ----- |  |  | --- | -- | - | - | ----- | ----- | 
|                        |                                | Year Ended December 31,                     
|                        |                                |                                             
|                        |                                | 2004                                         |       | % Change |  | 2003 |     | % Change |   | 2002
|                        |                                |                                              |       |          |  |      |     |          |   |     
|                        |                                | (In thousands, except per unit measurements)
|Production cost:        |                                |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|Operating & maintenance |                                | $                                            | 4,480 |          |  |      | 31  | %        |   | $    | 3,420 |       |  |  | 25  | %  |   | $ | 2,738 |      
|Expensed workovers      |                                |                                              | 878   |          |  |      | (22 | )%       |   |      | 1,123 |       |  |  | 174 | %  |   |   | 410   |      
|Ad valorem taxes        |                                |                                              | 815   |          |  |      | 24  | %        |   |      | 657   |       |  |  | 8   | %  |   |   | 611   |      
|                        |                                |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|                        | Total lease operating expenses |                                              | $     | 6,173    |  |      |     | 19       | % |      | $     | 5,200 |  |  |     | 38 | % |   | $     | 3,759 | 
|Production taxes        |                                |                                              | 3,107 |          |  |      | 25  | %        |   |      | 2,477 |       |  |  | 25  | %  |   |   | 1,977 |      
|                        |                                |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|                        | Total production expenses      |                                              | $     | 9,280    |  |      |     | 21       | % |      | $     | 7,677 |  |  |     | 34 | % |   | $     | 5,736 | 
|                        |                                |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      

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|                              |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |     |    |   |   |      |      | 
|----------------------------- | ------------------------------ | -------------------------------------------- | ---- | ---- | -------- |  | --- | ---- | - | - | -------- | ---- |  | ---- | --- | -- | - | - | ---- | ---- | 
|                              |                                | Year Ended December 31,                      |     
|                              |                                |                                              |     
|                              |                                | 2004                                         |      |      | % Change |  |     | 2003 |   |   | % Change |      |  | 2002 |    
|                              |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |    
|                              |                                | (In thousands, except per unit measurements) |     
|Production cost ($ per Mcfe): |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |     |    |   |   |      |     
|Operating & maintenance       |                                | $                                            | 0.36 |      |          |  | 13  | %    |   | $ | 0.32     |      |  |      | 14  | %  |   | $ | 0.28 |     
|Expensed workovers            |                                |                                              | 0.07 |      |          |  | (36 | )%   |   |   | 0.11     |      |  |      | 175 | %  |   |   | 0.04 |     
|Ad valorem taxes              |                                |                                              | 0.07 |      |          |  | 17  | %    |   |   | 0.06     |      |  |      | 0   | %  |   |   | 0.06 |     
|                              |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |    
|                              | Total lease operating expenses |                                              | $    | 0.50 |          |  |     | 2    | % |   | $        | 0.49 |  |      |     | 29 | % |   | $    | 0.38 | 
|Production taxes              |                                |                                              | 0.25 |      |          |  | 9   | %    |   |   | 0.23     |      |  |      | 15  | %  |   |   | 0.20 |     
|                              |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |    
|                              | Total production expenses      |                                              | $    | 0.75 |          |  |     | 4    | % |   | $        | 0.72 |  |      |     | 24 | % |   | $    | 0.58 | 
|                              |                                |                                              |      |      |          |  |     |      |   |   |          |      |  |      |    







| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in costs for compressor rental and maintenance and
    saltwater disposal were the primary reasons for the increase in
    our operating and maintenance expense;                                                                                               
|
| |  | Ad valorem taxes increased due to higher oil and natural gas
    prices during 2003;                                                                                                                                                                                        
|
| |  | Production taxes for 2004 were $0.02 higher due to an increase
    in the sales price that we received for our oil and natural gas.
    Our effective production tax rate in 2004 was 4.1% of pre-hedge
    oil and natural gas sales revenue, compared to 4.3% in 2003; and
|
| |  | A decrease in the number of expensed workovers partially offset
    these increases.                                                                                                                                                                                        





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in workover activity represented $0.07 of the
    increase in lease operating expenses, with two workovers
    performed on two wells accounting for 100% of this increase;                                                                                                                                                                                                                                                                                                  
|
| |  | The remaining $0.04 of the increase in lease operating expenses
    was due to increases in overhead fees, insurance, compressor
    rental and maintenance, saltwater disposal cost, cost for
    electricity, fuel and power and miscellaneous lease operating
    expenses. These increases were partly offset by decreases in
    contract service and labor expenses, lease and well abandonment
    expenses, lease maintenance expenses and surface equipment
    repair expenses;
|
| |  | Production taxes for 2003 were $0.03 higher due to an increase
    in the sales price that we received for our oil and natural gas.
    The increase in production taxes was offset by a credit related
    to the settlement of a portion of our gas imbalance. Our
    effective production tax rate in 2003 was 4.3% of pre-hedge oil
    and natural gas sales revenue, compared to 5.4% in 2002.                                                                                    

General and administrative expenses.


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|                                                |  |                                              |        |          |  |      |    |          |  |      |        |   |  |  |     |    |  |   |        |  
|----------------------------------------------- |  | -------------------------------------------- | ------ | -------- |  | ---- | -- | -------- |  | ---- | ------ | - |  |  | --- | -- |  | - | ------ | -
|                                                |  | Year Ended December 31,                     
|                                                |  |                                             
|                                                |  | 2004                                         |        | % Change |  | 2003 |    | % Change |  | 2002
|                                                |  |                                              |        |          |  |      |    |          |  |     
|                                                |  | (In thousands, except per unit measurements)
|General and administrative cost                 |  | $                                            | 10,264 |          |  |      | 13 | %        |  | $    | 9,121  |   |  |  | (0  | %) |  | $ | 9,191  |  
|Capitalized general and administrative cost     |  |                                              | (4,872 | )        |  |      | 5  | %        |  |      | (4,621 | ) |  |  | 10  | %  |  |   | (4,220 | )
|                                                |  |                                              |        |          |  |      |    |          |  |      |        |   |  |  |     |    |  |   |        |  
|General and administrative expense              |  | $                                            | 5,392  |          |  |      | 20 | %        |  | $    | 4,500  |   |  |  | (9  | %) |  | $ | 4,971  |  
|General and administrative expense ($ per Mcfe) |  | $                                            | 0.44   |          |  |      | 5  | %        |  | $    | 0.42   |   |  |  | (16 | %) |  | $ | 0.50   |  





| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We paid approximately $399,000 to outside consultants and our
    independent public accountants for the implementation of
    Section 404 of Sarbanes-Oxley. We expect these cost to
    decrease approximately 50% in 2005;
|
| |  | We paid $242,000 related to the settlement of a legal dispute
    over the ownership of a well; and                                                                                                                          
|
| |  | Increases in payroll and benefits expense, fees paid to outside
    reserve engineers, franchise taxes and corporate insurance were
    the other primary reasons for the increase in general &
    administrative expenses. 





| |   |                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in payroll and employee benefit expenses represented
    55% of the total increase in general and administrative
    expenses. The increase in payroll and benefit expenses was
    primarily related to an increase incentive compensation expense,
    an increase in employee medical and life insurance cost and
    increases in salaries and wages;
|
| |  | An increase in director fees and financial reporting expenses
    represented 42% of the total increase in general and
    administrative expenses. These increases were primarily related
    to additional cost associated with the implementation of
    compliance with the Sarbanes-Oxley Act of 2002; and                                                      
|
| |  | The increase in payroll and employee benefit expenses was
    partially offset by an increase in amounts charged to joint
    ventures to cover the costs of managing these joint operations.                                                                                                                                                                        

Depletion of oil and natural gas properties.


|                                                     |  |                                              |        |          |  |          |    |          |  |          |        |  |  |  |    |   |  |   |        | 
|---------------------------------------------------- |  | -------------------------------------------- | ------ | -------- |  | -------- | -- | -------- |  | -------- | ------ |  |  |  | -- | - |  | - | ------ | 
|                                                     |  | Year Ended December 31,                     
|                                                     |  |                                             
|                                                     |  | 2004                                         |        | % Change |  | 2003     |    | % Change |  | 2002    
|                                                     |  |                                              |        |          |  |          |    |          |  |         
|                                                     |  |                                              |        |          |  | Restated |    |          |  | Restated
|                                                     |  | (In thousands, except per unit measurements)
|Depletion of oil and natural gas properties          |  | $                                            | 23,844 |          |  |          | 42 | %        |  | $        | 16,819 |  |  |  | 14 | % |  | $ | 14,694 | 
|Depletion of oil and natural gas properties per Mcfe |  | $                                            | 1.94   |          |  |          | 23 | %        |  | $        | 1.58   |  |  |  | 7  | % |  | $ | 1.47   | 



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Net interest expense.


|                                                     |                      |                         |        |       |          |  |     |      |    |   |          |       |  |      |       |     |    |   |        |       | 
|---------------------------------------------------- | -------------------- | ----------------------- | ------ | ----- | -------- |  | --- | ---- | -- | - | -------- | ----- |  | ---- | ----- | --- | -- | - | ------ | ----- | 
|                                                     |                      | Year Ended December 31, |       
|                                                     |                      |                         |       
|                                                     |                      | 2004                    |        |       | % Change |  |     | 2003 |    |   | % Change |       |  | 2002 |      
|                                                     |                      |                         |        |       |          |  |     |      |    |   |          |       |  |      |      
|                                                     |                      | (In thousands)          |       
|Interest on senior credit facility                   |                      | $                       | 882    |       |          |  | (47 | %)   |    | $ | 1,674    |       |  |      | (54   | %)  |    | $ | 3,636  |      
|Interest on senior subordinated notes                |                      |                         | 1,703  |       |          |  | (28 | %)   |    |   | 2,369    |       |  |      | 6     | %   |    |   | 2,243  |      
|Commitment fees                                      |                      |                         | 236    |       |          |  | 61  | %    |    |   | 147      |       |  |      | 4,800 | %   |    |   | 3      |      
|Dividend on mandatorily redeemable preferred stock   |                      |                         | 726    |       |          |  | 114 | %    |    |   | 340      |       |  |      | NM    |     |    |   |       |      
|Amortization of deferred loan and debt issuance cost |                      |                         | 766    |       |          |  | (27 | %)   |    |   | 1,053    |       |  |      | (12   | %)  |    |   | 1,190  |      
|Other general interest expense                       |                      |                         | 26     |       |          |  | (48 | %)   |    |   | 50       |       |  |      | 14    | %   |    |   | 44     |      
|Capitalized interest expense                         |                      |                         | (1,195 | )     |          |  | 46  | %    |    |   | (818     | )     |  |      | (7    | %)  |    |   | (878   | )    
|                                                     |                      |                         |        |       |          |  |     |      |    |   |          |       |  |      |      
|                                                     | Net interest expense |                         | $      | 3,144 |          |  |     | (35  | %) |   | $        | 4,815 |  |      |       | (23 | %) |   | $      | 6,238 | 
|                                                     |                      |                         |        |       |          |  |     |      |    |   |          |       |  |      |      
|Weighted average debt outstanding                    |                      | $                       | 56,352 |       |          |  | (21 | %)   |    | $ | 71,392   |       |  |      | (25   | %)  |    | $ | 95,562 |      
|Average interest rate on outstanding indebtedness(a) |                      |                         | 6.3    | %     |          |  |     |      |    |   | 6.3      | %     |  |      |       |     |    |   | 6.2    | %    






|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Calculated as the sum of the interest expense on our outstanding
    indebtedness, commitment fees that we pay on unused borrowing
    capacity and the dividend on our mandatorily redeemable
    preferred stock divided by the weighted average debt and
    preferred stock outstanding for the period.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The average interest rate that we paid on borrowings drawn under
    our senior credit facility was lower because we utilized a
    smaller percentage of our available borrowing base during 2004.
    Our weighted average debt outstanding under our senior credit
    facility during 2004 represented approximately 40% of our
    available borrowing base, compared to 66% in 2003. This decrease
    was partially offset by a 61% increase in the commitment fees
    that we paid on the unused portion of our borrowing base during
    2004.
|
| |  | A 114% increase in the dividends that we paid on our mandatorily
    redeemable preferred stock due to 2004 includes a full year of
    dividends whereas 2003 only includes dividends for half the year
    due to the adoption of SFAS 150 in July 2003.                                                                                                                                                                                                                                                                                              
|
| |  | The amount of interest that we capitalized during 2004 increased
    due to an increase in our unevaluated property balance
    throughout the year. Approximately $200,000 of our capitalized
    interest in 2004 was related to the Mills Ranch #2-98
    exploration well that was drilling at December 31, 2004.                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 28% decrease in the interest we paid on our senior
    subordinated notes due to a 10% decrease in the weighted average
    notes outstanding during the period combined with a decrease in
    the interest rate that we paid on the outstanding notes.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The average interest rate that we paid on borrowings drawn under
    our senior credit facility was lower because we utilized a
    smaller percentage of our available borrowing base during 2003.
    Our weighted average debt balance drawn under our senior credit
    facility during 2003 represented approximately 66% of our
    available borrowing base, compared to 100% in 2002. We also paid
    a lower interest rate on borrowings under our senior credit
    facility due to the amendment in March 2003. This decrease was
    partially offset because we had to pay commitment fees on the
    unused portion of our borrowing base during 2003. See
     Capital Commitments  Contractual
    Obligations and Item 7A Quantitative and
    Qualitative Disclosures About Market Risk  Interest
    Rate Risk for future interest expense and the sensitivity
    of interest expense on senior credit facility to changes in
    short-term interest rates.                           
|
| |  | An increase in the amount of interest that we paid on our senior
    subordinated notes due to an increase in the weighted average
    senior subordinated notes outstanding from $20.9 million in
    2002 to $22.2 million in 2003. Our outstanding senior
    subordinated notes balance increased because a portion of the
    2003 interest expense was paid in kind through the issuance of
    additional debt in lieu of cash. In December 2003, we decreased
    the amount of senior subordinated notes outstanding and lowered
    the interest rate on our senior subordinated notes. See
     Capital Commitments  Senior
    Subordinated Notes for additional discussion on the
    amendment to our senior subordinated notes and
     Analysis of Changes In Cash and Cash
    Equivalents  Analysis of changes in cash flows from
    financing activities  Senior Subordinated Notes
    for additional information about the changes in our senior
    subordinated notes outstanding.
|
| |  | Upon our adoption of SFAS 150 in July 2003, we reclassified
    approximately $8 million of our then outstanding
    mandatorily redeemable Series A and Series B preferred
    stock, which has no equity conversion features and must be
    settled with our assets, to long-term debt. As part of this
    reclassification, the dividends that have been paid on the
    reclassified amount since July 2003 have been reported as
    interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Other income (expense).




|                                                                                                                                              |                     |                         |     |          |  |      |     |          |  |      |      |      |   |  |      |    |   |   |      |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ----------------------- | --- | -------- |  | ---- | --- | -------- |  | ---- | ---- | ---- | - |  | ---- | -- | - | - | ---- | ---- | -
|                                                                                                                                              |                     | Year Ended December 31,
|                                                                                                                                              |                     |                        
|                                                                                                                                              |                     | 2004                    |     | % Change |  | 2003 |     | % Change |  | 2002
|                                                                                                                                              |                     |                         |     |          |  |      |     |          |  |     
|                                                                                                                                              |                     | (In thousands)         
|Non-cash gain (loss) due to change in fair market value of
    derivative contracts that did not qualify as cashflow hedge
    under SFAS 133 |                     | $                       | (33 | )        |  |      | NM  |          |  | $    |     |      |   |  | (100 | %) |   | $ | 384  |     
|Non-cash gain (loss) for ineffective portion of cash flow hedges                                                                              |                     |                         | 658 |          |  |      | NM  |          |  |      | (455 | )    |   |  | 265  | %  |   |   | (122 | )   
|Cash loss on settlement of derivative contracts that did not
    qualify as hedges                                                            |                     |                         |    |          |  |      | 0   | %        |  |      |     |      |   |  | 100  | %  |   |   | (559 | )   
|Gain on investments                                                                                                                           |                     |                         | 117 |          |  |      | NM  |          |  |      |     |      |   |  | (100 | %) |   |   | 21   |     
|Other                                                                                                                                         |                     |                         |    |          |  |      | 100 | %        |  |      | (146 | )    |   |  | 329  | %  |   |   | (34  | )   
|                                                                                                                                              |                     |                         |     |          |  |      |     |          |  |      |      |      |   |  |      |    |   |   |      |     
|                                                                                                                                              | Other income (loss) |                         | $   | 742      |  |      |     | NM       |  |      | $    | (601 | ) |  |      | 94 | % |   | $    | (310 | )
|                                                                                                                                              |                     |                         |     |          |  |      |     |          |  |      |      |      |   |  |      |    |   |   |      |     

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|                                    |  |                         |         |          |  |      |    |          |  |      |   |  |  |  |      |    |  |   |           | 
|----------------------------------- |  | ----------------------- | ------- | -------- |  | ---- | -- | -------- |  | ---- | - |  |  |  | ---- | -- |  | - | --------- | 
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2004                    |         | % Change |  | 2003 |    | % Change |  | 2002
|                                    |  |                         |         |          |  |      |    |          |  |     
|Natural gas caps                    |  |                         |         |          |  |      |    |          |  |      |   |  |  |  |      |    |  |   |           | 
|Volumes (MMbtu)                     |  |                         |        |          |  |      | 0  | %        |  |      |  |  |  |  | (100 | %) |  |   | 1,810,000 | 
|Average ceiling price ($ per MMbtu) |  | $                       |        |          |  |      | 0  | %        |  | $    |  |  |  |  | (100 | %) |  | $ | 2.63      | 
|Written puts                        |  |                         |         |          |  |      |    |          |  |      |   |  |  |  |      |    |  |   |           | 
|Volumes (MMbtu)                     |  |                         | 140,000 |          |  |      | NM |          |  |      |  |  |  |  | 0    | %  |  |   |          | 
|Average ceiling price ($ per MMbtu) |  | $                       | 5.50    |          |  |      | NM |          |  | $    |  |  |  |  | 0    | %  |  | $ |          | 



Debt conversion expense.


Income taxes:






Dividends and accretion of mandatorily redeemable preferred
stock.




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|                                                    |  |                                          |        |   |        |  |      |      |   |   |         |  |  |      |       |    |  |   |         | 
|--------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------ |  | ---- | ---- | - | - | ------- |  |  | ---- | ----- | -- |  | - | ------- | 
|                                                    |  | Year Ended December 31,                  |       
|                                                    |  |                                          |       
|                                                    |  |                                          |        | % |        |  |      |      | % |   |         | 
|                                                    |  | 2004                                     |        |   | Change |  |      | 2003 |   |   | Change  |  |  | 2002 |      
|                                                    |  |                                          |        |   |        |  |      |      |   |   |         |  |  |      |      
|                                                    |  | (In thousands, except for shares issued) |       
|Dividends                                           |  | $                                        | 726    |   |        |  | (76  | %)   |   | $ | 3,061   |  |  |      | 13    | %  |  | $ | 2,713   | 
|Accretion of mandatorily redeemable preferred stock |  |                                          |       |   |        |  | (100 | %)   |   |   | 387     |  |  |      | 62    | %  |  |   | 239     | 
|                                                    |  |                                          |        |   |        |  |      |      |   |   |         |  |  |      |      
|                                                    |  | $                                        | 726    |   |        |  | (79  | %)   |   | $ | 3,448   |  |  |      | 17    | %  |  | $ | 2,952   | 
|                                                    |  |                                          |        |   |        |  |      |      |   |   |         |  |  |      |      
|Additional preferred shares issued                  |  |                                          |        |   |        |  |      |      |   |   |         |  |  |      |       |    |  |   |         | 
|Series A                                            |  |                                          | 36,264 |   |        |  | (73  | %)   |   |   | 132,490 |  |  |      | (1    | %) |  |   | 134,440 | 
|Series B                                            |  |                                          |       |   |        |  | (100 | %)   |   |   | 30,603  |  |  |      | 2,396 | %  |  |   | 1,226   | 

Analysis of Changes In Cash and Cash Equivalents




|                                                     |  |                         |         |   |        |  |     |      |   |   |         |   |  |      |     |    |  |   |         |  
|---------------------------------------------------- |  | ----------------------- | ------- | - | ------ |  | --- | ---- | - | - | ------- | - |  | ---- | --- | -- |  | - | ------- | -
|                                                     |  | Year Ended December 31, |        
|                                                     |  |                         |        
|                                                     |  |                         |         | % |        |  |     |      | % |   |         |  
|                                                     |  | 2004                    |         |   | Change |  |     | 2003 |   |   | Change  |   |  | 2002 |    
|                                                     |  |                         |         |   |        |  |     |      |   |   |         |   |  |      |    
|                                                     |  | (In thousands)          |        
|Net income, as restated                              |  | $                       | 19,650  |   |        |  | 9   | %    |   | $ | 18,030  |   |  |      | NM  |    |  | $ | 2,276   |  
|Non-cash charges                                     |  |                         | 36,455  |   |        |  | 88  | %    |   |   | 19,357  |   |  |      | 9   | %  |  |   | 17,734  |  
|Changes in working capital and other items           |  |                         | 276     |   |        |  | (94 | %)   |   |   | 4,304   |   |  |      | (52 | %) |  |   | 8,963   |  
|                                                     |  |                         |         |   |        |  |     |      |   |   |         |   |  |      |    
|Cash flows provided by operating activities          |  | $                       | 56,381  |   |        |  | 35  | %    |   | $ | 41,691  |   |  |      | 44  | %  |  | $ | 28,973  |  
|Cash flows used by investing activities              |  |                         | (84,645 | ) |        |  | 84  | %    |   |   | (46,089 | ) |  |      | 69  | %  |  |   | (27,206 | )
|Cash flows provided (used) by financing activities   |  |                         | 24,766  |   |        |  | NM  |      |   |   | (5,141  | ) |  |      | NM  |    |  |   | 8,439   |  
|                                                     |  |                         |         |   |        |  |     |      |   |   |         |   |  |      |    
|Net increase (decrease) in cash and cash equivalents |  | $                       | (3,498  | ) |        |  | (63 | %)   |   | $ | (9,539  | ) |  |      | NM  |    |  | $ | 10,206  |  
|                                                     |  |                         |         |   |        |  |     |      |   |   |         |   |  |      |    



| |                                                          
| | ---------------------------------------------------------
| | Analysis of net cash provided by operating
    activities





| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net cash provided by operating activities increased by
    $20.2 million due to an increase in our production volumes
    combined with an increase in the prices that we received for oil
    and natural gas and a decrease in losses on the settlement of
    our derivative contracts.
|
| |  | Higher production cost and general and administrative expenses
    partially offset $2.5 million of this increase.                                                                                                                                                                        
|
| |  | The repayment of accounts payable in excess of collections of
    accounts receivable reduced net cash provided by operating
    activities by $9.3 million.                                                                                                                              
|
| |  | The settlement of the gas imbalance with our industry
    participant in our Diablo project increased net cash provided by
    operating activities by $2.8 million.                                                                                                                      
|
| |  | An increase in advances paid to us by participants in our 3-D
    seismic projects and certain wells increased net cash provided
    by operating activities by $3.2 million.                                                                                                             

49



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in the sales price that we received for the sale of
    our oil and natural gas during 2003 and an increase in 2003
    production volumes led to an increase in net cash provided by
    operating activities of $18.9 million and
    $2.3 million, respectively. These increases were partially
    offset by a $4.8 million increase in losses related to the
    settlement of hedging contracts during 2003.                                                                               
|
| |  | An increase in production cost and cash general and
    administrative expenses during 2003 reduced net cash provided by
    operating activities by $2.1 million.                                                                                                                                                                                                                                                                                                                                           
|
| |  | A decrease in cash interest expense combined with a decrease in
    interest income and other income resulted in a $2.9 million
    increase to net cash provided by operating activities.                                                                                                                                                                                                                                                                                                                   
|
| |  | The collections of accounts receivable in excess of the payment
    of accounts payable resulted in an increase to net cash provided
    by operating activities of $1.4 million.                                                                                                                                                                                                                                                                                                                            
|
| |  | The partial settlement of our gas imbalance related to the wells
    in Home Run Triple Crown and Floyd Fault Block Fields resulted
    in a decrease to net cash provided by operating activities of
    $3.2 million. Due to the settlement, we borrowed an
    additional $4 million under our senior credit facility. The
    settlement reduced the balance of our gas imbalance payable by
    $11.3 million and reduced the balance of our gas imbalance
    receivable by approximately $7.2 million.
|
| |  | An increase in the amount of royalties that we paid to royalty
    owners in 2003 resulted in a $3.6 million decrease to net
    cash provided by operating activities.                                                                                                                                                                                                                                                                                                                                      
|
| |  | A decrease in advances paid to us by participants in our 3-D
    seismic projects and certain wells combined with the elimination
    of cash deposits resulted in $1.2 million increase to net
    cash provided by operating activities.                                                                                                                                                                                                                                                                   



| |                
| | ---------------
| | Working Capital







50



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| |                                                                   
| | ------------------------------------------------------------------
| | Analysis of changes in cash flows used in investing
    activities

|                                                    |                |                         |        |        |      |   |        |         |  |   |        |        | 
|--------------------------------------------------- | -------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------- |  | - | ------ | ------ | 
|                                                    |                | Year Ended December 31, |       
|                                                    |                |                         |       
|                                                    |                | 2004                    |        |        | 2003 |   |        | 2002(c) | 
|                                                    |                |                         |        |        |      |   |        |         | 
|                                                    |                | (In thousands)          |       
|Cost Incurred:                                      |                |                         |        |        |      |   |        |         |  |   |        |       
|Exploration(a)                                      |                | $                       | 30,189 |        |      | $ | 20,126 |         |  | $ | 12,693 |       
|Property acquisition(b)                             |                |                         | 6,226  |        |      |   | 4,850  |         |  |   | 2,510  |       
|Development(c)                                      |                |                         | 50,497 |        |      |   | 22,285 |         |  |   | 13,301 |       
|Asset retirement obligation                         |                |                         | 513    |        |      |   | 269    |         |  |   |       |       
|                                                    |                |                         |        |        |      |   |        |         | 
|                                                    | Costs incurred |                         | $      | 87,425 |      |   | $      | 47,530  |  |   | $      | 28,504 | 
|                                                    |                |                         |        |        |      |   |        |         | 
|Amount spent to develop proved undeveloped reserves |                | $                       | 34,723 |        |      | $ | 11,399 |         |  | $ | 9,983  |       
|                                                    |                |                         |        |        |      |   |        |         | 






|                 |  |   |        |  |  |   |        |  |  |   |        | 
|---------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|Drilling         |  | $ | 18,339 |  |  | $ | 13,586 |  |  | $ | 7,292  | 
|Land and seismic |  |   | 7,991  |  |  |   | 2,470  |  |  |   | 1,685  | 
|Capitalized cost |  |   | 3,859  |  |  |   | 4,070  |  |  |   | 3,716  | 
|                 |  |   |        |  |  |   |        |  | 
|                 |  | $ | 30,189 |  |  | $ | 20,126 |  |  | $ | 12,693 | 
|                 |  |   |        |  |  |   |        |  | 



|                 |  |   |       |  |  |   |       |  |  |   |       | 
|---------------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|Land and seismic |  | $ | 5,002 |  |  | $ | 3,604 |  |  | $ | 1,363 | 
|Capitalized cost |  |   | 1,224 |  |  |   | 1,246 |  |  |   | 1,147 | 
|                 |  |   |       |  |  |   |       |  | 
|                 |  | $ | 6,226 |  |  | $ | 4,850 |  |  | $ | 2,510 | 
|                 |  |   |       |  |  |   |       |  | 



|                 |  |   |        |  |  |   |        |  |  |   |        | 
|---------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|Drilling         |  | $ | 49,866 |  |  | $ | 21,520 |  |  | $ | 12,508 | 
|Capitalized cost |  |   | 631    |  |  |   | 765    |  |  |   | 793    | 
|                 |  |   |        |  |  |   |        |  | 
|                 |  | $ | 50,497 |  |  | $ | 22,285 |  |  | $ | 13,301 | 
|                 |  |   |        |  |  |   |        |  | 







| |                                                                
| | ---------------------------------------------------------------
| | Analysis of changes in cash flows from financing
    activities





| |                       
| | ----------------------
| | Senior Credit Facility





51



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| |                          
| | -------------------------
| | Senior Subordinated Notes





| |                          
| | -------------------------
| | Common Stock Transactions

|                                                                         |  |               |           |                |              |   |        | 
|------------------------------------------------------------------------ |  | ------------- | --------- | -------------- | ------------ | - | ------ | 
|                                                                         |  | Shares Issued |           |                | Net Proceeds |  
|                                                                         |  |               |           |                |              |  
|                                                                         |  |               |           | (In thousands) |             
|2004 common stock transactions:                                          |  |               |           |                |              |   |        | 
|Sale of common stock under universal shelf registration
    statement(a) |  |               | 2,598,500 |                |              | $ | 22,105 | 
|Exercise of employee stock options                                       |  |               | 314,181   |                |              |   | 972    | 
|                                                                        
|2003 common stock transactions:                                          |  |               |           |                |              |   |        | 
|Sale of common stock(b)                                                  |  |               | 7,384,090 |                |              | $ | 40,000 | 
|Exercise of employee stock options                                       |  |               | 309,760   |                |              |   | 829    | 
|                                                                        
|2002 common stock transactions:                                          |  |               |           |                |              |   |        | 
|Unregistered shares issued pursuant to warrant exercise(c)               |  |               | 243,902   |                |              | $ | 625    | 
|Exercise of employee stock options                                       |  |               | 132,507   |                |              |   | 296    | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The net proceeds from the sale were used to repay outstanding
    indebtedness under our senior credit facility. 2,300,000 shares
    were sold in July 2004 and 298,500 shares were sold in August
    2004 when the underwriter exercised its over-allotment option.                                                                                                                                                                                                                                                                                                                                                                        
|   
|(b) | The net proceeds from the sale were used to accelerate the
    amount of capital that we spent on our exploration and
    development program and reduce our outstanding indebtedness.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(c) | In December 2002, we issued 243,902 unregistered shares of our
    common stock to a group of institutional investors. This group
    of investors was led by affiliates of two members of our then
    current Board of Directors. At the time the warrants were
    exercised, one of these two board members was no longer a member
    of our board. For more information on the warrant exercise and
    the issuance of common stock, please see Item 5.
    Market for Registrants Common Equity and Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities  Recent Issuance of Unregistered
    Securities.



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| |                                       
| | --------------------------------------
| | Mandatorily Redeemable Preferred Stock





Other Matters




| |                       
| | ----------------------
| | Derivative Instruments





| |                                           
| | ------------------------------------------
| | Effects of Inflation and Changes in Prices





| |                                           
| | ------------------------------------------
| | Environmental and Other Regulatory Matters



Risk Factors




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| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Level of Indebtedness May Adversely Affect Our Cash
    Available for Operations, Thus Limiting Our Growth, Our Ability
    to Make Interest and Principal Payments on Our Indebtedness as
    They Become Due and Our Flexibility to Respond to Market
    Changes.





| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We will dedicate a portion of our cash flow from operations to
    the payment of interest on our indebtedness and to the payment
    of our other current obligations, and will not have these cash
    flows available for other purposes.
|
| |  | The covenants in our credit facilities limit our ability to
    borrow additional funds or dispose of assets and may affect our
    flexibility in planning for, and reacting to, changes in
    business conditions.                       
|
| |  | Our ability to obtain additional financing in the future for
    working capital, capital expenditures, acquisitions, general
    corporate purposes or other purposes may be impaired.                                                     
|
| |  | We may be more vulnerable to economic downturns and our ability
    to withstand sustained declines in oil and natural gas prices
    may be impaired.                                                                                      
|
| |  | Since our indebtedness is subject to variable interest rates, we
    are vulnerable to increases in interest rates.                                                                                                                         
|
| |  | Our flexibility in planning for or reacting to changes in market
    conditions may be limited.                                                                                                                                             







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We Have Substantial Capital Requirements for Which We May
    Not Be Able to Obtain Adequate Financing.





| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Oil and Natural Gas Prices Fluctuate Widely and Low Prices
    Could Have a Material Adverse Impact on Our Business and
    Financial Results by Limiting Our Liquidity and Flexibility to
    Carry Out Our Drilling Program.



54



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| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | worldwide and domestic supplies of oil and natural gas;                                                                                            
|
| |  | the ability of the members of the Organization of Petroleum
    Exporting Countries to agree to and maintain oil price and
    production controls;
|
| |  | political instability or armed conflict in oil-producing regions;                                                                                  
|
| |  | the price and level of foreign imports;                                                                                                            
|
| |  | the level of consumer demand;                                                                                                                      
|
| |  | the price and availability of alternative fuels;                                                                                                   
|
| |  | the availability of pipeline capacity;                                                                                                             
|
| |  | weather conditions;                                                                                                                                
|
| |  | domestic and foreign governmental regulations and taxes; and                                                                                       
|
| |  | the overall economic environment.                                                                                                                  





| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | limit our financial condition, liquidity, ability to finance
    planned capital expenditures and results of operations;
|
| |  | reduce the amount of oil and natural gas that we can produce
    economically;                                          
|
| |  | cause us to delay or postpone some of our capital projects;                                                             
|
| |  | reduce our revenues, operating income and cash flow; and                                                                
|
| |  | reduce the carrying value of our oil and natural gas properties.                                                        



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Our Derivative Contracts Could Reduce Revenues in a Rising
    Commodity Price Environment or Expose Us to Other Risks.





55



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##### Table of Contents







| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exploratory Drilling Is a Speculative Activity That May
    Not Result in Commercially Productive Reserves and May Require
    Expenditures in Excess of Budgeted Amounts.





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | unexpected drilling conditions;                                                            
|
| |  | pressure or irregularities in formations;                                                  
|
| |  | equipment failures or accidents;                                                           
|
| |  | adverse weather conditions;                                                                
|
| |  | compliance with governmental requirements; and                                             
|
| |  | shortages or delays in the availability of drilling rigs and the
    delivery of equipment.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We Are Subject to Various Operating and Other Casualty
    Risks That Could Result in Liability Exposure or the Loss of
    Production and Revenues.





| |   |                                        
| | - | ---------------------------------------
| |  | fires;                                 
|
| |  | natural disasters;                     
|
| |  | formations with abnormal pressures;    
|
| |  | blowouts, cratering and explosions; and
|
| |  | pipeline ruptures and spills.          



56



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##### Table of Contents





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | We May Not Have Enough Insurance to Cover All of the Risks
    We Face, Which Could Result in Significant Financial
    Exposure.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | We Cannot Control the Activities on Properties We Do Not
    Operate and Are Unable to Ensure Their Proper Operation and
    Profitability.





| |   |                                                       
| | - | ------------------------------------------------------
| |  | timing and amount of capital expenditures;            
|
| |  | expertise and financial resources;                    
|
| |  | inclusion of other participants in drilling wells; and
|
| |  | use of technology.                                    



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Marketability of Our Natural Gas Production Depends on
    Facilities That We Typically Do Not Own or Control That Could
    Result in a Curtailment of Production and Revenues.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Lower Oil and Natural Gas Prices May Cause Us to Record
    Ceiling Limitation Write-Downs Which Would Reduce Our
    Stockholders Equity.



57



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##### Table of Contents





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Our Future Operating Results May Fluctuate and Significant
    Declines in Them Would Limit Our Ability to Invest in
    Projects.





| |   |                                               
| | - | ----------------------------------------------
| |  | industry conditions;                          
|
| |  | prices of oil and natural gas;                
|
| |  | rates of drilling success;                    
|
| |  | capital availability;                         
|
| |  | rates of production from completed wells; and 
|
| |  | the timing and amount of capital expenditures.





| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | The Failure to Replace Reserves in the Future Would
    Adversely Affect Our Production and Cash Flows.







| |                                                                                    
| | -----------------------------------------------------------------------------------
| | We Are Subject to Uncertainties in Reserve Estimates and
    Future Net Cash Flows.





58



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##### Table of Contents







| |   |                                                          
| | - | ---------------------------------------------------------
| |  | actual prices we receive for oil and natural gas;        
|
| |  | the amount and timing of actual production;              
|
| |  | supply and demand for oil and natural gas;               
|
| |  | limits or increases in consumption by gas purchasers; and
|
| |  | changes in governmental regulations or taxation.         





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | We Face Significant Competition, and Many of Our
    Competitors Have Resources in Excess of Our Available
    Resources.





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | seeking to acquire desirable producing properties or new leases
    for future exploration;          
|
| |  | marketing our oil and natural gas production; and                                                    
|
| |  | seeking to acquire the equipment and expertise necessary to
    operate and develop those properties.





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We Are Subject to Various Governmental Regulations and
    Environmental Risks That May Cause Us to Incur Substantial
    Costs.







| |                                                  
| | -------------------------------------------------
| | Our Business May Suffer if We Lose Key Personnel.



59



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##### Table of Contents







| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our Shares That Are Eligible for Future Sale May Have An
    Adverse Effect on the Price of Our Common Stock.

,




| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Certain of Our Affiliates Control a Majority of Our
    Outstanding Common Stock, Which May Affect Your Vote as a
    Stockholder.





| |                                                                              
| | -----------------------------------------------------------------------------
| | Certain Anti-Takeover Provisions May Affect Your Rights as
    a Stockholder.





| |                                           
| | ------------------------------------------
| | The Market Price of Our Stock Is Volatile.





| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | limited trading volume in our stock;                                             
|
| |  | changes in government regulations, quarterly variations in
    operating results;
|
| |  | our involvement in litigation;                                                   
|
| |  | general market conditions;                                                       

60



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##### Table of Contents





| |   |                                           
| | - | ------------------------------------------
| |  | the prices of oil and natural gas;        
|
| |  | announcements by us and our competitors;  
|
| |  | our liquidity;                            
|
| |  | our ability to raise additional funds; and
|
| |  | other events.                             

61



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##### Table of Contents



Forward-Looking Statements








| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | our growth strategies;                                                                         
|
| |  | our ability to successfully and economically explore for and
    develop oil and gas resources;
|
| |  | anticipated trends in our business;                                                            
|
| |  | our future results of operations;                                                              
|
| |  | our liquidity and ability to finance our exploration and
    development activities;           
|
| |  | market conditions in the oil and gas industry;                                                 
|
| |  | our ability to make and integrate acquisitions; and                                            
|
| |  | the impact of governmental regulation.                                                         





62



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##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Management Opinion Concerning Derivative Instruments




Fair Value of Derivative Contracts




|                                                            |                               |                |        |        |  
|----------------------------------------------------------- | ----------------------------- | -------------- | ------ | ------ | -
|                                                            |                               | Fair Value of 
|                                                            |                               | Derivative    
|                                                            |                               | Contracts     
|                                                            |                               |               
|                                                            |                               | (In thousands)
|Estimated fair value of open contracts at December 31, 2003 |                               | $              | (2,177 | )     
|Changes in fair values of contracts:                        |                               |                |        |       
|                                                            | Fixed price natural gas swaps |                | $      | (294   | )
|                                                            | Natural gas collars           |                |        | (460   | )
|                                                            | Fixed price oil swaps         |                |        | (618   | )
|                                                            | Oil collars                   |                |        | (1,948 | )
|                                                            | Interest rate swap            |                |        | 111    |  
|Contract settlements:                                       |                               |                |        |       
|                                                            | Fixed price natural gas swaps |                | $      | 1,066  |  
|                                                            | Natural gas collars           |                |        | 787    |  
|                                                            | Fixed price oil swaps         |                |        | 1,073  |  
|                                                            | Oil collars                   |                |        | 1,768  |  
|                                                            | Interest rate swap            |                |        |       |  
|                                                            |                               |                |        |       
|Estimated fair value of open contracts at December 31, 2004 |                               | $              | (692   | )     
|                                                            |                               |                |        |       



Derivative Instruments and Hedging Activities




63



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| |                 
| | ----------------
| | Cash Flow Hedges











| |                                     
| | ------------------------------------
| | Derivatives Not Designated as Hedges



64



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##### Table of Contents





|                           |                     |            |  |                |  |                 |  |              |  |           |  |         |  |  |  |        |  |  |   |       | 
|-------------------------- | ------------------- | ---------- |  | -------------- |  | --------------- |  | ------------ |  | --------- |  | ------- |  |  |  | ------ |  |  | - | ----- | 
|                           |                     |            |  |                |  | Notional Amount |  |             
|                           |                     |            |  |                |  |                 |  | Nymex       
|                           |                     | Derivative |  |                |  | Gas             |  | Oil          |  | Reference
|Settlement Period          |                     | Instrument |  | Hedge Strategy |  | (MMBTU)         |  | (Barrels)    |  | Price    
|                           |                     |            |  |                |  |                 |  |              |  |          
|Costless Collars           |                     |            |  |                |  |                 |  |              |  |           |  |         |  |  |  |        |  |  |   |      
|                           | 01/01/05 - 03/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 90,000  |  |  |  |        |  |  | $ | 4.00  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 90,000  |  |  |  |        |  |  |   | 7.25  | 
|                           | 01/01/05 - 03/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 67,500  |  |  |  |        |  |  | $ | 4.25  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 67,500  |  |  |  |        |  |  |   | 5.90  | 
|                           | 01/01/05 - 03/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 45,000  |  |  |  |        |  |  | $ | 4.25  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 45,000  |  |  |  |        |  |  |   | 6.50  | 
|                           | 01/01/05 - 03/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 9,000  |  |  | $ | 23.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 9,000  |  |  |   | 25.07 | 
|                           | 01/01/05 - 03/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 23,000 |  |  | $ | 23.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 23,000 |  |  |   | 26.90 | 
|                           | 01/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 633,500 |  |  |  |        |  |  | $ | 5.00  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 633.500 |  |  |  |        |  |  |   | 7.40  | 
|                           | 01/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 29,000 |  |  | $ | 29.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 29,000 |  |  |   | 36.00 | 
|                           | 01/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 23,530 |  |  | $ | 29.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 23,530 |  |  |   | 36.00 | 
|                           | 04/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 91,000  |  |  |  |        |  |  | $ | 4.00  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 91,000  |  |  |  |        |  |  |   | 5.40  | 
|                           | 04/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 45,500  |  |  |  |        |  |  | $ | 4.25  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 45,500  |  |  |  |        |  |  |   | 4.52  | 
|                           | 04/01/05 - 06/30/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 6,825  |  |  | $ | 23.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 6,825  |  |  |   | 26.45 | 
|                           | 04/01/05 - 10/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 420,000 |  |  |  |        |  |  | $ | 5.45  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 420,000 |  |  |  |        |  |  |   | 8.00  | 
|Three Way Costless Collars |                     |            |  |                |  |                 |  |              |  |           |  |         |  |  |  |        |  |  |   |      
|                           | 01/01/05 - 3/31/05  |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 210,000 |  |  |  |        |  |  | $ | 6.40  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 210,000 |  |  |  |        |  |  |   | 7.64  | 
|                           |                     |            |  | Written put    |  |                 |  | Undesignated |  |           |  | 210,000 |  |  |  |        |  |  |   | 5.50  | 
|                           | 07/01/05 - 10/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 400,000 |  |  |  |        |  |  | $ | 6.00  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 400,000 |  |  |  |        |  |  |   | 7.20  | 
|                           |                     |            |  | Written put    |  |                 |  | Undesignated |  |           |  | 400,000 |  |  |  |        |  |  |   | 5.00  | 
|                           | 07/01/05 - 12/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 30,000 |  |  | $ | 40.00 | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  |         |  |  |  | 30,000 |  |  |   | 53.00 | 
|                           |                     |            |  | Written put    |  |                 |  | Undesignated |  |           |  |         |  |  |  | 30,000 |  |  |   | 30.00 | 
|                           | 07/01/05 - 10/31/05 |            |  | Purchased put  |  |                 |  | Cash flow    |  |           |  | 250,000 |  |  |  |        |  |  | $ | 6.75  | 
|                           |                     |            |  | Written call   |  |                 |  | Cash flow    |  |           |  | 250,000 |  |  |  |        |  |  |   | 8.80  | 
|                           |                     |            |  | Written put    |  |                 |  | Undesignated |  |           |  | 250,000 |  |  |  |        |  |  |   | 5.50  | 

Interest Rate Risk




65



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##### Table of Contents
















|        |                                            
|------- | -------------------------------------------
|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

Evaluation of Disclosure Controls and Procedures






66



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##### Table of Contents



Managements Report on Internal Control over Financial
Reporting




Internal Control  Integrated
Framework






Internal Control 
Integrated Framework




Changes in Internal Control over Financial Reporting




67



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##### Table of Contents








|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant










|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services



68



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##### Table of Contents






PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules







| |    |          
| | -- | ---------
| | 3. | Exhibits:



69



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##### Table of Contents






GLOSSARY OF OIL AND GAS TERMS




3-D seismic.


All-Sources Finding Costs.


Bbl.


Bcfe.


Completion.


Completion Rate.


Developed Acreage.


Development Well.


Dry Well.


Exploratory Well.


Fault.


Fault Block.


Gross Acres or Gross Wells.


Lease Operating Expenses.


MBbl.


Mcf.


MMBbl.


70



---



##### Table of Contents



Mcfe.


MMBtu.


MMcf.


MMcfe.


MMcfe/d.


Net Acres or Net Wells.


Net Production.


Oil.


Operator.


Pay.


Pre-tax PV-10%.


Proved Developed Reserves.


Proved Reserves.


Proved Undeveloped Reserves.


Royalty.


Spud.


Standardized Measure.


Trend.


71



---



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Working Interest.


72



---



##### Table of Contents






SIGNATURES






| |                            
| | ---------------------------
| | Brigham Exploration Company



| |     |                   
| | --- | ------------------
| | By: | /s/ Ben M. Brigham

| |                                    
| | -----------------------------------
| |                                    
| | Ben M. Brigham                     
| | Chief Executive Officer,           
| | President and Chairman of the Board



|                                                           |  |                                                                                                           |  | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | 
|                                                          
|/s/ Ben M. BrighamBen
    M. Brigham                       |  | Chief Executive Officer, President and
    Chairman of the Board
    (Principal Executive Officer)       
|                                                          
|/s/ Eugene B. Shepherd,
    Jr.Eugene
    B. Shepherd, Jr. |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)
|                                                          
|/s/ David T. BrighamDavid
    T. Brigham                   |  | Executive Vice President  Land and
    Administration and Director                                      
|                                                          
|/s/ Harold D. CarterHarold
    D. Carter                   |  | Director                                                                                                 
|                                                          
|/s/ Stephen C. HurleyStephen
    C. Hurley                 |  | Director                                                                                                 
|                                                          
|/s/ Stephen P. ReynoldsStephen
    P. Reynolds             |  | Director                                                                                                 
|                                                          
|/s/ Hobart A. SmithHobart
    A. Smith                     |  | Director                                                                                                 
|                                                          
|/s/ Steven A. WebsterSteven
    A. Webster                 |  | Director                                                                                                 
|                                                          
|/s/ R. Graham WhalingR.
    Graham Whaling                 |  | Director                                                                                                 

73



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BRIGHAM EXPLORATION COMPANY





INDEX TO FINANCIAL STATEMENTS


|                                                                                                         |  |      |      | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                         |  | Page |     
|                                                                                                         |  |      |     
|Report of Independent Registered Public Accounting Firm                                                  |  |      | F-2  | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                             |  |      | F-4  | 
|Consolidated Statements of Operations for the Years Ended
    December 31, 2004, 2003 and 2002           |  |      | F-5  | 
|Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2004, 2003 and 2002 |  |      | F-6  | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2004, 2003 and 2002           |  |      | F-7  | 
|Notes to the Consolidated Financial Statements                                                           |  |      | F-8  | 
|Supplemental Oil and Gas Information (Unaudited)                                                         |  |      | F-36 | 
|Supplemental Quarterly Financial Information (Unaudited)                                                 |  |      | F-39 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Consolidated financial statements








Internal control over financial reporting


Internal Control 
Integrated Framework




F-2



---



##### Table of Contents













Internal Control  Integrated Framework Internal Control 
Integrated Framework








F-3



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |          |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | December 31,                              
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                           
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | 2004                                       |         | 2003    
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         | Restated
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | (In thousands,                            
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | except share data)                        
|ASSETS                                                                                                                                                                                                                                       
|Current assets:                                                                                                                                                                                                                               |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              | Cash and cash equivalents                                                                                                                                                                                    |                                            | $       | 2,281    |         |  | $       | 5,779    |        
|                                                                                                                                                                                                                                              | Accounts receivable                                                                                                                                                                                          |                                            |         | 17,573   |         |  |         | 11,143   |        
|                                                                                                                                                                                                                                              | Deferred income taxes                                                                                                                                                                                        |                                            |         | 239      |         |  |         | 307      |        
|                                                                                                                                                                                                                                              | Other current assets                                                                                                                                                                                         |                                            |         | 901      |         |  |         | 3,606    |        
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total current assets                       |         |          | 20,994  |  |         |          | 20,835  | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|Oil and natural gas properties, using the full cost method of
    accounting                                                                                                                                                                  |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              | Proved                                                                                                                                                                                                       |                                            |         | 355,834  |         |  |         | 277,351  |        
|                                                                                                                                                                                                                                              | Unproved                                                                                                                                                                                                     |                                            |         | 47,356   |         |  |         | 38,506   |        
|                                                                                                                                                                                                                                              | Accumulated depletion                                                                                                                                                                                        |                                            |         | (141,211 | )       |  |         | (117,367 | )      
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            | 261,979 |          |         |  | 198,490 |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|Other property and equipment, net                                                                                                                                                                                                             |                                                                                                                                                                                                              |                                            | 1,209   |          |         |  | 1,219   |         
|Deferred income taxes                                                                                                                                                                                                                         |                                                                                                                                                                                                              |                                            |        |          |         |  | 1,477   |         
|Deferred loan fees                                                                                                                                                                                                                            |                                                                                                                                                                                                              |                                            | 1,745   |          |         |  | 2,501   |         
|Other noncurrent assets                                                                                                                                                                                                                       |                                                                                                                                                                                                              |                                            | 380     |          |         |  | 460     |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total assets                               |         | $        | 286,307 |  |         | $        | 224,982 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                         
|Current liabilities:                                                                                                                                                                                                                          |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              | Accounts payable                                                                                                                                                                                             |                                            | $       | 22,465   |         |  | $       | 19,806   |        
|                                                                                                                                                                                                                                              | Royalties payable                                                                                                                                                                                            |                                            |         | 6,072    |         |  |         | 5,280    |        
|                                                                                                                                                                                                                                              | Accrued drilling costs                                                                                                                                                                                       |                                            |         | 6,099    |         |  |         | 3,916    |        
|                                                                                                                                                                                                                                              | Participant advances received                                                                                                                                                                                |                                            |         | 3,633    |         |  |         | 1,179    |        
|                                                                                                                                                                                                                                              | Other current liabilities                                                                                                                                                                                    |                                            |         | 2,225    |         |  |         | 5,398    |        
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total current liabilities                  |         |          | 40,494  |  |         |          | 35,579  | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|Senior credit facility                                                                                                                                                                                                                        |                                                                                                                                                                                                              |                                            | 21,000  |          |         |  | 19,000  |         
|Senior subordinated notes                                                                                                                                                                                                                     |                                                                                                                                                                                                              |                                            | 20,000  |          |         |  | 20,000  |         
|Series A Preferred Stock, mandatorily redeemable,
    $.01 par value, $20 stated and redemption value,
    2,250,000 shares authorized, 475,986 and
    439,722 shares issued and outstanding at December 31,
    2004 and 2003, respectively |                                                                                                                                                                                                              |                                            | 9,520   |          |         |  | 8,794   |         
|Deferred income taxes                                                                                                                                                                                                                         |                                                                                                                                                                                                              |                                            | 9,031   |          |         |  |        |         
|Other noncurrent liabilities                                                                                                                                                                                                                  |                                                                                                                                                                                                              |                                            | 2,986   |          |         |  | 2,498   |         
|Commitments and contingencies (Note 10)                                                                                                                                                                                                       |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|Stockholders equity:                                                                                                                                                                                                                         |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              | Common stock, $.01 par value, 50 million shares
    authorized, 43,231,499 and 40,246,729 shares issued and
    42,034,351 and 39,086,096 shares outstanding at
    December 31, 2004 and 2003, respectively |                                            |         | 432      |         |  |         | 402      |        
|                                                                                                                                                                                                                                              | Additional paid-in capital                                                                                                                                                                                   |                                            |         | 175,270  |         |  |         | 151,263  |        
|                                                                                                                                                                                                                                              | Treasury stock, at cost; 1,197,148 and 1,160,633 shares at
    December 31, 2004 and 2003, respectively                                                                                                      |                                            |         | (4,707   | )       |  |         | (4,402   | )      
|                                                                                                                                                                                                                                              | Unearned stock compensation                                                                                                                                                                                  |                                            |         | (1,570   | )       |  |         | (1,816   | )      
|                                                                                                                                                                                                                                              | Accumulated other comprehensive income (loss)                                                                                                                                                                |                                            |         | (503     | )       |  |         | (1,040   | )      
|                                                                                                                                                                                                                                              | Retained earnings (accumulated deficit)                                                                                                                                                                      |                                            |         | 14,354   |         |  |         | (5,296   | )      
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total stockholders equity                 |         |          | 183,276 |  |         |          | 139,111 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total liabilities and stockholders equity |         | $        | 286,307 |  |         | $        | 224,982 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |         |          |         |  |         |         



F-4



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |        |        |  
|-------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------------------------------- | ------- | -------- | ------ | -------- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                       |                                                       | Year Ended December 31,                                          
|                                                                                       |                                                       |                                                                  
|                                                                                       |                                                       | 2004                                                              |         | 2003     |        | 2002    
|                                                                                       |                                                       |                                                                   |         |          |        |         
|                                                                                       |                                                       |                                                                   |         | Restated |        | Restated
|                                                                                       |                                                       | (In thousands,                                                   
|                                                                                       |                                                       | except per share data)                                           
|Revenues:                                                                              |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Oil and natural gas sales                             |                                                                   | $       | 71,713   |        |          | $      | 51,545 |        |   | $      | 35,100 |       
|                                                                                       | Other revenue                                         |                                                                   |         | 515      |        |          |        | 132    |        |   |        | 76     |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       |                                                                   | 72,228  |          |        |          | 51,677 |        |        |   | 35,176 |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Costs and expenses:                                                                    |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Lease operating                                       |                                                                   |         | 6,173    |        |          |        | 5,200  |        |   |        | 3,759  |       
|                                                                                       | Production taxes                                      |                                                                   |         | 3,107    |        |          |        | 2,477  |        |   |        | 1,977  |       
|                                                                                       | General and administrative                            |                                                                   |         | 5,392    |        |          |        | 4,500  |        |   |        | 4,971  |       
|                                                                                       | Depletion of oil and natural gas properties           |                                                                   |         | 23,844   |        |          |        | 16,819 |        |   |        | 14,694 |       
|                                                                                       | Depreciation and amortization                         |                                                                   |         | 722      |        |          |        | 629    |        |   |        | 440    |       
|                                                                                       | Accretion of discount on asset retirement obligations |                                                                   |         | 159      |        |          |        | 142    |        |   |        |       |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       |                                                                   | 39,397  |          |        |          | 29,767 |        |        |   | 25,841 |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       | Operating income                                                  |         |          | 32,831 |          |        |        | 21,910 |   |        |        | 9,335  |  
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Other income (expense):                                                                |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Interest income                                       |                                                                   |         | 84       |        |          |        | 45     |        |   |        | 119    |       
|                                                                                       | Interest expense, net                                 |                                                                   |         | (3,144   | )      |          |        | (4,815 | )      |   |        | (6,238 | )     
|                                                                                       | Debt conversion expense                               |                                                                   |         |         |        |          |        |       |        |   |        | (630   | )     
|                                                                                       | Other income (expense)                                |                                                                   |         | 742      |        |          |        | (601   | )      |   |        | (310   | )     
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       |                                                                   | (2,318  | )        |        |          | (5,371 | )      |        |   | (7,059 | )     
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Income before income taxes and cumulative effect of change in
    accounting principle |                                                       |                                                                   | 30,513  |          |        |          | 16,539 |        |        |   | 2,276  |       
|Income tax benefit (expense):                                                          |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Current                                               |                                                                   |         |         |        |          |        |       |        |   |        |       |       
|                                                                                       | Deferred                                              |                                                                   |         | (10,863  | )      |          |        | 1,223  |        |   |        |       |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       |                                                                   | (10,863 | )        |        |          | 1,223  |        |        |   |       |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Income before cumulative effect of change in accounting principle                      |                                                       |                                                                   | 19,650  |          |        |          | 17,762 |        |        |   | 2,276  |       
|Cumulative effect of change in accounting principle, net of taxes                      |                                                       |                                                                   |        |          |        |          | 268    |        |        |   |       |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Net income                                                                             |                                                       |                                                                   | 19,650  |          |        |          | 18,030 |        |        |   | 2,276  |       
|Less accretion and dividends on redeemable preferred stock                             |                                                       |                                                                   |        |          |        |          | 3,448  |        |        |   | 2,952  |       
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Net income (loss) available to common stockholders                                     |                                                       | $                                                                 | 19,650  |          |        | $        | 14,582 |        |        | $ | (676   | )     
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|Net income (loss) per share available to common stockholders:                          |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Basic:                                                |                                                                   |         |          |        |          |        |        |        |   |        |        |       
|                                                                                       |                                                       | Income before cumulative effect of change in accounting principle |         | $        | 0.49   |          |        | $      | 0.62   |   |        | $      | (0.04  | )
|                                                                                       |                                                       | Cumulative effect of change in accounting principle               |         |          |       |          |        |        | 0.01   |   |        |        |       |  
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       | $                                                                 | 0.49    |          |        | $        | 0.63   |        |        | $ | (0.04  | )     
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Diluted:                                              |                                                                   |         |          |        |          |        |        |        |   |        |        |       
|                                                                                       |                                                       | Income before cumulative effect of change in accounting principle |         | $        | 0.47   |          |        | $      | 0.51   |   |        | $      | (0.04  | )
|                                                                                       |                                                       | Cumulative effect of change in accounting principle               |         |          |       |          |        |        | 0.01   |   |        |        |       |  
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       |                                                       | $                                                                 | 0.47    |          |        | $        | 0.52   |        |        | $ | (0.04  | )     
|                                                                                       |                                                       |                                                                   |         |          |        |          |        |        |        |   |        |       
|                                                                                       | Weighted average common shares outstanding:           |                                                                   |         |          |        |          |        |        |        |   |        |        |       
|                                                                                       |                                                       | Basic                                                             |         |          | 40,445 |          |        |        | 23,363 |   |        |        | 16,138 |  
|                                                                                       |                                                       | Diluted                                                           |         |          | 41,616 |          |        |        | 34,354 |   |        |        | 16,138 |  



F-5



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |        |        |  
|---------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------- | ------ | - | ---------- | - | --- | -------- |  | -------- | ------- | ----------- | ------------- | ------------ | ------ | -------- | ------------ | - | ------ | ------------- |  | - | ------ | ------ | - | - | ------- | ------ |  | - | ------- | ------ | ------ | -
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         | Accumulated |               |              |        |          |             
|                                                                             |                                            |                                        |        |   |            |   |     |          |  | Other    |         |             | Retained      |              |        |         
|                                                                             |                                            | Common Stock                           |        |   | Additional |   |     |          |  | Unearned |         |             | Comprehensive |              |        | Earnings |              |   | Total  |              
|                                                                             |                                            |                                        |        |   | Paid In    |   |     | Treasury |  |          | Stock   |             |               | Income       |        |          | (Accumulated |   |        | Stockholders | 
|                                                                             |                                            | Shares                                 |        |   | Amounts    |   |     | Capital  |  |          | Stock   |             |               | Compensation |        |          | (Loss)       |   |        | Deficit)      |  |   | Equity |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|                                                                             |                                            | (In thousands)                         |       
|Balance, December 31, 2001 (restated)                                        |                                            |                                        | 17,127 |   |            | $ | 171 |          |  | $        | 80,466  |             |               | $            | (4,165 | )        |              | $ | (494   | )             |  | $ | 351    |        |   | $ | (25,602 | )      |  | $ | 50,727  |       
|Comprehensive income (loss):                                                 |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |       
|                                                                             | Net income (restated)                      |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        |       |   |   |         | 2,276  |  |   |         | 2,276  |       
|                                                                             | Unrealized loss on cash flow hedges        |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | (3,519 | ) |   |         |       |  |   |         | (3,519 | )     
|                                                                             | Net losses included in net income          |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | 121    |   |   |         |       |  |   |         | 121    |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|                                                                             |                                            | Comprehensive income (loss) (restated) |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |        | (1,122 | )
|Exercise of employee stock options                                           |                                            |                                        | 133    |   |            |   | 1   |          |  |          | 295     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 296     |       
|Expiration of employee stock options                                         |                                            |                                        |       |   |            |   |    |          |  |          | (46     | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (46     | )     
|Forfeitures of restricted stock                                              |                                            |                                        |       |   |            |   |    |          |  |          | (1      | )           |               |              | (41    | )        |              |   | 15     |               |  |   |       |        |   |   |        |        |  |   | (27     | )     
|Revision of terms of employee stock options                                  |                                            |                                        |       |   |            |   |    |          |  |          | 596     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 596     |       
|Repurchases of common stock                                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              | (76    | )        |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (76     | )     
|Issuance of warrants                                                         |                                            |                                        |       |   |            |   |    |          |  |          | 4,605   |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 4,605   |       
|Warrants exercised for common stock                                          |                                            |                                        | 244    |   |            |   | 2   |          |  |          | 623     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 625     |       
|Common stock issued in exchange for warrants and convertible
    debt rights |                                            |                                        | 550    |   |            |   | 6   |          |  |          | (56     | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (50     | )     
|Debt converted to common stock                                               |                                            |                                        | 2,564  |   |            |   | 26  |          |  |          | 9,906   |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 9,932   |       
|In kind dividends on Series A mandatorily redeemable
    preferred stock     |                                            |                                        |       |   |            |   |    |          |  |          | (2,689  | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (2,689  | )     
|Accretion on Series A mandatorily redeemable preferred stock                 |                                            |                                        |       |   |            |   |    |          |  |          | (238    | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (238    | )     
|In kind dividends on Series B mandatorily redeemable
    preferred stock     |                                            |                                        |       |   |            |   |    |          |  |          | (24     | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (24     | )     
|Accretion on Series B mandatorily redeemable preferred stock                 |                                            |                                        |       |   |            |   |    |          |  |          | (1      | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (1      | )     
|Amortization of unearned stock compensation                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 267    |               |  |   |       |        |   |   |        |        |  |   | 267     |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|Balance, December 31, 2002 (restated)                                        |                                            |                                        | 20,618 |   |            | $ | 206 |          |  | $        | 93,436  |             |               | $            | (4,282 | )        |              | $ | (212   | )             |  | $ | (3,047 | )      |   | $ | (23,326 | )      |  | $ | 62,775  |       
|Comprehensive income (loss):                                                 |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |       
|                                                                             | Net income (restated)                      |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        |       |   |   |         | 18,030 |  |   |         | 18,030 |       
|                                                                             | Unrealized gain on cash flow hedges        |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | 991    |   |   |         |       |  |   |         | 991    |       
|                                                                             | Tax benefits related to cash flow hedges   |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | 561    |   |   |         |       |  |   |         | 561    |       
|                                                                             | Net losses included in net income          |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | 455    |   |   |         |       |  |   |         | 455    |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|                                                                             |                                            | Comprehensive income (restated)        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |        | 20,037 |  
|Issuance of common stock                                                     |                                            |                                        | 7,384  |   |            |   | 74  |          |  |          | 39,926  |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 40,000  |       
|Issuance of restricted stock                                                 |                                            |                                        |       |   |            |   |    |          |  |          | 1,831   |             |               |              |       |          |              |   | (1,831 | )             |  |   |       |        |   |   |        |        |  |   |        |       
|Issuance of stock options                                                    |                                            |                                        |       |   |            |   |    |          |  |          | 296     |             |               |              |       |          |              |   | (296   | )             |  |   |       |        |   |   |        |        |  |   |        |       
|Exercise of employee stock options                                           |                                            |                                        | 310    |   |            |   | 3   |          |  |          | 826     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 829     |       
|Expiration of employee stock options                                         |                                            |                                        |       |   |            |   |    |          |  |          | (19     | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (19     | )     
|Forfeitures of restricted stock                                              |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              | (10    | )        |              |   | 2      |               |  |   |       |        |   |   |        |        |  |   | (8      | )     
|Repurchases of common stock                                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              | (110   | )        |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (110    | )     
|Warrants exercised for common stock                                          |                                            |                                        | 11,935 |   |            |   | 119 |          |  |          | 18,415  |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 18,534  |       
|In kind dividends on Series A mandatorily redeemable
    preferred stock     |                                            |                                        |       |   |            |   |    |          |  |          | (2,350  | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (2,350  | )     
|Accretion on Series A mandatorily redeemable preferred stock                 |                                            |                                        |       |   |            |   |    |          |  |          | (355    | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (355    | )     
|In kind dividends on Series B mandatorily redeemable
    preferred stock     |                                            |                                        |       |   |            |   |    |          |  |          | (711    | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (711    | )     
|Accretion on Series B mandatorily redeemable preferred stock                 |                                            |                                        |       |   |            |   |    |          |  |          | (32     | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (32     | )     
|Amortization of unearned stock compensation                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 521    |               |  |   |       |        |   |   |        |        |  |   | 521     |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|Balance, December 31, 2003 (restated)                                        |                                            |                                        | 40,247 |   |            | $ | 402 |          |  | $        | 151,263 |             |               | $            | (4,402 | )        |              | $ | (1,816 | )             |  | $ | (1,040 | )      |   | $ | (5,296  | )      |  | $ | 139,111 |       
|Comprehensive income (loss):                                                 |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |       
|                                                                             | Net income                                 |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        |       |   |   |         | 19,650 |  |   |         | 19,650 |       
|                                                                             | Unrealized gain on cash flow hedges        |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | 1,485  |   |   |         |       |  |   |         | 1,485  |       
|                                                                             | Tax provisions related to cash flow hedges |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | (290   | ) |   |         |       |  |   |         | (290   | )     
|                                                                             | Net gains included in net income           |                                        |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |              |  |   |        | (658   | ) |   |         |       |  |   |         | (658   | )     
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|                                                                             |                                            | Comprehensive income                   |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |        |   |   |         |        |  |   |         |        | 20,187 |  
|Issuance of common stock                                                     |                                            |                                        | 2,598  |   |            |   | 26  |          |  |          | 22,079  |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 22,105  |       
|Issuance of restricted stock                                                 |                                            |                                        |       |   |            |   |    |          |  |          | 514     |             |               |              |       |          |              |   | (514   | )             |  |   |       |        |   |   |        |        |  |   |        |       
|Vesting of restricted stock                                                  |                                            |                                        | 72     |   |            |   | 1   |          |  |          | (1      | )           |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   |        |       
|Exercise of employee stock options                                           |                                            |                                        | 314    |   |            |   | 3   |          |  |          | 969     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 972     |       
|Forfeitures of restricted stock                                              |                                            |                                        |       |   |            |   |    |          |  |          | (131    | )           |               |              | (4     | )        |              |   | 131    |               |  |   |       |        |   |   |        |        |  |   | (4      | )     
|Tax benefit from the exercise of stock options                               |                                            |                                        |       |   |            |   |    |          |  |          | 577     |             |               |              |       |          |              |   |       |               |  |   |       |        |   |   |        |        |  |   | 577     |       
|Repurchases of common stock                                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              | (301   | )        |              |   |       |               |  |   |       |        |   |   |        |        |  |   | (301    | )     
|Amortization of unearned stock compensation                                  |                                            |                                        |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 629    |               |  |   |       |        |   |   |        |        |  |   | 629     |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       
|Balance, December 31, 2004                                                   |                                            |                                        | 43,231 |   |            | $ | 432 |          |  | $        | 175,270 |             |               | $            | (4,707 | )        |              | $ | (1,570 | )             |  | $ | (503   | )      |   | $ | 14,354  |        |  | $ | 183,276 |       
|                                                                             |                                            |                                        |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |               |  |   |        |       



F-6



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |        |        |         |         |        |        |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------------------------ | ------ | ------ | ----------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                     |                                                                                          | Year Ended December 31,                                                                 |                               
|                                                     |                                                                                          |                                                                                         |                               
|                                                     |                                                                                          | 2004                                                                                    |                                |                                                  | 2003   |        |             | 2002    |       
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|                                                     |                                                                                          |                                                                                         |                                | Restated(1)                                      |        |        | Restated(1) |        
|                                                     |                                                                                          | (In thousands)                                                                          |                               
|Cash flows from operating activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |        |        |         |        
|                                                     | Net income                                                                               |                                                                                         | $                              | 19,650                                           |        |        | $           | 18,030  |        |        | $       | 2,276   |       
|                                                     | Adjustments to reconcile net income to cash provided
    (used) by operating activities: |                                                                                         |                                |                                                  |        |        |             |         |        |        |         |         |       
|                                                     |                                                                                          | Depletion of oil and natural gas properties                                             |                                |                                                  | 23,844 |        |             |         | 16,819 |        |         |         | 14,694 |       
|                                                     |                                                                                          | Depreciation and amortization                                                           |                                |                                                  | 722    |        |             |         | 629    |        |         |         | 440    |       
|                                                     |                                                                                          | Interest paid through issuance of additional senior subordinated
    notes              |                                |                                                  |       |        |             |         | 1,196  |        |         |         | 1,076  |       
|                                                     |                                                                                          | Interest paid through issuance of additional mandatorily
    redeemable preferred stock |                                |                                                  | 726    |        |             |         | 340    |        |         |         |       |       
|                                                     |                                                                                          | Amortization of deferred loan fees                                                      |                                |                                                  | 766    |        |             |         | 1,053  |        |         |         | 1,191  |       
|                                                     |                                                                                          | Accretion of discount on asset retirement obligations                                   |                                |                                                  | 159    |        |             |         | 142    |        |         |         |       |       
|                                                     |                                                                                          | Market value adjustment for derivative instruments                                      |                                |                                                  | (625   | )      |             |         | 669    |        |         |         | (263   | )     
|                                                     |                                                                                          | Stock option compensation expense                                                       |                                |                                                  |       |        |             |         |       |        |         |         | 596    |       
|                                                     |                                                                                          | Deferred income taxes                                                                   |                                |                                                  | 10,863 |        |             |         | (1,223 | )      |         |         |       |       
|                                                     |                                                                                          | Cumulative effect of change in accounting principle                                     |                                |                                                  |       |        |             |         | (268   | )      |         |         |       |       
|                                                     |                                                                                          | Changes in working capital and other items:                                             |                                |                                                  |        |        |             |         |        |        |         |         |        |       
|                                                     |                                                                                          |                                                                                         | Accounts receivable            |                                                  |        | (6,430 | )           |         |        | 218    |         |         |        | (2,248 | )      
|                                                     |                                                                                          |                                                                                         | Other current assets           |                                                  |        | 2,848  |             |         |        | 3,037  |         |         |        | (4,534 | )      
|                                                     |                                                                                          |                                                                                         | Accounts and royalties payable |                                                  |        | 3,451  |             |         |        | 6,092  |         |         |        | 10,703 |        
|                                                     |                                                                                          |                                                                                         | Other current liabilities      |                                                  |        | 552    |             |         |        | (4,975 | )       |         |        | 5,060  |        
|                                                     |                                                                                          |                                                                                         | Noncurrent assets              |                                                  |        |       |             |         |        |       |         |         |        | 2      |        
|                                                     |                                                                                          |                                                                                         | Noncurrent liabilities         |                                                  |        | (145   | )           |         |        | (68    | )       |         |        | (20    | )      
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash provided by operating activities        |        |        | 56,381      |         |        |        | 41,691  |         |        |        | 28,973  |  
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|Cash flows from investing activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |        |        |         |        
|                                                     | Additions to oil and natural gas properties                                              |                                                                                         |                                | (84,439                                          | )      |        |             | (45,842 | )      |        |         | (27,696 | )     
|                                                     | Proceeds from sale of oil and natural gas properties                                     |                                                                                         |                                | 92                                               |        |        |             | 427     |        |        |         | 871     |       
|                                                     | Additions to other property and equipment                                                |                                                                                         |                                | (378                                             | )      |        |             | (349    | )      |        |         | (249    | )     
|                                                     | (Increase) decrease in drilling advances paid                                            |                                                                                         |                                | 80                                               |        |        |             | (325    | )      |        |         | (132    | )     
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash used by investing activities            |        |        | (84,645     | )       |        |        | (46,089 | )       |        |        | (27,206 | )
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|Cash flows from financing activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |        |        |         |        
|                                                     | Proceeds from issuance of common stock, net of issuance costs                            |                                                                                         |                                | 22,105                                           |        |        |             | 40,000  |        |        |         |        |       
|                                                     | Redemption of Series B mandatorily redeemable preferred
    stock                        |                                                                                         |                                |                                                 |        |        |             | (704    | )      |        |         |        |       
|                                                     | Proceeds from issuance of preferred stock and warrants                                   |                                                                                         |                                |                                                 |        |        |             |        |        |        |         | 9,356   |       
|                                                     | Proceeds from issuance of senior subordinated notes and warrants                         |                                                                                         |                                |                                                 |        |        |             |        |        |        |         | 4,000   |       
|                                                     | Proceeds from exercise of employee stock options                                         |                                                                                         |                                | 972                                              |        |        |             | 829     |        |        |         | 296     |       
|                                                     | Proceeds from exercise of warrants                                                       |                                                                                         |                                |                                                 |        |        |             |        |        |        |         | 625     |       
|                                                     | Fees paid due to common stock exchange for warrants                                      |                                                                                         |                                |                                                 |        |        |             |        |        |        |         | (50     | )     
|                                                     | Repurchases of common stock                                                              |                                                                                         |                                | (301                                             | )      |        |             | (110    | )      |        |         | (76     | )     
|                                                     | Increase in senior credit facility                                                       |                                                                                         |                                | 33,000                                           |        |        |             | 6,000   |        |        |         |        |       
|                                                     | Repayment of senior credit facility                                                      |                                                                                         |                                | (31,000                                          | )      |        |             | (47,000 | )      |        |         | (5,000  | )     
|                                                     | Principal payments on senior subordinated notes                                          |                                                                                         |                                |                                                 |        |        |             | (2,993  | )      |        |         |        |       
|                                                     | Principal payments on capital lease obligations                                          |                                                                                         |                                |                                                 |        |        |             |        |        |        |         | (28     | )     
|                                                     | Deferred loan fees paid                                                                  |                                                                                         |                                | (10                                              | )      |        |             | (1,163  | )      |        |         | (684    | )     
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash provided (used) by financing activities |        |        | 24,766      |         |        |        | (5,141  | )       |        |        | 8,439   |  
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                                                                         | (3,498                         | )                                                |        |        | (9,539      | )       |        |        | 10,206  |        
|Cash and cash equivalents, beginning of year         |                                                                                          |                                                                                         | 5,779                          |                                                  |        |        | 15,318      |         |        |        | 5,112   |        
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       
|Cash and cash equivalents, end of year               |                                                                                          | $                                                                                       | 2,281                          |                                                  |        | $      | 5,779       |         |        | $      | 15,318  |        
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |             |         |       






|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Only individual line items in cash flows from operating
    activities have been restated. Total cash flows from continuing
    operating, investing and financing activities were unaffected.



F-7



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




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



Summary of Significant Accounting Policies




| |                 
| | ----------------
| | Use of Estimates





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                       
| | ----------------------
| | Property and Equipment







F-8



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|                                                     |  |         
|---------------------------------------------------- |  | --------
|Furniture and fixtures                               |  | 10 years
|Machinery and equipment                              |  | 5 years 
|3-D seismic interpretation workstations and software |  | 3 years 





| |                    
| | -------------------
| | Revenue Recognition







|                         |  |       |       |  |      |  |     | 
|------------------------ |  | ----- | ----- |  | ---- |  | --- | 
|                         |  | 2003  |      
|                         |  |       |      
|                         |  | Value |       |  | MMcf | 
|                         |  |       |       |  |      | 
|Gas imbalance receivable |  | $     | 2,477 |  |      |  | 451 | 
|Gas imbalance payable    |  |       | 2,064 |  |      |  | 505 | 



| |                                              
| | ---------------------------------------------
| | Derivative Instruments and Hedging Activities





F-9



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








| |                                  
| | ---------------------------------
| | Other Comprehensive Income (Loss)





|                           |                                                     |      |        |        |      |   |        |        |   |   |        |        |  
|-------------------------- | --------------------------------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                           |                                                     | 2004 |        |        | 2003 |   |        | 2002   |  
|                           |                                                     |      |        |        |      |   |        |        |  
|Balance, beginning of year |                                                     | $    | (1,040 | )      |      | $ | (3,047 | )      |   | $ | 351    |       
|                           | Current period settlements reclassified to earnings |      |        | 4,694  |      |   |        | 6,692  |   |   |        | 1,847  |  
|                           | Current period change in fair value of hedges       |      |        | (3,209 | )    |   |        | (5,701 | ) |   |        | (5,366 | )
|                           | Tax benefits related to cash flow hedges            |      |        | (290   | )    |   |        | 561    |   |   |        |       |  
|                           | Net (gains) losses included in earnings             |      |        | (658   | )    |   |        | 455    |   |   |        | 121    |  
|                           |                                                     |      |        |        |      |   |        |        |  
|Balance, end of year       |                                                     | $    | (503   | )      |      | $ | (1,040 | )      |   | $ | (3,047 | )     
|                           |                                                     |      |        |        |      |   |        |        |  



| |                         
| | ------------------------
| | Stock Based Compensation



F-10



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                            |  |      |      |   |      |   |      |      |  |   |      |  
|----------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                            |  | 2004 |      |   | 2003 |   |      | 2002 | 
|                                                            |  |      |      |   |      |   |      |      | 
|Risk-free interest rate                                     |  |      | 3.7  | % |      |   | 3.7  | %    |  |   | 4.1  | %
|Expected life (in years)                                    |  |      | 3.9  |   |      |   | 5    |      |  |   | 7    |  
|Expected volatility                                         |  |      | 43   | % |      |   | 48   | %    |  |   | 102  | %
|Expected dividend yield                                     |  |      |     |   |      |   |     |      |  |   |     |  
|Weighted average fair value per share of stock compensation |  | $    | 3.31 |   |      | $ | 2.98 |      |  | $ | 3.44 |  





|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |      |  |   |        |       |  
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ----- | -
|                                                                       |                                                                                                                  | Year Ended December 31, |  
|                                                                       |                                                                                                                  |                         |  
|                                                                       |                                                                                                                  | 2004                    |   |        | 2003 |  |   | 2002   |     
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|Net income (loss) available to common stockholders (in
    thousands): |                                                                                                                  |                         |   |        |      |  |   |        |      |  |   |       
|                                                                       | As reported (restated)                                                                                           |                         | $ | 19,650 |      |  | $ | 14,582 |      |  | $ | (676   | )    
|                                                                       | Add back: Stock compensation expense previously included in net
    income                                       |                         |   | 434    |      |  |   | 282    |      |  |   | 101    |      
|                                                                       | Effect of total employee stock-based compensation expense,
    determined under fair value method for all awards |                         |   | (3,189 | )    |  |   | (528   | )    |  |   | (513   | )    
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|                                                                       | Pro forma                                                                                                        |                         | $ | 16,895 |      |  | $ | 14,336 |      |  | $ | (1,088 | )    
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|                                                                       | Basic:                                                                                                           |                         |   |        |      |  |   |        |      |  |   |        |      
|                                                                       |                                                                                                                  | As reported (restated)  |   | $      | 0.49 |  |   | $      | 0.63 |  |   | $      | (0.04 | )
|                                                                       |                                                                                                                  | Pro forma               |   |        | 0.42 |  |   |        | 0.62 |  |   |        | (0.07 | )
|                                                                       | Diluted:                                                                                                         |                         |   |        |      |  |   |        |      |  |   |        |      
|                                                                       |                                                                                                                  | As reported (restated)  |   | $      | 0.47 |  |   | $      | 0.52 |  |   | $      | (0.04 | )
|                                                                       |                                                                                                                  | Pro forma               |   |        | 0.41 |  |   |        | 0.52 |  |   |        | (0.07 | )



| |             
| | ------------
| | Income Taxes



F-11



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






| |                   
| | ------------------
| | Deferred Loan Fees





| |                    
| | -------------------
| | Segment Information





| |               
| | --------------
| | Treasury Stock





| |                             
| | ----------------------------
| | Asset Retirement Obligations



|                                          |                                  |                       |        |      |      |   |       |       |  
|----------------------------------------- | -------------------------------- | --------------------- | ------ | ---- | ---- | - | ----- | ----- | -
|                                          |                                  | Year Ended            |       
|                                          |                                  | December 31,          |       
|                                          |                                  |                       |       
|                                          |                                  | 2003                  |        |      | 2002 |  
|                                          |                                  |                       |        |      |      |  
|                                          |                                  | (In thousands, except |       
|                                          |                                  | per share amounts)    |       
|                                          |                                  |                       |       
|Pro forma asset retirement obligations    |                                  | $                     | 2,320  |      |      | $ | 1,931 |      
|                                          |                                  |                       |        |      |      |  
|Net income (loss), as reported (restated) |                                  | $                     | 14,582 |      |      | $ | (676  | )    
|Pro forma adjustments to reflect          |                                  |                       |        |      |      |   |       |      
|retroactive adoption of SFAS 143          |                                  |                       | (268   | )    |      |   | 155   |      
|                                          |                                  |                       |        |      |      |  
|Pro forma net income (loss)               |                                  | $                     | 14,314 |      |      | $ | (521  | )    
|                                          |                                  |                       |        |      |      |  
|Net income (loss) per share:              |                                  |                       |        |      |      |   |       |      
|                                          | Basic  as reported (restated)   |                       | $      | 0.63 |      |   | $     | (0.04 | )
|                                          |                                  |                       |        |      |      |  
|                                          | Basic  pro forma                |                       | $      | 0.61 |      |   | $     | (0.03 | )
|                                          |                                  |                       |        |      |      |  
|                                          | Diluted  as reported (restated) |                       | $      | 0.52 |      |   | $     | (0.04 | )
|                                          |                                  |                       |        |      |      |  
|                                          | Diluted  pro forma              |                       | $      | 0.51 |      |   | $     | (0.03 | )
|                                          |                                  |                       |        |      |      |  

F-12



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                                       
| | --------------------------------------
| | Mandatorily Redeemable Preferred Stock





| |                   
| | ------------------
| | New Pronouncements







F-13



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




2.     Restatement






|                     |       |       |       |     | 
|-------------------- | ----- | ----- | ----- | --- | 
|                     |       | Total |      
|                     |       |       |      
|December 31, 2001(1) |       | $     | 1,126 |    
|December 31, 2002(2) |       |       | (100  | )  
|December 31, 2003(2) |       |       | (260  | )  
|                     |       |       |      
|                     | Total |       | $     | 766 | 
|                     |       |       |      






|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | The adjustment as of December 31, 2001 represents an
    opening retained earnings adjustment on January 1, 2002.    
|   
|(2) | The adjustment represents the retained earnings impact of the
    restatement to net income in the respective period.



F-14



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                             |                                     |                   |   |          |                   |  |            |             |   |  |          |          |   |            |   |          |             |  |   |       |  |  |   |          |  
|---------------------------- | ----------------------------------- | ----------------- | - | -------- | ----------------- |  | ---------- | ----------- | - |  | -------- | -------- | - | ---------- | - | -------- | ----------- |  | - | ----- |  |  | - | -------- | -
|                             |                                     | December 31, 2003 |   |          | December 31, 2002 | 
|                             |                                     |                   |   |          |                   | 
|                             |                                     | As                |   |          |                   |  | As         |             |   | 
|                             |                                     | Previously        |   |          |                   |  | Previously |             |   | 
|                             |                                     | Reported          |   |          | Adjustment        |  |            | As Restated |   |  | Reported |          |   | Adjustment |   |          | As Restated | 
|                             |                                     |                   |   |          |                   |  |            |             |   |  |          |          |   |            |   |          |             | 
|                             |                                     | (In thousands)    |  
|Consolidated Balance Sheets: |                                     |                   |   |          |                   |  |            |             |   |  |          |          |   |            |   |          |             |  |   |       |  |  |   |         
|                             | Accumulated depletion               |                   | $ | (118,546 | )                 |  | $          | 1,179       |   |  | $        | (117,367 | ) |            | $ | (102,414 | )           |  | $ | 1,026 |  |  | $ | (101,388 | )
|                             | Oil and natural gas properties, net |                   |   | 197,311  |                   |  |            | 1,179       |   |  |          | 198,490  |   |            |   | 164,980  |             |  |   | 1,026 |  |  |   | 166,006  |  
|                             | Deferred income tax asset           |                   |   | 1,890    |                   |  |            | (413        | ) |  |          | 1,477    |   |            |   |         |             |  |   |      |  |  |   |         |  
|                             | Total stockholders equity          |                   |   | 138,345  |                   |  |            | 766         |   |  |          | 139,111  |   |            |   | 61,749   |             |  |   | 1,026 |  |  |   | 62,775   |  

|                                       |                                                               |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |   |   |      |   |  |   |        |       |  
|-------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | - | ------ | ---------------------------- |  | -- | -------- | ----- | ---------- | -------- | ------ | ---- | ---------- | -- | ------ | -------- | - | - | ---- | - |  | - | ------ | ----- | -
|                                       |                                                               | Year Ended December 31, 2003             |   |        | Year Ended December 31, 2002 | 
|                                       |                                                               |                                          |   |        |                              | 
|                                       |                                                               | As                                       |   |        |                              |  | As |          |       |           
|                                       |                                                               | Previously                               |   |        |                              |  | As |          |       | Previously |          |        |      |            | As |       
|                                       |                                                               | Reported                                 |   |        | Adjustment                   |  |    | Restated |       |            | Reported |        |      | Adjustment |    |        | Restated |  
|                                       |                                                               |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |  
|                                       |                                                               | (In thousands, except per share amounts) |  
|Consolidated Statements of Operations: |                                                               |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |   |   |      |   |  |   |       
|                                       | Depletion of oil and natural gas properties                   |                                          | $ | 16,972 |                              |  | $  | (153     | )     |            | $        | 16,819 |      |            | $  | 14,594 |          |   | $ | 100  |   |  | $ | 14,694 |      
|                                       | Deferred income tax benefit (expense)                         |                                          |   | 1,636  |                              |  |    | (413     | )     |            |          | 1,223  |      |            |    |       |          |   |   |     |   |  |   |       |      
|                                       | Net income (loss) available to common stockholders            |                                          |   | 14,842 |                              |  |    | (260     | )     |            |          | 14,582 |      |            |    | (576   | )        |   |   | (100 | ) |  |   | (676   | )    
|                                       | Net income (loss) per share available to common stockholders: |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |   |   |      |   |  |   |        |      
|                                       |                                                               | Basic                                    |   | $      | 0.64                         |  |    | $        | (0.01 | )          |          | $      | 0.63 |            |    | $      | (0.04    | ) |   | $    |  |  |   | $      | (0.04 | )
|                                       |                                                               |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |  
|                                       |                                                               | Diluted                                  |   | $      | 0.53                         |  |    | $        | (0.01 | )          |          | $      | 0.52 |            |    | $      | (0.04    | ) |   | $    |  |  |   | $      | (0.04 | )
|                                       |                                                               |                                          |   |        |                              |  |    |          |       |            |          |        |      |            |    |        |          |  





|   |                       
|-- | ----------------------
|3. | Property and Equipment



|                               |                                                      |              |          |            |      |   |          |        |  
|------------------------------ | ---------------------------------------------------- | ------------ | -------- | ---------- | ---- | - | -------- | ------ | -
|                               |                                                      | December 31, |         
|                               |                                                      |              |         
|                               |                                                      | 2004         |          |            | 2003 |  
|                               |                                                      |              |          |            |      |  
|                               |                                                      |              |          | (Restated) |     
|Oil and natural gas properties |                                                      | $            | 403,190  |            |      | $ | 315,857  |       
|Accumulated depletion          |                                                      |              | (141,211 | )          |      |   | (117,367 | )     
|                               |                                                      |              |          |            |      |  
|                               |                                                      |              | 261,979  |            |      |   | 198,490  |       
|                               |                                                      |              |          |            |      |  
|Other property and equipment:  |                                                      |              |          |            |      |   |          |       
|                               | 3-D seismic interpretation workstations and software |              |          | 2,725      |      |   |          | 2,559  |  
|                               | Office furniture and equipment                       |              |          | 2,784      |      |   |          | 2,572  |  
|                               | Accumulated depreciation                             |              |          | (4,300     | )    |   |          | (3,912 | )
|                               |                                                      |              |          |            |      |  
|                               |                                                      |              | 1,209    |            |      |   | 1,219    |       
|                               |                                                      |              |          |            |      |  
|                               |                                                      | $            | 263,188  |            |      | $ | 199,709  |       
|                               |                                                      |              |          |            |      |  



F-15



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                     |  |                         |       |  |      |   |       |      |  |   |       | 
|---------------------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                     |  | Year Ended December 31, |      
|                                                     |  |                         |      
|                                                     |  | 2004                    |       |  | 2003 |   |       | 2002 | 
|                                                     |  |                         |       |  |      |   |       |      | 
|Capitalized certain payroll and other internal costs |  | $                       | 4,872 |  |      | $ | 4,621 |      |  | $ | 4,220 | 
|Capitalized interest costs                           |  |                         | 1,195 |  |      |   | 818   |      |  |   | 878   | 
|                                                     |  |                         |       |  |      |   |       |      | 
|                                                     |  | $                       | 6,067 |  |      | $ | 5,439 |      |  | $ | 5,098 | 
|                                                     |  |                         |       |  |      |   |       |      | 



|   |                                                     
|-- | ----------------------------------------------------
|4. | Senior Credit Facility and Senior Subordinated Notes

|                          |                          |                |        |        |      |   |        |        | 
|------------------------- | ------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                          |                          | December 31,   |       
|                          |                          |                |       
|                          |                          | 2004           |        |        | 2003 |  
|                          |                          |                |        |        |      |  
|                          |                          | (In thousands) |       
|Senior Credit Facility    |                          | $              | 21,000 |        |      | $ | 19,000 |       
|Senior Subordinated Notes |                          |                | 20,000 |        |      |   | 20,000 |       
|                          |                          |                |        |        |      |  
|Total Debt                |                          | $              | 41,000 |        |      | $ | 39,000 |       
|                          | Less: Current Maturities |                |        |       |      |   |        |       | 
|                          |                          |                |        |        |      |  
|                          | Total Long-Term Debt     |                | $      | 41,000 |      |   | $      | 39,000 | 
|                          |                          |                |        |        |      |  



| |                       
| | ----------------------
| | Senior Credit Facility











F-16



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






| |                          
| | -------------------------
| | Senior Subordinated Notes





F-17



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|   |                
|-- | ---------------
|5. | Preferred Stock



| |                                                    
| | ---------------------------------------------------
| | Series A Mandatorily Redeemable Preferred
    Stock



|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |            |   |  |         |        |  
|------------------------------------------------ | ------------------------------------------ | ----------------- | ------ | ------- | ----------------- |  | --- | ------ |  |  | ---------- | ---------- | - |  | ------- | ------ | -
|                                                 |                                            | Year Ended        |        |         | Year Ended        | 
|                                                 |                                            | December 31, 2004 |        |         | December 31, 2003 | 
|                                                 |                                            |                   |        |         |                   | 
|                                                 |                                            | Shares            |        |         | Amounts           |  |     | Shares |  |  | Amounts    |           
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           
|Series A mandatorily redeemable preferred stock: |                                            |                   |        |         |                   |  |     |        |  |  |            |            |   |  |         |       
|                                                 | Balance, beginning of year                 |                   |        | 439,722 |                   |  | $   | 8,794  |  |  |            | 1,765,132  |   |  | $       | 19,540 |  
|                                                 | Dividends paid in kind                     |                   |        | 36,264  |                   |  |     | 726    |  |  |            | 132,490    |   |  |         | 2,650  |  
|                                                 | Accretion                                  |                   |        |        |                   |  |     |       |  |  |            |           |   |  |         | 355    |  
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           
|                                                 |                                            |                   | 36,264 |         |                   |  | 726 |        |  |  | 132,490    |            |   |  | 3,005   |       
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           
|                                                 | Forced redemption of October 2000 issuance |                   |        |        |                   |  |     |       |  |  |            | (1,000,002 | ) |  |         | (9,060 | )
|                                                 | Forced redemption of March 2001 issuance   |                   |        |        |                   |  |     |       |  |  |            | (457,898   | ) |  |         | (4,691 | )
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           
|                                                 |                                            |                   |       |         |                   |  |    |        |  |  | (1,457,900 | )          |   |  | (13,751 | )     
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           
|                                                 | Balance, end of year                       |                   |        | 475,986 |                   |  | $   | 9,520  |  |  |            | 439,722    |   |  | $       | 8,794  |  
|                                                 |                                            |                   |        |         |                   |  |     |        |  |  |            |           









F-18



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)












| |                                                    
| | ---------------------------------------------------
| | Series B Mandatorily Redeemable Preferred
    Stock



|                                                 |                                             |                   |          |          |         |  |        |        |  
|------------------------------------------------ | ------------------------------------------- | ----------------- | -------- | -------- | ------- |  | ------ | ------ | -
|                                                 |                                             | Year Ended        |         
|                                                 |                                             | December 31, 2003 |         
|                                                 |                                             |                   |         
|                                                 |                                             | Shares            |          |          | Amounts | 
|                                                 |                                             |                   |          |          |         | 
|Series B mandatorily redeemable preferred stock: |                                             |                   |          |          |         |  |        |       
|                                                 | Balance, beginning of year                  |                   |          | 501,226  |         |  | $      | 4,777  |  
|                                                 | Dividends paid in kind                      |                   |          | 30,603   |         |  |        | 612    |  
|                                                 | Accretion                                   |                   |          |         |         |  |        | 32     |  
|                                                 |                                             |                   |          |          |         | 
|                                                 |                                             |                   | 30,603   |          |         |  | 644    |       
|                                                 |                                             |                   |          |          |         | 
|                                                 | Forced redemption of December 2002 issuance |                   |          | (500,002 | )       |  |        | (4,784 | )
|                                                 | Final redemption of remaining shares        |                   |          | (31,827  | )       |  |        | (637   | )
|                                                 |                                             |                   |          |          |         | 
|                                                 |                                             |                   | (531,829 | )        |         |  | (5,421 | )     
|                                                 |                                             |                   |          |          |         | 
|                                                 | Balance, end of year                        |                   |          |         |         |  | $      |       |  
|                                                 |                                             |                   |          |          |         | 



F-19



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










|   |                         
|-- | ------------------------
|6. | Issuance of Common Stock















|   |                             
|-- | ----------------------------
|7. | Asset Retirement Obligations



F-20



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|                                                        |  |                   |       |   |                   |   |       |  
|------------------------------------------------------- |  | ----------------- | ----- | - | ----------------- | - | ----- | -
|                                                        |  | Year Ended        |       |   | Year Ended        |  
|                                                        |  | December 31, 2004 |       |   | December 31, 2003 |  
|                                                        |  |                   |       |   |                   |  
|Beginning asset retirement obligations                  |  | $                 | 2,320 |   |                   | $ | 1,931 |  
|Liabilities incurred for new wells placed on production |  |                   | 512   |   |                   |   | 269   |  
|Liabilities settled                                     |  |                   | (95   | ) |                   |   | (22   | )
|Accretion of discount on asset retirement obligations   |  |                   | 159   |   |                   |   | 142   |  
|                                                        |  |                   |       |   |                   |  
|                                                        |  | $                 | 2,896 |   |                   | $ | 2,320 |  
|                                                        |  |                   |       |   |                   |  

8.     Income Taxes




|                       |         |                         |        |          |      |   |        |        |   |   |   |   | 
|---------------------- | ------- | ----------------------- | ------ | -------- | ---- | - | ------ | ------ | - | - | - | - | 
|                       |         | Year Ended December 31,
|                       |         |                        
|                       |         | 2004                    |        |          | 2003 |   |        | 2002  
|                       |         |                         |        |          |      |   |        |       
|                       |         |                         |        | Restated |      |   |       
|Current income taxes:  |         |                         |        |          |      |   |        |        |   |   |   |  
|                       | Federal |                         | $      |         |      |   | $      |       |   |   | $ |  | 
|                       | State   |                         |        |         |      |   |        |       |   |   |   |  | 
|Deferred income taxes: |         |                         |        |          |      |   |        |        |   |   |   |  
|                       | Federal |                         |        | 10,863   |      |   |        | (1,223 | ) |   |   |  | 
|                       | State   |                         |        |         |      |   |        |       |   |   |   |  | 
|                       |         |                         |        |          |      |   |        |        |  
|                       |         | $                       | 10,863 |          |      | $ | (1,223 | )      |   | $ |  |  
|                       |         |                         |        |          |      |   |        |        |  

F-21



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                       |  |                         |        |          |      |   |          |      |  |   |      |  
|-------------------------------------- |  | ----------------------- | ------ | -------- | ---- | - | -------- | ---- |  | - | ---- | -
|                                       |  | Year Ended December 31, |       
|                                       |  |                         |       
|                                       |  | 2004                    |        |          | 2003 |   |          | 2002 | 
|                                       |  |                         |        |          |      |   |          |      | 
|                                       |  |                         |        | Restated |      |   | Restated |     
|Tax at statutory rate                  |  | $                       | 10,679 |          |      | $ | 5,789    |      |  | $ | 797  |  
|Add the effect of:                     |  |                         |        |          |      |   |          |      |  |   |      |  
|Nondeductible expenses                 |  |                         | 5      |          |      |   | 5        |      |  |   | 223  |  
|Deductible stock compensation          |  |                         | (194   | )        |      |   | (118     | )    |  |   | (110 | )
|Preferred stock dividends paid in kind |  |                         | 373    |          |      |   |         |      |  |   |     |  
|Valuation allowance                    |  |                         |       |          |      |   | (7,554   | )    |  |   | (910 | )
|Unrealized hedging losses              |  |                         |       |          |      |   | 561      |      |  |   |     |  
|Other                                  |  |                         |       |          |      |   | 94       |      |  |   |     |  
|                                       |  |                         |        |          |      |   |          |      | 
|                                       |  | $                       | 10,863 |          |      | $ | (1,223   | )    |  | $ |     |  
|                                       |  |                         |        |          |      |   |          |      | 



|                    |              |                                               |             |          |        |        |        |   |        |        | 
|------------------- | ------------ | --------------------------------------------- | ----------- | -------- | ------ | ------ | ------ | - | ------ | ------ | 
|                    |              | December 31,                                  |            
|                    |              |                                               |            
|                    |              | 2004                                          |             |          | 2003   |       
|                    |              |                                               |             |          |        |       
|                    |              |                                               |             | Restated |       
|Deferred tax assets |              |                                               |             |          |        |        |        |  
|                    | Current:     |                                               |             |          |        |        |        |   |       
|                    |              | Unrealized hedging losses                     |             | $        | 271    |        |        | $ |       |       
|                    |              | Derivative assets                             |             |          | 11     |        |        |   |       |       
|                    |              | Net operating loss carryforwards              |             |          |       |        |        |   | 451    |       
|                    |              |                                               |             |          |        |       
|                    |              |                                               | Current     |          |        | 282    |        |   |        | 451    | 
|                    |              |                                               |             |          |        |       
|                    | Non-current: |                                               |             |          |        |        |        |   |       
|                    |              | Net operating loss carryforwards              |             |          | 36,743 |        |        |   | 34,409 |       
|                    |              | Capital loss carryforwards                    |             |          | 634    |        |        |   | 634    |       
|                    |              | Stock compensation                            |             |          | 816    |        |        |   | 818    |       
|                    |              | Unrealized hedging losses                     |             |          |       |        |        |   | 561    |       
|                    |              | Derivative assets                             |             |          |       |        |        |   | 276    |       
|                    |              | Asset retirement obligations                  |             |          | 1,014  |        |        |   | 812    |       
|                    |              | Preferred stock dividends as interest expense |             |          |       |        |        |   | 119    |       
|                    |              | Other                                         |             |          | 31     |        |        |   | 27     |       
|                    |              |                                               |             |          |        |       
|                    |              |                                               | Non-current |          |        | 39,238 |        |   |        | 37,656 | 
|                    |              |                                               |             |          |        |       
|                    |              |                                               | 39,520      |          |        |        | 38,107 |  
|                    |              |                                               |             |          |        |       

F-22



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                 |                                           |                                     |                                      |          |         |        |         |       |         |       |  
|------------------------------------------------ | ----------------------------------------- | ----------------------------------- | ------------------------------------ | -------- | ------- | ------ | ------- | ----- | ------- | ----- | -
|                                                 |                                           | December 31,                        |                                     
|                                                 |                                           |                                     |                                     
|                                                 |                                           | 2004                                |                                      |          | 2003    |       
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           |                                     |                                      | Restated |        
|Deferred tax liabilities                         |                                           |                                     |                                      |          |         |        |         |      
|                                                 | Current:                                  |                                     |                                      |          |         |        |         |       |        
|                                                 |                                           | Derivative liabilities              |                                      | $        | (28     | )      |         |       |        |      
|                                                 |                                           | Gas imbalances                      |                                      |          | (15     | )      |         |       | (144    | )    
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           |                                     | Current                              |          |         | (43    | )       |       |         | (144  | )
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 | Non-current:                              |                                     |                                      |          |         |        |         |       |        
|                                                 |                                           | Depreciable and depletable property |                                      |          | (47,635 | )      |         |       | (35,545 | )    
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           |                                     | (47,678                              | )        |         |        | (35,689 | )    
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           | Net deferred tax asset (liability)  |                                      |          | (8,158  | )      |         |       | 2,418   |      
|                                                 |                                           | Valuation allowance                 |                                      |          | (634    | )      |         |       | (634    | )    
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           |                                     | Total deferred tax asset (liability) |          | $       | (8,792 | )       |       | $       | 1,784 |  
|                                                 |                                           |                                     |                                      |          |         |       
|Reflected in the accompanying balance sheets as: |                                           |                                     |                                      |          |         |        |         |      
|                                                 | Current deferred income tax asset         |                                     | $                                    | 239      |         |        | $       | 307   |        
|                                                 | Non-current deferred income tax asset     |                                     |                                      |         |         |        |         | 1,477 |        
|                                                 | Non-current deferred income tax liability |                                     |                                      | (9,031   | )       |        |         |      |        
|                                                 |                                           |                                     |                                      |          |         |       
|                                                 |                                           | $                                   | (8,792                               | )        |         | $      | 1,784   |      
|                                                 |                                           |                                     |                                      |          |         |       





|                 |                   |         |         |        |      |   |        |        | 
|---------------- | ----------------- | ------- | ------- | ------ | ---- | - | ------ | ------ | 
|                 |                   | Regular |         |        | AMT  |  
|                 |                   | NOLs    |         |        | NOLs |  
|                 |                   |         |         |        |      |  
|Expiration Date: |                   |         |         |        |      |   |        |       
|                 | December 31, 2012 |         | $       | 13,299 |      |   | $      | 8,675  | 
|                 | December 31, 2018 |         |         | 26,411 |      |   |        | 23,170 | 
|                 | December 31, 2019 |         |         | 20,717 |      |   |        | 20,107 | 
|                 | December 31, 2020 |         |         | 12,491 |      |   |        | 7,566  | 
|                 | December 31, 2021 |         |         | 19,095 |      |   |        | 18,419 | 
|                 | December 31, 2022 |         |         | 4,452  |      |   |        | 4,114  | 
|                 | December 31, 2023 |         |         | 4,623  |      |   |        | 4,693  | 
|                 | December 31, 2024 |         |         | 3,893  |      |   |        | 4,329  | 
|                 |                   |         |         |        |      |  
|                 |                   | $       | 104,981 |        |      | $ | 91,073 |       
|                 |                   |         |         |        |      |  

F-23



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






9.     Net Income (Loss) Per
Share




|           |                                                                                                     |                                                |   |          |        |  |          |        |        |  |   |       |        |  
|---------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------- | - | -------- | ------ |  | -------- | ------ | ------ |  | - | ----- | ------ | -
|           |                                                                                                     | Year Ended December 31,                        |  
|           |                                                                                                     |                                                |  
|           |                                                                                                     | 2004                                           |   |          | 2003   |  |          | 2002   |       
|           |                                                                                                     |                                                |   |          |        |  |          |        |       
|           |                                                                                                     |                                                |   | Restated |        |  | Restated |       
|           |                                                                                                     | (In thousands,                                 |  
|           |                                                                                                     | except per share amounts)                      |  
|Basic EPS: |                                                                                                     |                                                |   |          |        |  |          |        |        |  |   |      
|           | Income (loss) available to common stockholders before
    cumulative change in accounting principle |                                                | $ | 19,650   |        |  | $        | 14,314 |        |  | $ | (676  | )     
|           | Cumulative change in accounting principle                                                           |                                                |   |         |        |  |          | 268    |        |  |   |      |       
|           |                                                                                                     |                                                |   |          |        |  |          |        |       
|           |                                                                                                     | Income (loss) available to common stockholders |   | $        | 19,650 |  |          | $      | 14,582 |  |   | $     | (676   | )
|           |                                                                                                     |                                                |   |          |        |  |          |        |       
|           |                                                                                                     | Weighted average common shares outstanding     |   |          | 40,445 |  |          |        | 23,363 |  |   |       | 16,138 |  
|           |                                                                                                     |                                                |   |          |        |  |          |        |       
|           | Basic EPS:                                                                                          |                                                |   |          |        |  |          |        |        |  |   |       |       
|           | Income (loss) available to common stockholders before
    cumulative change in accounting principle |                                                | $ | 0.49     |        |  | $        | 0.62   |        |  | $ | (0.04 | )     
|           | Cumulative change in accounting principle                                                           |                                                |   |         |        |  |          | 0.01   |        |  |   |      |       
|           |                                                                                                     |                                                |   |          |        |  |          |        |       
|           |                                                                                                     | Income (loss) available to common stockholders |   | $        | 0.49   |  |          | $      | 0.63   |  |   | $     | (0.04  | )
|           |                                                                                                     |                                                |   |          |        |  |          |        |       

F-24



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|             |                                                                                                               |                                                                           |        |          |        |  |          |        |        |  |   |        |        |  
|------------ | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------ | -------- | ------ |  | -------- | ------ | ------ |  | - | ------ | ------ | -
|             |                                                                                                               | Year Ended December 31,                                                   |       
|             |                                                                                                               |                                                                           |       
|             |                                                                                                               | 2004                                                                      |        |          | 2003   |  |          | 2002   |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               |                                                                           |        | Restated |        |  | Restated |       
|Diluted EPS: |                                                                                                               |                                                                           |        |          |        |  |          |        |        |  |   |       
|             | Income (loss) available to common stockholders before
    cumulative change in accounting principle           |                                                                           | $      | 19,650   |        |  | $        | 14,314 |        |  | $ | (676   | )     
|             | Cumulative change in accounting principle                                                                     |                                                                           |        |         |        |  |          | 268    |        |  |   |       |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               | Income (loss) available to common stockholders                            |        |          | 19,650 |  |          |        | 14,582 |  |   |        | (676   | )
|             | Adjustments for assumed conversions:                                                                          |                                                                           |        |          |        |  |          |        |        |  |   |        |       
|             |                                                                                                               | Dividends and accretion on mandatorily redeemable preferred
    stock (1) |        |          |       |  |          |        | 3,290  |  |   |        |       |  
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               |                                                                           | 19,650 |          |        |  | 3,290    |        |        |  |  |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             | Income (loss) available to common stockholders before
    cumulative change in accounting principle  diluted |                                                                           |        | 19,650   |        |  |          | 17,604 |        |  |   | (676   | )     
|             | Cumulative change in accounting principle                                                                     |                                                                           |        |         |        |  |          | 268    |        |  |   |       |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               | Income (loss) available to common stockholdersdiluted                    |        | $        | 19,650 |  |          | $      | 17,872 |  |   | $      | (676   | )
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             | Common shares outstanding                                                                                     |                                                                           |        | 40,445   |        |  |          | 23,363 |        |  |   | 16,138 |       
|             | Effect of dilutive securities:                                                                                |                                                                           |        |          |        |  |          |        |        |  |   |        |       
|             |                                                                                                               | Warrants                                                                  |        |          |       |  |          |        | 317    |  |   |        |       |  
|             |                                                                                                               | Mandatorily redeemable preferred stock                                    |        |          |       |  |          |        | 9,971  |  |   |        |       |  
|             |                                                                                                               | Stock options                                                             |        |          | 1,171  |  |          |        | 703    |  |   |        |       |  
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             | Potentially dilutive common shares                                                                            |                                                                           |        | 1,171    |        |  |          | 10,991 |        |  |   |       |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               | Adjusted common shares outstanding  diluted                              |        |          | 41,616 |  |          |        | 34,354 |  |   |        | 16,138 |  
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             | Diluted EPS:                                                                                                  |                                                                           |        |          |        |  |          |        |        |  |   |        |       
|             | Income (loss) available to common stockholders before
    cumulative change in accounting principle           |                                                                           | $      | 0.47     |        |  | $        | 0.51   |        |  | $ | (0.04  | )     
|             | Cumulative change in accounting principle                                                                     |                                                                           |        |         |        |  |          | 0.01   |        |  |   |       |       
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       
|             |                                                                                                               | Income (loss) available to common stockholders                            |        | $        | 0.47   |  |          | $      | 0.52   |  |   | $      | (0.04  | )
|             |                                                                                                               |                                                                           |        |          |        |  |          |        |       






|    |                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The amount of dividends included in dividends and accretion on
    mandatorily redeemable preferred stock includes only the
    dividends paid in kind on the $40 million of mandatorily
    redeemable preferred stock (2.0 million shares) that were issued
    with warrants whose exercise price is payable in either cash or
    in shares of mandatorily redeemable preferred stock.



10.     Contingencies, Commitments
and Factors Which May Affect Future Operations


Litigation




F-25



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)
















F-26



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








| |                            
| | ---------------------------
| | Operating Lease Commitments



|           |  |   |       | 
|---------- |  | - | ----- | 
|2005       |  | $ | 692   | 
|2006       |  |   | 709   | 
|2007       |  |   | 698   | 
|2008       |  |   | 687   | 
|2009       |  |   | 704   | 
|Thereafter |  |   | 1,836 | 
|           |  |   |      
|           |  | $ | 5,326 | 
|           |  |   |      







| |                 
| | ----------------
| | Major Purchasers



|            |  |      |    |   |      |  |    |      |  |  |    |  
|----------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|            |  | 2004 |    |   | 2003 |  |    | 2002 | 
|            |  |      |    |   |      |  |    |      | 
|Purchaser A |  |      |   |   |      |  |   |      |  |  | 19 | %
|Purchaser B |  |      | 11 | % |      |  |   |      |  |  |   |  
|Purchaser C |  |      | 12 | % |      |  | 13 | %    |  |  | 15 | %
|Purchaser D |  |      |   |   |      |  | 3  | %    |  |  | 11 | %





| |                                           
| | ------------------------------------------
| | Factors Which May Affect Future Operations





|    |                                              
|--- | ---------------------------------------------
|11. | Derivative Instruments and Hedging Activities



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BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






| |                                               
| | ----------------------------------------------
| | Natural Gas and Crude Oil Derivative Contracts



| |                 
| | ----------------
| | Cash-flow hedges



|                            |  |         |         |  |         |   |         |         |  |   |         |  |  |   |        | 
|--------------------------- |  | ------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- |  |  | - | ------ | 
|                            |  | 2005    |        
|                            |  |         |        
|                            |  | First   |         |  | Second  |   |         | Third   |  |   | Fourth  | 
|                            |  | Quarter |         |  | Quarter |   |         | Quarter |  |   | Quarter | 
|                            |  |         |         |  |         |   |         |         |  |   |         | 
|Natural gas collars:        |  |         |         |  |         |   |         |         |  |   |         |  |  |   |        | 
|Volumes (MMbtu)             |  |         | 727,500 |  |         |   | 635,000 |         |  |   | 180,000 |  |  |   | 60,000 | 
|Average price ($ per MMBtu) |  |         |         |  |         |   |         |         |  |   |         |  |  |   |        | 
|Floor                       |  | $       | 5.164   |  |         | $ | 4.931   |         |  | $ | 5.450   |  |  | $ | 5.450  | 
|Ceiling                     |  |         | 7.256   |  |         |   | 7.077   |         |  |   | 8.000   |  |  |   | 8.000  | 
|Crude oil collars:          |  |         |         |  |         |   |         |         |  |   |         |  |  |   |        | 
|Volumes (Bbls)              |  |         | 27,450  |  |         |   | 18,655  |         |  |   |        |  |  |   |       | 
|Average price ($ per Bbl)   |  |         |         |  |         |   |         |         |  |   |         |  |  |   |        | 
|Floor                       |  | $       | 25.56   |  |         | $ | 26.80   |         |  | $ |        |  |  | $ |       | 
|Ceiling                     |  |         | 30.18   |  |         |   | 32.51   |         |  |   |        |  |  |   |       | 



|                            |  |         |         |  |         |   |         |         |  |   |         | 
|--------------------------- |  | ------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- | 
|                            |  | 2005    |         |  | 2006    |  
|                            |  |         |         |  |         |  
|                            |  | Third   |         |  | Fourth  |   |         | First   | 
|                            |  | Quarter |         |  | Quarter |   |         | Quarter | 
|                            |  |         |         |  |         |   |         |         | 
|Natural gas collars:        |  |         |         |  |         |   |         |         |  |   |         | 
|Volumes (MMbtu)             |  |         | 300,000 |  |         |   | 200,000 |         |  |   | 150,000 | 
|Average price ($ per MMBtu) |  |         |         |  |         |   |         |         |  |   |         | 
|Floor                       |  | $       | 6.000   |  |         | $ | 6.380   |         |  | $ | 6.750   | 
|Ceiling                     |  |         | 7.200   |  |         |   | 8.000   |         |  |   | 8.800   | 
|Crude oil collars:          |  |         |         |  |         |   |         |         |  |   |         | 
|Volumes (Bbls)              |  |         | 15,000  |  |         |   | 15,000  |         |  |   |        | 
|Average price ($ per Bbl)   |  |         |         |  |         |   |         |         |  |   |         | 
|Floor                       |  | $       | 40.00   |  |         | $ | 40.00   |         |  | $ |        | 
|Ceiling                     |  |         | 53.00   |  |         |   | 53.00   |         |  |   |        | 

F-28



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                             |                                        |              |     |     |      |   |       |       | 
|---------------------------- | -------------------------------------- | ------------ | --- | --- | ---- | - | ----- | ----- | 
|                             |                                        | December 31, |    
|                             |                                        |              |    
|                             |                                        | 2004         |     |     | 2003 |  
|                             |                                        |              |     |     |      |  
|Other current liabilities    |                                        | $            | 870 |     |      | $ | 2,141 |      
|Other noncurrent liabilities |                                        |              | 1   |     |      |   | 40    |      
|Other current assets         |                                        |              | 142 |     |      |   |      |      
|Other noncurrent assets      |                                        |              | 3   |     |      |   | 3     |      
|                             |                                        |              |     |     |      |  
|                             | Net fair value of derivative contracts |              | $   | 726 |      |   | $     | 2,178 | 
|                             |                                        |              |     |     |      |  



|            |                                                               |                         |   |       |      |  |   |       |  |  |   |       | 
|----------- | ------------------------------------------------------------- | ----------------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|            |                                                               | Year Ended December 31, |  
|            |                                                               |                         |  
|            |                                                               | 2004                    |   |       | 2003 |  |   | 2002  | 
|            |                                                               |                         |   |       |      |  |   |       | 
|Natural gas |                                                               |                         |   |       |      |  |   |       |  |  |   |      
|            | Average price per Mcf as reported (including hedging results) |                         | $ | 5.84  |      |  | $ | 4.92  |  |  | $ | 3.21  | 
|            | Average price per Mcf realized (excluding hedging results)    |                         | $ | 6.05  |      |  | $ | 5.68  |  |  | $ | 3.33  | 
|            | Decrease in revenue (in thousands)                            |                         | $ | 1,853 |      |  | $ | 4,807 |  |  | $ | 712   | 
|Oil         |                                                               |                         |   |       |      |  |   |       |  |  |   |      
|            | Average price per Bbl as reported (including hedging results) |                         | $ | 35.17 |      |  | $ | 28.17 |  |  | $ | 23.55 | 
|            | Average price per Bbl realized (excluding hedging results)    |                         | $ | 40.13 |      |  | $ | 30.79 |  |  | $ | 25.17 | 
|            | Decrease in revenue (in thousands)                            |                         | $ | 2,841 |      |  | $ | 1,885 |  |  | $ | 1,135 | 





|                            |  |         |         | 
|--------------------------- |  | ------- | ------- | 
|                            |  | 2005    |        
|                            |  |         |        
|                            |  | First   |        
|                            |  | Quarter |        
|                            |  |         |        
|Natural gas written puts:   |  |         |         | 
|Volumes (MMbtu)             |  |         | 210,000 | 
|Average price ($ per MMBtu) |  | $       | 5.500   | 

F-29



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                            |  |         |         |  |         |   |         |         |  |   |         | 
|--------------------------- |  | ------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- | 
|                            |  | 2005    |         |  | 2006    |  
|                            |  |         |         |  |         |  
|                            |  | Third   |         |  | Fourth  |   |         | First   | 
|                            |  | Quarter |         |  | Quarter |   |         | Quarter | 
|                            |  |         |         |  |         |   |         |         | 
|Natural gas written puts:   |  |         |         |  |         |   |         |         |  |   |         | 
|Volumes (MMbtu)             |  |         | 300,000 |  |         |   | 200,000 |         |  |   | 150,000 | 
|Average price ($ per MMBtu) |  | $       | 5.000   |  |         | $ | 5.250   |         |  | $ | 5.500   | 
|Crude oil written puts:     |  |         |         |  |         |   |         |         |  |   |         | 
|Volumes (MMbtu)             |  |         | 15,000  |  |         |   | 15,000  |         |  |   |        | 
|Average price ($ per MMBtu) |  | $       | 30.000  |  |         | $ | 30.000  |         |  | $ |        | 



|                             |  |                         |     |   |      |   |      |  |  |   |      |  
|---------------------------- |  | ----------------------- | --- | - | ---- | - | ---- |  |  | - | ---- | -
|                             |  | Year Ended December 31, |    
|                             |  |                         |    
|                             |  | 2004                    |     |   | 2003 |   | 2002 | 
|                             |  |                         |     |   |      |   |      | 
|Non-cash gains (losses)      |  | $                       | (33 | ) |      | $ |     |  |  | $ | 384  |  
|Losses from cash settlements |  | $                       |    |   |      | $ |     |  |  | $ | (559 | )





| |                   
| | ------------------
| | Interest rate swap





F-30



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                      
|--- | ---------------------
|12. | Financial Instruments







|    |                       
|--- | ----------------------
|13. | Employee Benefit Plans





|    |                         
|--- | ------------------------
|14. | Stock Based Compensation





F-31



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|                                         |                        |        |           |           |   |        |      |           |   |        |           |           |   |   |      |       |   |  |           |          |   |   |      |       |  
|---------------------------------------- | ---------------------- | ------ | --------- | --------- | - | ------ | ---- | --------- | - | ------ | --------- | --------- | - | - | ---- | ----- | - |  | --------- | -------- | - | - | ---- | ----- | -
|                                         |                        | 2004   |           | 2003      |   | 2002  
|                                         |                        |        |           |           |   |       
|                                         |                        |        |           | Weighted- |   |        |      | Weighted- |   |        |           | Weighted-
|                                         |                        |        |           | Average   |   |        |      | Average   |   |        |           | Average  
|                                         |                        |        |           | Exercise  |   |        |      | Exercise  |   |        |           | Exercise 
|                                         |                        | Shares |           | Price     |   | Shares |      | Price     |   | Shares |           | Price    
|                                         |                        |        |           |           |   |        |      |           |   |        |           |          
|Options outstanding at beginning of year |                        |        | 2,582,675 |           |   | $      | 4.78 |           |   |        | 1,788,135 |           |   | $ | 3.00 |       |   |  | 1,616,771 |          |   | $ | 3.00 |      
|                                         | Granted                |        |           | 790,000   |   |        |      | 8.75      |   |        |           | 1,127,500 |   |   |      | 6.46  |   |  |           | 481,000  |   |   |      | 4.12  |  
|                                         | Forfeited or cancelled |        |           | (80,894   | ) |        |      | (4.72     | ) |        |           | (23,200   | ) |   |      | (3.49 | ) |  |           | (177,129 | ) |   |      | (3.25 | )
|                                         | Exercised              |        |           | (314,181  | ) |        |      | (3.06     | ) |        |           | (309,760  | ) |   |      | (2.68 | ) |  |           | (132,507 | ) |   |      | (2.23 | )
|                                         |                        |        |           |           |   |        |      |           |   |        |           |           |   |   |      |       |   |  |           |          |   |   |      |      
|Options outstanding at end of year       |                        |        | 2,977,600 |           |   | $      | 6.01 |           |   |        | 2,582,675 |           |   | $ | 4.78 |       |   |  | 1,788,135 |          |   | $ | 3.00 |      
|                                         |                        |        |           |           |   |        |      |           |   |        |           |           |   |   |      |       |   |  |           |          |   |   |      |      
|Options exercisable at end of year       |                        |        | 792,557   |           |   | $      | 4.30 |           |   |        | 656,633   |           |   | $ | 3.14 |       |   |  | 658,126   |          |   | $ | 2.79 |      
|                                         |                        |        |           |           |   |        |      |           |   |        |           |           |   |   |      |       |   |  |           |          |   |   |      |      





|                |  |                     |           |                     |  |                |           |                |  |                |      |  |  |  |         |  |  |   |      | 
|--------------- |  | ------------------- | --------- | ------------------- |  | -------------- | --------- | -------------- |  | -------------- | ---- |  |  |  | ------- |  |  | - | ---- | 
|                |  | Options Outstanding |           | Options Exercisable
|                |  |                     |           |                    
|                |  | Number              |           | Weighted-           |  |                |           | Number         |  |               
|                |  | Outstanding at      |           | Average             |  | Weighted-      |           | Exercisable at |  | Weighted-     
|                |  | December 31,        |           | Remaining           |  | Average        |           | December 31,   |  | Average       
|Exercise Price  |  | 2004                |           | Contractual Life    |  | Exercise Price |           | 2004           |  | Exercise Price
|                |  |                     |           |                     |  |                |           |                |  |               
|$1.55 to $1.83  |  |                     | 119,000   |                     |  |                | 1.1 years |                |  | $              | 1.83 |  |  |  | 81,000  |  |  | $ | 1.83 | 
|2.38 to 3.41    |  |                     | 400,100   |                     |  |                | 3.8 years |                |  |                | 3.27 |  |  |  | 189,491 |  |  |   | 3.18 | 
|3.61 to 5.19    |  |                     | 691,000   |                     |  |                | 4.1 years |                |  |                | 4.12 |  |  |  | 320,733 |  |  |   | 4.05 | 
|6.31 to 6.73    |  |                     | 935,000   |                     |  |                | 5.7 years |                |  |                | 6.68 |  |  |  | 189,333 |  |  |   | 6.67 | 
|7.88 to 14.38   |  |                     | 832,500   |                     |  |                | 6.7 years |                |  |                | 8.75 |  |  |  | 12,000  |  |  |   | 7.97 | 
|                |  |                     |           |                     |  |                |           |                |  |                |      |  |  |  |         |  |  |   |      | 
|$1.55 to $14.38 |  |                     | 2,977,600 |                     |  |                | 5.2 years |                |  | $              | 6.01 |  |  |  | 792,557 |  |  | $ | 4.30 | 
|                |  |                     |           |                     |  |                |           |                |  |                |      |  |  |  |         |  |  |   |      | 



| |                 
| | ----------------
| | Restricted Stock



F-32



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|                         |                                                            |                                                      |  |                   |         |           |   |           |      |  |  |         |         |  |   |      |      | 
|------------------------ | ---------------------------------------------------------- | ---------------------------------------------------- |  | ----------------- | ------- | --------- | - | --------- | ---- |  |  | ------- | ------- |  | - | ---- | ---- | 
|                         |                                                            | Year Ended                                           |  | Year Ended       
|                         |                                                            | December 31, 2004                                    |  | December 31, 2003
|                         |                                                            |                                                      |  |                  
|                         |                                                            |                                                      |  | Weighted-         |         |           |   | Weighted-
|                         |                                                            | Number of                                            |  | Average           |         | Number of |   | Average  
|                         |                                                            | Shares                                               |  | Price             |         | Shares    |   | Price    
|                         |                                                            |                                                      |  |                   |         |           |   |          
|Restricted Stock Awards: |                                                            |                                                      |  |                   |         |           |   |           |      |  |  |         |         |  |   |     
|                         | Restricted shares outstanding at the beginning of the year |                                                      |  | 350,000           |         |           | $ | 5.23      |      |  |  |        |         |  | $ |     |     
|                         | Shares granted                                             |                                                      |  | 70,000            |         |           |   | 7.35      |      |  |  | 350,000 |         |  |   | 5.23 |     
|                         | Lapse of restrictions                                      |                                                      |  | (72,083           | )       |           |   | (5.23     | )    |  |  |        |         |  |   |     |     
|                         | Forfeitures                                                |                                                      |  | (22,917           | )       |           |   | (5.69     | )    |  |  |        |         |  |   |     |     
|                         |                                                            |                                                      |  |                   |         |           |   |           |      |  |  |         |         |  |   |     
|                         |                                                            | Restricted shares outstanding at the end of the year |  |                   | 325,000 |           |   | $         | 5.65 |  |  |         | 350,000 |  |   | $    | 5.23 | 
|                         |                                                            |                                                      |  |                   |         |           |   |           |      |  |  |         |         |  |   |     



|    |                           
|--- | --------------------------
|15. | Related Party Transactions









F-33



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










F-34



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                                   
|--- | ----------------------------------
|16. | Supplemental Cash Flow Information

|                                            |                                                                            |                         |       |      |  |      |       |        |  |   |       |        | 
|------------------------------------------- | -------------------------------------------------------------------------- | ----------------------- | ----- | ---- |  | ---- | ----- | ------ |  | - | ----- | ------ | 
|                                            |                                                                            | Year Ended December 31,
|                                            |                                                                            |                        
|                                            |                                                                            | 2004                    |       | 2003 |  | 2002
|                                            |                                                                            |                         |       |      |  |     
|Cash paid for interest                      |                                                                            | $                       | 1,634 |      |  | $    | 2,447 |        |  | $ | 3,974 |       
|Noncash investing and financing activities: |                                                                            |                         |       |      |  |      |       |        |  |   |       |       
|                                            | Dividends and accretion on mandatorily redeemable preferred stock          |                         |       | 726  |  |      |       | 3,448  |  |   |       | 2,952  | 
|                                            | Capitalized asset retirement obligations                                   |                         |       | 512  |  |      |       | 1,630  |  |   |       |       | 
|                                            | Conversion of senior credit facility to common stock                       |                         |       |     |  |      |       |       |  |   |       | 10,000 | 
|                                            | Conversion of preferred stock to common stock via exercise of
    warrants |                         |       |     |  |      |       | 18,534 |  |   |       |       | 
|                                            | Issuance of restricted stock                                               |                         |       | 514  |  |      |       | 1,831  |  |   |       |       | 
|                                            | Forfeitures of restricted stock                                            |                         |       | 131  |  |      |       |       |  |   |       |       | 
|                                            | Issuance of stock options                                                  |                         |       |     |  |      |       | 296    |  |   |       |       | 



|    |                             
|--- | ----------------------------
|17. | Other Assets and Liabilities



|                          |  |              |     |      |  |   |       | 
|------------------------- |  | ------------ | --- | ---- |  | - | ----- | 
|                          |  | December 31,
|                          |  |             
|                          |  | 2004         |     | 2003
|                          |  |              |     |     
|Gas imbalance receivables |  | $            |    |      |  | $ | 2,477 | 
|Other                     |  |              | 901 |      |  |   | 1,129 | 
|                          |  |              |     |      |  |   |       | 
|                          |  | $            | 901 |      |  | $ | 3,606 | 
|                          |  |              |     |      |  |   |       | 



|                          |  |             |       |      |  |   |       | 
|------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                          |  | December 31
|                          |  |            
|                          |  | 2004        |       | 2003
|                          |  |             |       |     
|Derivative liabilities    |  | $           | 870   |      |  | $ | 2,141 | 
|Gas imbalance liabilities |  |             |      |      |  |   | 2,064 | 
|Other                     |  |             | 1,355 |      |  |   | 1,193 | 
|                          |  |             |       |      |  |   |       | 
|                          |  | $           | 2,225 |      |  | $ | 5,398 | 
|                          |  |             |       |      |  |   |       | 



F-35



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)


Oil and Natural Gas Exploration and Production Activities






| |                                     
| | ------------------------------------
| | Costs Incurred and Capitalized Costs



|                             |                                                          |              |        |        |  |      |        |        |  |   |        |        | 
|---------------------------- | -------------------------------------------------------- | ------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                             |                                                          | December 31,
|                             |                                                          |             
|                             |                                                          | 2004         |        | 2003   |  | 2002
|                             |                                                          |              |        |        |  |     
|Costs incurred for the year: |                                                          |              |        |        |  |      |        |        |  |   |        |       
|                             | Exploration (including geological and geophysical costs) |              | $      | 30,189 |  |      | $      | 20,126 |  |   | $      | 12,693 | 
|                             | Property acquisition                                     |              |        | 6,226  |  |      |        | 4,850  |  |   |        | 2,510  | 
|                             | Development                                              |              |        | 50,497 |  |      |        | 22,285 |  |   |        | 13,301 | 
|                             | Asset retirement obligations                             |              |        | 513    |  |      |        | 269    |  |   |        |       | 
|                             |                                                          |              |        |        |  |      |        |        |  |   |        |       
|                             |                                                          | $            | 87,425 |        |  | $    | 47,530 |        |  | $ | 28,504 |       
|                             |                                                          |              |        |        |  |      |        |        |  |   |        |       



|                                                         |       |              |       |        |  |      |       |       |  |       |     |       |  |   |        |        |  |   |        |        | 
|-------------------------------------------------------- | ----- | ------------ | ----- | ------ |  | ---- | ----- | ----- |  | ----- | --- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                         |       | December 31, |       |        |  |     
|                                                         |       |              |       | Prior  |  |     
|                                                         |       | 2004         |       | 2003   |  | 2002 |       | Years |  | Total
|                                                         |       |              |       |        |  |      |       |       |  |      
|Property acquisition                                     |       | $            | 2,583 |        |  | $    | 1,525 |       |  | $     | 643 |       |  | $ | 10,879 |        |  | $ | 15,630 |       
|Exploration (including geological and geophysical costs) |       |              | 8,339 |        |  |      | 2,268 |       |  |       | 856 |       |  |   | 14,905 |        |  |   | 26,368 |       
|Drilling                                                 |       |              | 3,100 |        |  |      |      |       |  |       |    |       |  |   |       |        |  |   | 3,100  |       
|Capitalized interest                                     |       |              | 250   |        |  |      | 163   |       |  |       | 72  |       |  |   | 1,773  |        |  |   | 2,258  |       
|                                                         |       |              |       |        |  |      |       |       |  |       |     |       |  |   |        |        |  |   |        |       
|                                                         | Total |              | $     | 14,272 |  |      | $     | 3,956 |  |       | $   | 1,571 |  |   | $      | 27,557 |  |   | $      | 47,356 | 
|                                                         |       |              |       |        |  |      |       |       |  |       |     |       |  |   |        |        |  |   |        |       

Oil and Natural Gas Reserves and Related Financial Data






| |                                 
| | --------------------------------
| | Oil and Natural Gas Reserve Data



F-36



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)  (Continued)




|                                          |                                             |         |         |         |   |  |       |       |  
|----------------------------------------- | ------------------------------------------- | ------- | ------- | ------- | - |  | ----- | ----- | -
|                                          |                                             | Natural |         |        
|                                          |                                             | Gas     |         | Oil    
|                                          |                                             | (MMcf)  |         | (MBbls)
|                                          |                                             |         |         |        
|Proved reserves at December 31, 2001      |                                             |         | 88,594  |         |   |  | 3,748 |      
|                                          | Revisions of previous estimates             |         |         | (824    | ) |  |       | (31   | )
|                                          | Extensions, discoveries and other additions |         |         | 18,005  |   |  |       | 599   |  
|                                          | Sales of minerals-in-place                  |         |         | (556    | ) |  |       | (8    | )
|                                          | Production                                  |         |         | (5,791  | ) |  |       | (701  | )
|                                          |                                             |         |         |         |   |  |       |      
|Proved reserves at December 31, 2002      |                                             |         | 99,428  |         |   |  | 3,607 |      
|                                          | Revisions of previous estimates             |         |         | (6,148  | ) |  |       | 176   |  
|                                          | Extensions, discoveries and other additions |         |         | 22,479  |   |  |       | 1,067 |  
|                                          | Production                                  |         |         | (6,356  | ) |  |       | (720  | )
|                                          |                                             |         |         |         |   |  |       |      
|Proved reserves at December 31, 2003      |                                             |         | 109,403 |         |   |  | 4,130 |      
|                                          | Revisions of previous estimates             |         |         | (11,142 | ) |  |       | (642  | )
|                                          | Extensions, discoveries and other additions |         |         | 12,444  |   |  |       | 321   |  
|                                          | Production                                  |         |         | (8,830  | ) |  |       | (573  | )
|                                          |                                             |         |         |         |   |  |       |      
|Proved reserves at December 31, 2004      |                                             |         | 101,875 |         |   |  | 3,236 |      
|                                          |                                             |         |         |         |   |  |       |      
|Proved developed reserves at December 31: |                                             |         |         |         |   |  |       |      
|                                          | 2001                                        |         |         | 38,633  |   |  |       | 2,609 |  
|                                          | 2002                                        |         |         | 42,161  |   |  |       | 2,330 |  
|                                          | 2003                                        |         |         | 49,920  |   |  |       | 2,863 |  
|                                          | 2004                                        |         |         | 47,494  |   |  |       | 2,124 |  





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Standardized Measure of Discounted Future Net Cash Inflows
    and Changes Therein



F-37



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)  (Continued)


|                                                         |  |              |          |      |  |      |          |   |  |   |          |  
|-------------------------------------------------------- |  | ------------ | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                         |  | December 31,
|                                                         |  |             
|                                                         |  | 2004         |          | 2003 |  | 2002
|                                                         |  |              |          |      |  |     
|Future cash inflows                                      |  | $            | 766,344  |      |  | $    | 737,544  |   |  | $ | 601,081  |  
|Future production costs                                  |  |              | (159,697 | )    |  |      | (123,176 | ) |  |   | (82,689  | )
|Future development costs                                 |  |              | (79,868  | )    |  |      | (58,978  | ) |  |   | (48,668  | )
|Future income tax expense                                |  |              | (116,254 | )    |  |      | (138,118 | ) |  |   | (104,724 | )
|                                                         |  |              |          |      |  |      |          |   |  |   |          |  
|Future net cash inflows                                  |  |              | 410,525  |      |  |      | 417,272  |   |  |   | 365,000  |  
|10% annual discount for estimated timing of cash flows   |  |              | (170,816 | )    |  |      | (155,674 | ) |  |   | (125,302 | )
|                                                         |  |              |          |      |  |      |          |   |  |   |          |  
|Standardized measure of discounted future net cash flows |  | $            | 239,709  |      |  | $    | 261,598  |   |  | $ | 239,698  |  
|                                                         |  |              |          |      |  |      |          |   |  |   |          |  



|                  |  |         |      |       |  |   |       | 
|----------------- |  | ------- | ---- | ----- |  | - | ----- | 
|                  |  | Natural |      |      
|                  |  | Gas     |      | Oil  
|                  |  | (MMbtu) |      | (Bbl)
|                  |  |         |      |      
|December 31, 2004 |  | $       | 6.19 |       |  | $ | 43.46 | 
|December 31, 2003 |  |         | 5.83 |       |  |   | 32.55 | 
|December 31, 2002 |  |         | 4.74 |       |  |   | 31.25 | 





|                    |                                                                   |              |         |         |   |      |         |         |   |   |         |         |  
|------------------- | ----------------------------------------------------------------- | ------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                    |                                                                   | December 31,
|                    |                                                                   |             
|                    |                                                                   | 2004         |         | 2003    |   | 2002
|                    |                                                                   |              |         |         |   |     
|Beginning of period |                                                                   | $            | 261,598 |         |   | $    | 239,698 |         |   | $ | 120,924 |        
|                    | Sales of oil and natural gas produced, net of production costs    |              |         | (67,992 | ) |      |         | (51,126 | ) |   |         | (31,475 | )
|                    | Previously estimated development costs incurred during the period |              |         | 37,109  |   |      |         | 14,370  |   |   |         | 8,625   |  
|                    | Extensions and discoveries                                        |              |         | 27,089  |   |      |         | 91,383  |   |   |         | 60,872  |  
|                    | Sales of minerals-in-place                                        |              |         |        |   |      |         |        |   |   |         | (1,064  | )
|                    | Net change of prices and production costs                         |              |         | 38,501  |   |      |         | 20,822  |   |   |         | 136,808 |  
|                    | Change in future development costs                                |              |         | (40,086 | ) |      |         | (11,281 | ) |   |         | (8,000  | )
|                    | Changes in production rates (timing)                              |              |         | (33,270 | ) |      |         | (40,103 | ) |   |         | (19,539 | )
|                    | Revisions of previous quantity estimates                          |              |         | (47,324 | ) |      |         | (15,063 | ) |   |         | (2,876  | )
|                    | Accretion of discount                                             |              |         | 34,381  |   |      |         | 30,737  |   |   |         | 14,681  |  
|                    | Change in income taxes                                            |              |         | 27,452  |   |      |         | (14,537 | ) |   |         | (41,794 | )
|                    | Other                                                             |              |         | 2,251   |   |      |         | (3,302  | ) |   |         | 2,536   |  
|                    |                                                                   |              |         |         |   |      |         |         |   |   |         |        
|End of period       |                                                                   | $            | 239,709 |         |   | $    | 261,598 |         |   | $ | 239,698 |        
|                    |                                                                   |              |         |         |   |      |         |         |   |   |         |        

F-38



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION


Quarterly Financial Data (Unaudited)


|                      |         |                              |        |          |  |          |        |         |  |   |        |      |  |   |        |      | 
|--------------------- | ------- | ---------------------------- | ------ | -------- |  | -------- | ------ | ------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                      |         | Year Ended December 31, 2004
|                      |         |                             
|                      |         | Quarter                      |        | Quarter  |  | Quarter  |        | Quarter
|                      |         | 1                            |        | 2        |  | 3        |        | 4      
|                      |         |                              |        |          |  |          |        |        
|                      |         | Restated                     |        | Restated |  | Restated |        |        
|Revenue               |         | $                            | 16,820 |          |  | $        | 17,957 |         |  | $ | 17,267 |      |  | $ | 20,184 |     
|Operating income      |         |                              | 7,986  |          |  |          | 8,809  |         |  |   | 7,561  |      |  |   | 8,475  |     
|Net income            |         |                              | 4,925  |          |  |          | 5,138  |         |  |   | 4,491  |      |  |   | 5,096  |     
|Net income per share: |         |                              |        |          |  |          |        |         |  |   |        |      |  |   |        |     
|                      | Basic   |                              | $      | 0.13     |  |          | $      | 0.13    |  |   | $      | 0.11 |  |   | $      | 0.12 | 
|                      | Diluted |                              | $      | 0.12     |  |          | $      | 0.13    |  |   | $      | 0.11 |  |   | $      | 0.12 | 

|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |       |      | 
|--------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------ | -------- | ---- | -------- | ------ | -------- | ---- | - | ------ | ----- | ---- | - | ------ | ----- | ---- | 
|                      |                                                                                                        | Year Ended December 31, 2003                                                                          
|                      |                                                                                                        |                                                                                                       
|                      |                                                                                                        | Quarter                                                                                                |        | Quarter  |      | Quarter  |        | Quarter 
|                      |                                                                                                        | 1                                                                                                      |        | 2        |      | 3        |        | 4       
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |         
|                      |                                                                                                        | Restated                                                                                               |        | Restated |      | Restated |        | Restated
|Revenue               |                                                                                                        | $                                                                                                      | 14,677 |          |      | $        | 12,170 |          |      | $ | 13,213 |       |      | $ | 11,617 |      
|Operating income      |                                                                                                        |                                                                                                        | 7,274  |          |      |          | 4,607  |          |      |   | 5,307  |       |      |   | 4,722  |      
|Net income:           |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      | Income available to common stockholders before cumulative effect
    of change in accounting principle |                                                                                                        |        | 5,129    |      |          |        | 2,081    |      |   |        | 3,060 |      |   |        | 4,044 |     
|                      | Cumulative effect of change in accounting principle                                                    |                                                                                                        |        | 268      |      |          |        |         |      |   |        |      |      |   |        |      |     
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      | Net income available to common stockholders                                                            |                                                                                                        | $      | 5,397    |      |          | $      | 2,081    |      |   | $      | 3,060 |      |   | $      | 4,044 |     
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|Net income per share: |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      | Basic:                                                                                                 |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |       |     
|                      |                                                                                                        | Income available to common stockholders before cumulative effect
    of change in accounting principle |        | $        | 0.26 |          |        | $        | 0.12 |   |        | $     | 0.14 |   |        | $     | 0.13 | 
|                      |                                                                                                        | Cumulative effect of change in accounting principle                                                    |        |          | 0.01 |          |        |          |     |   |        |       |     |   |        |       |     | 
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      |                                                                                                        | Net income available to common stockholders                                                            |        | $        | 0.27 |          |        | $        | 0.12 |   |        | $     | 0.14 |   |        | $     | 0.13 | 
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      | Diluted:                                                                                               |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |       |     
|                      |                                                                                                        | Income available to common stockholders before cumulative effect
    of change in accounting principle |        | $        | 0.19 |          |        | $        | 0.09 |   |        | $     | 0.12 |   |        | $     | 0.12 | 
|                      |                                                                                                        | Cumulative effect of change in accounting principle                                                    |        |          | 0.01 |          |        |          |     |   |        |       |     |   |        |       |     | 
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      
|                      |                                                                                                        | Net income available to common stockholders                                                            |        | $        | 0.20 |          |        | $        | 0.09 |   |        | $     | 0.12 |   |        | $     | 0.12 | 
|                      |                                                                                                        |                                                                                                        |        |          |      |          |        |          |      |   |        |       |      |   |        |      

F-39



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##### Table of Contents



BRIGHAM EXPLORATION COMPANY


SUPPLEMENTAL QUARTERLY FINANCIAL
INFORMATION  (Continued)




|                                       |                                                               |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          |  |   |        |      |  |   |        |      | 
|-------------------------------------- | ------------------------------------------------------------- | ---------------------------- | - | ------ | --------- |  | - | ----------- | ---- |  | -------- | ------ | ---- | ----------- | - | ------ | -------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                       |                                                               | Year Ended December 31, 2004 |  
|                                       |                                                               |                              |  
|                                       |                                                               | Quarter 1                    |   |        | Quarter 2 |  |   | Quarter 3   |     
|                                       |                                                               |                              |   |        |           |  |   |             |     
|                                       |                                                               | As Reported                  |   |        | Restated  |  |   | As Reported |      |  | Restated |        |      | As Reported |   |        | Restated | 
|                                       |                                                               |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          | 
|                                       |                                                               | (Unaudited)                  |  
|Consolidated Statements of Operations: |                                                               |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          |  |   |        |      |  |   |       
|                                       | Depletion of oil and natural gas properties                   |                              | $ | 4,880  |           |  | $ | 5,124       |      |  | $        | 5,623  |      |             | $ | 5,524  |          |  | $ | 5,871  |      |  | $ | 5,860  |     
|                                       | Deferred income tax benefit (expense)                         |                              |   | (2,500 | )         |  |   | (2,420      | )    |  |          | (2,683 | )    |             |   | (2,714 | )        |  |   | (2,051 | )    |  |   | (2,056 | )   
|                                       | Net income (loss) available to common stockholders            |                              |   | 5,089  |           |  |   | 4,925       |      |  |          | 5,070  |      |             |   | 5,138  |          |  |   | 4,485  |      |  |   | 4,491  |     
|                                       | Net income (loss) per share available to common stockholders: |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          |  |   |        |      |  |   |        |     
|                                       |                                                               | Basic                        |   | $      | 0.13      |  |   | $           | 0.13 |  |          | $      | 0.13 |             |   | $      | 0.13     |  |   | $      | 0.11 |  |   | $      | 0.11 | 
|                                       |                                                               |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          | 
|                                       |                                                               | Diluted                      |   | $      | 0.13      |  |   | $           | 0.12 |  |          | $      | 0.13 |             |   | $      | 0.13     |  |   | $      | 0.11 |  |   | $      | 0.11 | 
|                                       |                                                               |                              |   |        |           |  |   |             |      |  |          |        |      |             |   |        |          | 

|                                                              |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |       |  |  |   |       |  |  |   |       | 
|------------------------------------------------------------- | -------------------------------------------------- | ---------------------------- | - | ----- | --------- |  | - | ----------- |  |  | --------- | ----- |  | ----------- | - | ----- | -------- |  | - | ----------- |  |  | -------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                              |                                                    | Year Ended December 31, 2003 |  
|                                                              |                                                    |                              |  
|                                                              |                                                    | Quarter 1                    |   |       | Quarter 2 |  |   | Quarter 3   |  |  | Quarter 4 |      
|                                                              |                                                    |                              |   |       |           |  |   |             |  |  |           |      
|                                                              |                                                    | As reported                  |   |       | Restated  |  |   | As reported |  |  | Restated  |       |  | As reported |   |       | Restated |  |   | As reported |  |  | Restated |      
|                                                              |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |      
|                                                              |                                                    | (Unaudited)                  |  
|Consolidated Statements of Operations:                        |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |       |  |  |   |       |  |  |   |      
|                                                              | Depletion of oil and natural gas properties        |                              | $ | 4,102 |           |  | $ | 4,221       |  |  | $         | 3,799 |  |             | $ | 4,103 |          |  | $ | 3,952       |  |  | $        | 4,235 |  |  | $ | 5,119 |  |  | $ | 4,260 | 
|                                                              | Deferred income tax benefit (expense)              |                              |   |      |           |  |   |            |  |  |           |      |  |             |   |      |          |  |   |            |  |  |          |      |  |  |   | 1,636 |  |  |   | 1,223 | 
|                                                              | Net income (loss) available to common stockholders |                              |   | 5,516 |           |  |   | 5,397       |  |  |           | 2,385 |  |             |   | 2,081 |          |  |   | 3,343       |  |  |          | 3,060 |  |  |   | 3,598 |  |  |   | 4,044 | 
|Net income (loss) per share available to common stockholders: |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |       |  |  |   |       |  |  |   |      
|                                                              | Basic                                              |                              | $ | 0.28  |           |  | $ | 0.27        |  |  | $         | 0.12  |  |             | $ | 0.12  |          |  | $ | 0.16        |  |  | $        | 0.14  |  |  | $ | 0.11  |  |  | $ | 0.13  | 
|                                                              |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |      
|                                                              | Diluted                                            |                              | $ | 0.20  |           |  | $ | 0.20        |  |  | $         | 0.10  |  |             | $ | 0.09  |          |  | $ | 0.13        |  |  | $        | 0.12  |  |  | $ | 0.10  |  |  | $ | 0.12  | 
|                                                              |                                                    |                              |   |       |           |  |   |             |  |  |           |       |  |             |   |       |          |  |   |             |  |  |          |      

F-40



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##### Table of Contents



INDEX TO EXHIBITS


|       |       |  |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                    
|------ | ----- |  |  | - | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  |  |   | Description
|       |       |  |  |   |            
|       | 3.1   |  |  |  |             | Certificate of Incorporation (filed as Exhibit 3.1 to
    Brighams Registration Statement on Form S-1
    (Registration No. 333-22491), and incorporated herein by
    reference).                                                                                                                                                                                                
|       | 3.2   |  |  |  |             | Certificates of Amendment to Certificate of Incorporation (filed
    as Exhibit 3.1.1 to Brighams Registration Statement
    on Form S-3 (Registration No. 333-37558), and
    incorporated herein by reference).                                                                                                                                                                 
|       | 3.3   |  |  |  |             | Bylaws (filed as Exhibit 3.2 to Brighams Registration
    Statement on Form S-1 (Registration No. 333-22491),
    and incorporated herein by reference).                                                                                                                                                                                                                          
|       | 4.1   |  |  |  |             | Form of Common Stock Certificate (filed as Exhibit 4.1 to
    Brighams Registration Statement on Form S-1
    (Registration No. 333-22491), and incorporated herein by
    reference).                                                                                                                                                                                            
|       | 4.2   |  |  |  |             | Certificate of Designations of Series A Preferred Stock
    (Par Value $.01 Per Share) of Brigham Exploration Company filed
    October 31, 2000 (filed as Exhibit 4.1 to
    Brighams Current Report on Form 8-K, as amended
    (filed November 8, 2000), and incorporated herein by
    reference).                                                                            
|       | 4.3   |  |  |  |             | Certificate of Amendment of Certificate of Designations of
    Series A Preferred Stock (Par Value $.01 Per Share) of
    Brigham Exploration Company, filed March 2, 2001 (filed as
    Exhibit 4.2.1 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2000 (filed
    March 23, 2001), and incorporated herein by reference).                         
|       | 4.4   |  |  |  |             | Certificate of Designations of Series B Preferred Stock
    (Par Value $.01 Per Share) of Brigham Exploration Company filed
    December 20, 2002 (filed as Exhibit 4.4 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 (filed March 31, 2003) and
    incorporated herein by reference).                                                     
|       | 4.5   |  |  |  |             | Certificate of Elimination of Certificate of Designations of
    Series B Preferred Stock of Brigham Exploration Company,
    dated June 4, 2004, (filed as Exhibit 99.2 to
    Brighams Current Report on Form 8-K (filed
    July 20, 2004), and incorporated herein by reference).                                                                                             
|       | 10.1  |  |  |  |             | Amended and Restated Agreement of Limited Partnership of Brigham
    Oil & Gas, L.P., dated December 30, 1997 by and
    among Brigham, Inc., Brigham Holdings I, L.L.C. and Brigham
    Holdings II, L.L.C. (filed as Exhibit 10.1.4 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 1998, and incorporated herein by
    reference)              
|       | 10.2* |  |  |  |             | Consulting Agreement dated May 1, 1997, by and between
    Brigham Oil & Gas, L.P. and Harold D. Carter (filed as
    Exhibit 10.4 to Brighams Registration Statement on
    Form S-1 (Registration No. 33-53873), and incorporated
    herein by reference).                                                                                                                     
|       | 10.3* |  |  |  |             | Letter agreement, dated as of March 20, 2000, setting forth
    amendments effective January 1, 2000, to the Consulting
    Agreement, dated May 1, 1997, by and between Brigham
    Oil & Gas, L.P. and Harold D. Carter (filed as
    Exhibit 10.5.1 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 1999, and
    incorporated herein by reference).
|       | 10.4* |  |  |  |             | Letter agreement, setting forth amendments to the Consulting
    Agreement, dated May 1, 1997, by and between Brigham
    Oil & Gas, L.P. and Harold D. Carter. (filed as
    Exhibit 10.4 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2003 and
    incorporated herein by reference                                                               
|       | 10.5* |  |  |  |             | Employment Agreement, by and between Brigham Exploration Company
    and Ben M. Brigham (filed as Exhibit 10.7 to Brighams
    Registration Statement on Form S-1 (Registration
    No. 333-22491), and incorporated herein by reference).                                                                                                                                        
|       | 10.6* |  |  |  |             | 1997 Incentive Plan of Brigham Exploration Company as amended
    through April 9, 2003 (filed as Appendix B to
    Brighams Definitive Proxy Statement on Schedule 14-A
    on May 7, 2003 and incorporated herein by reference).                                                                                                                                                
|       | 10.7* |  |  |  |             | Form of Option Agreement for certain executive officers (filed
    as Exhibit 10.9.1 to Brighams Registration Statement
    on Form S-1 (Registration No. 333-22491), and
    incorporated herein by reference).                                                                                                                                                                  
|       | 10.8* |  |  |  |             | Form of Restricted Stock Agreement for certain executive
    officers dated as of October 27, 2000 (filed as
    Exhibit 10.8.2 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2000 (filed
    March 23, 2001), and incorporated herein by reference).                                                                                                



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##### Table of Contents



|       |        |  |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | ------ |  |  | - | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        |  |  |   | Description
|       |        |  |  |   |            
|       | 10.9   |  |  |  |             | Two Bridgepoint Lease Agreement dated September 30, 1996,
    by and between Investors Life Insurance Company of North America
    and Brigham Oil & Gas, L.P. (filed as
    Exhibit 10.14 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-22491), and
    incorporated herein by reference).                                                                                                                                                                                                           
|       | 10.10  |  |  |  |             | First Amendment to Two Bridge Point Lease Agreement dated
    April 11, 1997 between Investors Life Insurance Company of
    North America and Brigham Oil & Gas, L.P. (filed as
    Exhibit 10.9.1 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-53873), and
    incorporated herein by reference).                                                                                                                                                                                                  
|       | 10.11  |  |  |  |             | Second Amendment to Two Bridge Point Lease Agreement dated
    October 13, 1997 between Investors Life Insurance Company
    of North America and Brigham Oil & Gas, L.P. (filed as
    Exhibit 10.9.2 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-53873), and
    incorporated herein by reference).                                                                                                                                                                                               
|       | 10.12  |  |  |  |             | Letter dated April 17, 1998 exercising Right of First
    Refusal to Lease 3rd Option Space (filed as
    Exhibit 10.9.3 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-53873), and
    incorporated herein by reference).                                                                                                                                                                                                                                                                           
|       | 10.13 |  |  |  |             | Third Amendment to Two Bridge Point Lease Agreement dated
    November 1998 between Hub Properties Trust and Brigham
    Oil & Gas, L.P.                                                                                                                                                                                                                                                                                                                                                                                          
|       | 10.14 |  |  |  |             | Fourth Amendment to Two Bridge Point Lease Agreement dated
    February 7, 2002 between Hub Properties Trust and Brigham
    Oil & Gas, L.P.                                                                                                                                                                                                                                                                                                                                                                                      
|       | 10.15 |  |  |  |             | Fifth Amendment to Two Bridge Point Lease Agreement dated
    December 20, 2004 between Hub Properties Trust, a Maryland
    real estate investment trust, and Brigham Oil & Gas,
    L.P.                                                                                                                                                                                                                                                                                                                                        
|       | 10.16  |  |  |  |             | Form of Indemnity Agreement between the Registrant and each of
    its executive officers (filed as Exhibit 10.28 to
    Brighams Registration Statement on Form S-1
    (Registration No. 333-22491), and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                
|       | 10.17  |  |  |  |             | Registration Rights Agreement dated February 26, 1997 by
    and among Brigham Exploration Company, General Atlantic
    Partners III L.P., GAP-Brigham Partners, L.P., RIMCO
    Partners, L.P. II, RIMCO Partners L.P. III, and RIMCO
    Partners, L.P. IV, Ben M. Brigham, Anne L. Brigham, Harold D.
    Carter, Craig M. Fleming, David T. Brigham and Jon L. Glass
    (filed as Exhibit 10.29 to Brighams Registration
    Statement on Form S-1 (Registration No. 333-22491),
    and incorporated herein by reference).
|       | 10.18* |  |  |  |             | 1997 Director Stock Option Plan, as amended as of
    April 9, 2003. (filed as Exhibit 10.15 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 2003 and incorporated herein by reference                                                                                                                                                                                                                                                                                                            
|       | 10.19  |  |  |  |             | Form of Employee Stock Ownership Agreement (filed as
    Exhibit 10.31 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-22491), and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                               
|       | 10.20  |  |  |  |             | Agreement and Assignment of Interest in Geophysical Exploration
    Agreement, Esperson Dome Project, dated November 1, 1994,
    by and between Brigham Oil & Gas, L.P. and Vaquero Gas
    Company (filed as Exhibit 10.33 to Brighams
    Registration Statement on Form S-1 (Registration
    No. 333-22491), and incorporated herein by reference).                                                                                                                                                                         
|       | 10.21  |  |  |  |             | Agreement and Partial Termination of Agreement and Assignment of
    Interest in Geophysical Exploration Agreement, Esperson Dome
    Project dated March 14, 2003, by and between Brigham
    Oil & Gas, L.P. and Vaquero Gas Company, Incorporated
    (filed as Exhibit 10.53 to Brighams Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2003 and
    incorporated herein by reference)                                                                                                                     
|       | 10.22  |  |  |  |             | Proposed Trade Structure, RIMCO/ Tigre Project, Vermillion
    Parish, Louisiana, among Brigham Oil & Gas, L.P., Tigre
    Energy Corporation and Resource Investors Management Company
    (filed as Exhibit 10.36 to Brighams Registration
    Statement on Form S-1 (Registration No. 333-22491),
    and incorporated herein by reference).                                                                                                                                                                                  
|       | 10.23  |  |  |  |             | Letter relating to Proposed Trade Structure, RIMCO/ Tigre
    Project, dated January 31, 1997, from Resource Investors
    Management Company to Brigham Oil & Gas, L.P. (filed as
    Exhibit 10.36.1 to Brighams Registration Statement on
    Form S-1 (Registration No. 333-22491), and
    incorporated herein by reference).                                                                                                                                                                                               



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##### Table of Contents



|       |       |  |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | ----- |  |  | - | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  |  |   | Description
|       |       |  |  |   |            
|       | 10.24 |  |  |  |             | Agreement dated March 6, 2000 by and between RIMCO
    Production Co., Tigre Energy Corporation and Brigham
    Oil & Gas, L.P. regarding modifications to the Proposed
    Trade Structure, RIMCO/ Tigre Project, dated January 31,
    1997 (filed as Exhibit 10.31.2 to Brighams Annual
    Report on Form 10-K for the year ended December 31,
    1999 and incorporated by reference herein).                          
|       | 10.25 |  |  |  |             | Form Change of Control Agreement dated as of
    September 20, 1999 between Brigham Exploration Company and
    certain Officers (filed as Exhibit 10.3 to Brighams
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 1999 and incorporated by reference herein).                                                                                                                            
|       | 10.26 |  |  |  |             | Joint Development Agreement, dated as of February 10, 1999,
    by and between Brigham Oil & Gas, L.P. and Aspect
    Resources LLC. (filed as Exhibit 10.65 to Brighams
    Annual Report on Form 10-K for the year ended
    December 31, 1999, and incorporated herein by reference).                                                                                                                                    
|       | 10.27 |  |  |  |             | First Amendment, dated as of May 10, 1999, to that certain
    Joint Development Agreement entered into effective as of
    February 10, 1999, by and between Brigham Oil &
    Gas, L.P. and Aspect Resources LLC. (filed as
    Exhibit 10.65.1 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 1999, and
    incorporated herein by reference).                                               
|       | 10.28 |  |  |  |             | Acquisition and Participation Agreement dated October 21,
    1999, by and between Brigham Oil & Gas, L.P. and Aspect
    Resources LLC. (filed as Exhibit 10.65.2 to Brighams
    Annual Report on Form 10-K for the year ended
    December 31, 1999, and incorporated herein by reference).                                                                                                                              
|       | 10.29 |  |  |  |             | Letter agreement, dated as of December 30, 1999, regarding
    amendments to Joint Development Agreement, dated as of
    February 10, 1999, as amended, by and between Brigham
    Oil & Gas, L.P. and Aspect Resources LLC. (filed as
    Exhibit 10.65.3 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 1999, and
    incorporated herein by reference).                                     
|       | 10.30 |  |  |  |             | Letter agreement dated as of September 6, 1999 between
    Brigham Oil & Gas, L.P. and Brigham Land Management
    Company, Inc. regarding work to be performed within
    Brighams Angelton Project. (filed as Exhibit 10.66 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 1999, and incorporated herein by
    reference).                                                              
|       | 10.31 |  |  |  |             | Registration Rights Agreement dated November 1, 2000 by and
    between Brigham Exploration Company, DLJ MB Funding III,
    Inc., and DLJ ESC II, LP. (filed as Exhibit 10.10 to
    Brighams Current Report on Form 8-K, as amended
    (filed November 8, 2000), and incorporated herein by
    reference).                                                                                                              
|       | 10.32 |  |  |  |             | First Amendment to Registration Rights Agreement, dated
    March 5, 2001, by and among Brigham Exploration Company,
    DLJMB Funding III, Inc., DLJ Merchant Banking Partners III,
    LP, DLJ ESC II, LP and DLJ Offshore Partners III, CV
    (filed as Exhibit 10.71 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2000 (filed
    March 23, 2001), and incorporated herein by reference).
|       | 10.33 |  |  |  |             | Exchange Agreement, dated November 21, 2002 between Brigham
    Exploration Company, Brigham Oil & Gas, L.P. and Shell
    Capital Inc. (filed as Exhibit 10.47 to Brighams
    Annual Report on Form 10-K for the year ended
    December 31, 2002 and incorporated herein by reference).                                                                                                                                  
|       | 10.34 |  |  |  |             | Omnibus Agreement dated November 21, 2002 between Brigham
    Exploration Company, Brigham Oil & Gas, L.P. and
    certain Credit Suisse First Boston entities (filed as
    Exhibit 10.48 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                       
|       | 10.35 |  |  |  |             | Securities Purchase Agreement dated December 20, 2002
    between Brigham Exploration Company and certain Credit Suisse
    First Boston Entities (filed as Exhibit 10.49 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 and incorporated herein by
    reference).                                                                                                                    
|       | 10.36 |  |  |  |             | Registration Rights Agreement dated December 20, 2002
    between Brigham Exploration Company and Shell Capital Inc.
    (filed as Exhibit 10.50 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                                                                 



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##### Table of Contents



|       |        |  |  |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | ------ |  |  | - | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        |  |  |   | Description
|       |        |  |  |   |            
|       | 10.37  |  |  |  |             | Second Amendment to Registration Rights Agreement dated
    December 21, 2002 between Brigham Exploration Company and
    Credit Suisse First Boston Entities (filed as Exhibit 10.51
    to Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 and incorporated herein by
    reference).                                                                                                                                                                                             
|       | 10.38  |  |  |  |             | Third Amendment to Registration Rights Agreement May 24,
    2004 between Brigham Exploration Company and Credit Suisse First
    Boston Entities (filed as Exhibit 99.1 to Brighams
    Current Report on Form 8-K (filed July 20, 2004), and
    incorporated herein by reference).                                                                                                                                                                                                                            
|       | 10.39  |  |  |  |             | Stockholders Voting Agreement dated December 20, 2002
    between Brigham Exploration Company, certain Credit Suisse First
    Boston entities, Ben M. and Anne L. Brigham, Harold D. Carter,
    General Atlantic Partners, III, L.P., GAP-Brigham Partners,
    L.P. GAP Co Investment Partners II, L.P., Aspect Resources,
    LLC and certain officers (filed as Exhibit 10.52 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 and incorporated herein by
    reference).
|       | 10.40  |  |  |  |             | Second Amended and Restated Credit Agreement, dated
    March 21, 2003 between Brigham Oil & Gas, L.P.,
    Société Générale, Societe Generale, The
    Royal Bank of Scotland plc and Bank of America, N.A. (filed as
    Exhibit 10.53 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                                                              
|       | 10.41 |  |  |  |             | Third Amended and Restated Credit Agreement, dated
    January 21, 2005 between Brigham Oil & Gas, L.P.,
    Société Générale, Societe Generale, The
    Royal Bank of Scotland plc and Bank of America, N.A.                                                                                                                                                                                                                                                                                                     
|       | 10.42  |  |  |  |             | Amended and Restated Subordinated Credit Agreement, dated
    March 21, 2003 between Brigham Oil & Gas, L.P.,
    and The Royal Bank of Scotland plc (filed as Exhibit 10.54
    to Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 and incorporated herein by
    reference).                                                                                                                                                                                                      
|       | 10.43  |  |  |  |             | First Amendment to Amended and Restated Subordinated Credit
    Agreement dated December 9, 2003 between Brigham
    Oil & Gas, L.P., and The Royal Bank of Scotland plc
    (filed as Exhibit 10.38 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 2002 and
    incorporated herein by reference).                                                                                                                                                                                  
|       | 10.44  |  |  |  |             | Second Amendment to Amended and Restated Subordinated Credit
    Agreement dated May 4, 2004 between Brigham Oil &
    Gas, L.P., and The Royal Bank of Scotland plc (filed as
    Exhibit 99.3 to Brighams Current Report on
    Form 8-K (filed July 20, 2004), and incorporated
    herein by reference).                                                                                                                                                                                                     
|       | 10.45 |  |  |  |             | Second Amended and Restated Subordinated Credit Agreement dated
    January 21, 2005 between Brigham Oil & Gas, L.P.,
    and The Royal Bank of Scotland plc.                                                                                                                                                                                                                                                                                                                                                     
|       | 21    |  |  |  |             | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | 23.1  |  |  |  |             | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 23.2  |  |  |  |             | Consent of Cawley Gillespie & Associates, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 31.1  |  |  |  |             | Certification of Chief Executive Officer pursuant to Sec. 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                               
|       | 31.2  |  |  |  |             | Certification of Chief Financial Officer pursuant to Sec. 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                               
|       | 32.1  |  |  |  |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. SECTION 1350                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | 32.2  |  |  |  |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. SECTION 1350                                                                                                                                                                                                                                                                                                                                                                                                                                   






|  |                                          
|- | -----------------------------------------
|* | Management contract or compensatory plan.



|  |                
|- | ---------------
| | Filed herewith.