##### 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, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number: 000-22433
 
 Brigham Exploration Company
 (Exact name of Registrant as Specified in its Charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    75-2692967(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 RegisteredCommon Stock, $0.01 par value
    
    NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Act:
None  (Title of Class)
  o þ
  o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
  o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



BRIGHAM EXPLORATION COMPANY
 TABLE OF CONTENTS
 PagePart IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    20Item 2. Properties
    
    
    21Item 3. Legal Proceedings
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Executive
Officers of the Registrant
    
    
    33Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    34Item 6. Selected Consolidated Financial Data
    
    
    36Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    61Item 8. Financial Statements and Supplementary Data
    
    
    64Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    64Item 9A. Controls and Procedures
    
    
    65Item 9B. Other Information
    
    
    65Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    65Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    66Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    66Item 14. Principal Accounting Fees and Services
    
    
    66Part IVItem 15. Exhibits, Financial Statement Schedules
    
    
    66Glossary of Oil and Gas Terms
    
    
    67Signatures
    
    
    69Index to Financial Statements
    
    
    F-1Exhibit 21Exhibit 23.1Exhibit 23.2Exhibit 23.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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BRIGHAM EXPLORATION COMPANY
 2007 ANNUAL REPORT ON FORM 10-K
 
 PART I
 
 Item 1. Business
 Overview
     At December 31, 20072007%
    
    
    Productive
    
    
    3-D
    
    
    AverageProved
    
    
    Pre-tax
    
    
    Natural
    
    
    Wells
    
    
    Seismic
    
    
    DailyProvince
    
    Reserves
    
    
    PV10%(a)(b)
    
    
    Gas
    
    
    Gross
    
    
    Net
    
    
    Data
    
    
    Production(Bcfe)
    
    
    (Millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Sq. Miles)
    
    
    (MMcfe)Onshore Gulf Coast
    
    
    86.6
    
    
    $
    319.4
    
    
    
    83
    %
    
    
    94
    
    
    
    45.3
    
    
    
    4,423
    
    
    
    30.3Anadarko Basin
    
    
    34.6
    
    
    
    82.7
    
    
    
    94
    %
    
    
    98
    
    
    
    28.4
    
    
    
    2,381
    
    
    
    8.2Rocky Mountains
    
    
    11.0
    
    
    
    50.4
    
    
    
    12
    %
    
    
    9
    
    
    
    5.1
    
    
    
    358
    
    
    
    0.8West Texas and Other
    
    
    8.0
    
    
    
    39.1
    
    
    
    14
    %
    
    
    83
    
    
    
    25.5
    
    
    
    4,669
    
    
    
    2.3Total
    
    
    140.2
    
    
    $
    491.6
    
    
    
    76
    %
    
    
    284
    
    
    
    104.3
    
    
    
    11,831
    
    
    
    41.6
 
 (a)
    
    The prices used to calculate this measure were $96.01 per barrel of oil and $7.10 per MMbtu
of natural gas, both as of December 31, 2007.(b)
    
    The standardized measure for our proved reserves at December 31, 2007 was $394.5 million. See
Item 2. Properties  Reconciliation of Standardized Measure to Pre-tax PV10% for a
definition of pre-tax PV10% and a reconciliation of our standardized measure to our pre-tax
PV10% value.   2




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Business Strategy
  
    
    Focus on Core Provinces and Trends.We have built our multi-year inventory of drilling
prospects by leveraging our staffs strong technical knowledge base in the following four
core provinces and associated trends: 1) our Onshore Gulf Coast province, which includes
the Vicksburg trend in South Texas, the Frio trend in and around Matagorda County, Texas
and the Miocene and Upper Oligocene trends in Southern Louisiana; 2) our Anadarko Basin
province in the Texas Panhandle and northwest Oklahoma, including the Hunton and Springer
trends; 3) our Rocky Mountains province, which includes the Williston Basin in North Dakota
and Montana and the Powder River Basin in Wyoming; and 4) our West Texas province. Further,
we believe our focus on these four core provinces and associated trends provides us with
important drilling investment diversification. Since 1999, our exploration success in these
trends has resulted in seven significant field discoveries and a resulting multi-year
inventory of development drilling locations. We plan to focus the majority of our near term
capital expenditures in these trends, where we believe our accumulated knowledge base
provides us with a substantial competitive advantage.
    
    Internally Generate Inventory of High Quality Exploratory Prospects.Utilizing 3-D
seismic data and other advanced technologies, our highly skilled staff of 13 geologists and
four geophysicists generates the majority of our drilling prospects. We believe that our
seven significant field discoveries reflect the quality and depth of our 3-D delineated
prospect inventory as well our ability to continue to generate such opportunities.
    
    Leverage our Operational Expertise.Our staff is very proficient with state-of-the-art
drilling and completion techniques, including directional drilling, horizontal drilling and
multi-stage fracture stimulations, including those utilizing swell packers. We have
demonstrated a successful track record of drilling in difficult, deep
and highly pressured environments. Since 1997, we have successfully utilized directional
drilling with extensive fracture stimulations at depths of between 13,000 and 14,000 feet in
the pressured Vicksburg trend of South Texas, where we have proven up over 234.8 Bcfe in
gross reserves by drilling 40 wells to date.
  3




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
    
    Evaluate and Selectively Pursue New Potential Plays.We have a 17 year track record of
successfully identifying, evaluating and initiating new oil and natural gas plays. We are
particularly interested in those plays with attractive exploration and development
potential that complement our current exploration, development and production activities.
After identifying such a play, we will often selectively build an acreage position in the
play. Our current Vicksburg and Hunton plays are examples of successful plays where our
position in the play was identified and originated by us. We believe our recent acreage
acquisitions in the Williston Basin located in North Dakota and Montana and the Powder
River Basin located in Wyoming, as well as our joint ventures in Southern Louisiana are
examples of our new potential plays that should lead to growth in our reserves and
production. For 2008, we currently plan to spend approximately
$70.2 million, or approximately 58% of our 2008 exploration and development expenditures, in the Bakken, the Mowry and Southern
Louisiana.
    
    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. In recent years, our exploratory drilling success has
generated a multi-year inventory of development drilling locations. Over the three year
period ended December 31, 2007, approximately 63% of our drilling expenditures 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 2008, we
are forecasting that approximately 71% of our planned drilling capital expenditures that we
announced at the beginning of the year will fund development activities.
    
    Continue to Actively Drill Our Multi-Year Prospect Inventory.To capitalize on our
multi-year inventory of exploration and development locations, we plan to continue with the
accelerated level of drilling activity that we began in 2004. In 2008, we currently plan to
spend $102.6 million to drill and hopefully complete 33 wells.
    
    Enhance Returns Through Operational Control.We seek to maintain operational control of
our exploration and drilling activities. As operator, we retain more control over the
timing and selection of drilling prospects, which enhances our ability to maximize our
return on invested capital. Since we generate most 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, 2007, we operated approximately 61% of our proved reserves.
Further, in 2007 we operated 92% of the net wells we drilled, representing 96% of our
drilling capital expenditures. We expect to operate approximately 94% of our net wells
planned for 2008, representing approximately 93% of our planned 2008 drilling capital
expenditures.
 Exploration and Development Staff
   Operations and Operations Staff
   4




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Oil and Natural Gas Market and Major Customers
      Competition
   5




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Operating Hazards and Uninsured Risks
    Governmental Regulation
    6




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Environmental Matters
     7




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Formation
  Facilities
  Employees
  Website Access
   8




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Item 1A. Risk Factors
  Oil and natural gas prices are volatile and a substantial reduction in these prices could
adversely affect our results and the price of our common stock.
     
    
    worldwide and domestic supplies of oil and natural gas;
    
    actions taken by foreign oil and natural gas producing nations;
    
    political conditions and events (including instability or armed conflict) in
oil-producing or natural gas-producing regions;
    
    the level of global and domestic oil and natural gas inventories;
    
    the price and level of foreign imports including liquefied natural gas imports;
    
    the level of consumer demand;
    
    the price and availability of alternative fuels;
    
    the availability of pipeline or other takeaway capacity;
    
    weather conditions;
    
    domestic and foreign governmental regulations and taxes; and
    
    the overall worldwide and domestic 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;
 
    
    reduce the carrying value of our oil and natural gas properties; and
    
    limit our access to sources of capital, such as equity and long-term debt.
  9




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We may have difficulty financing our planned capital expenditures, which could adversely affect
our business.
  Our exploration, development and drilling efforts and the operation of our wells may not be
profitable or achieve our targeted returns.
   
    
    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.
  10




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Exploratory drilling is a speculative activity that may not result in commercially productive
reserves and may require expenditures in excess of budgeted amounts.
  Although our oil and natural gas reserve data is independently estimated, these estimates may
still prove to be inaccurate.
  
    
    expected reservoir characteristics based on geological, geophysical and engineering
assessments;
    
    future production rates based on historical performance and expected future operating
and investment activities;
    
    future oil and gas prices and quality and location differentials; and
    
    future development and operating costs.
   We need to replace our reserves at a faster rate than companies whose reserves have longer
production periods. Our failure to replace our reserves would result in decreasing reserves and
production over time.
     11




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Drilling locations that we decide to drill may not yield oil or natural gas in commercially
viable quantities or quantities sufficient to meet our targeted rate of return.
  The lack of availability or high cost of drilling rigs, equipment, supplies, insurance,
personnel and oil field services could adversely affect our ability to execute our exploration
and development plans on a timely basis and within our budget.
  The marketability of our oil and natural gas production depends on services and facilities that
we typically do not own or control. The failure or inaccessibility of any such services or
facilities could result in a curtailment of production and revenues.
   12




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Our level of indebtedness may adversely affect our cash available for operations, which would
limit 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 of our credit agreements 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 a portion of 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.
   Despite current indebtedness levels, we and our subsidiaries may still be able to incur
substantially more debt, including secured debt. This could further exacerbate the risks
associated with our substantial leverage.
   13




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To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control.
    The indenture governing the Senior Notes imposes, and our senior credit agreement imposes,
significant operating and financial restrictions, which may prevent us from capitalizing on
business opportunities and taking some actions.
  
    
    incur additional debt;
    
    pay dividends on, or redeem or repurchase stock;
    
    create liens;
    
    make specified types of investments;
    
    apply net proceeds from certain asset sales;
    
    engage in transactions with our affiliates;
    
    engage in sale and leaseback transactions;
    
    merge or consolidate;
    
    restrict dividends or other payments from subsidiaries;
    
    sell equity interests of subsidiaries; and
    
    sell, assign, transfer, lease, convey or dispose of assets.
   14




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We may not have the ability to raise the funds necessary to finance the change of control offer
required by the indenture governing the Senior Notes.
    Lower oil and natural gas prices may cause us to record ceiling limitation write-downs, which
would reduce our stockholders equity.
   15




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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.
  We may not have enough insurance to cover all of the risks we face, which could result in
significant financial exposure.
  We cannot control activities on properties we do not operate. Failure to fund capital
expenditure requirements may result in reduction or forfeiture of our interests in some of our
non-operated projects.
   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;
  16




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
    
    capital availability;
    
    rates of production from completed wells; and
    
    the timing and amount of capital expenditures.
  Our hedging activities may prevent us from benefiting from price increases and may expose us to
other risks.
   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.
    17




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We depend on our key management personnel and technical experts and the loss any of these
individuals could adversely affect our business.
  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;
    
    the prices of oil and natural gas;
    
    announcements by us and our competitors;
    
    our liquidity;
    
    our ability to raise additional funds; and
    
    other events.
 Our stock price may decline when our financial results decline or when events occur that are
adverse to us or our industry.
   18




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We do not intend to pay any dividends on our common stock.
  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 substantial portion of our outstanding common stock, which
may affect your vote as a stockholder.
  Certain anti-takeover provisions may adversely affect your rights as a stockholder.
  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;
  19




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
    
    market conditions in the oil and gas industry;
    
    our ability to make and integrate acquisitions; and
    
    the impact of governmental regulation.
   
 Item 1B. Unresolved Staff Comments
   20




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Item 2. Properties
   Onshore
    
    
    Anadarko
    
    
    Rocky
    
    
    West TexasGulf Coast
    
    
    Basin
    
    
    Mountains (a)
    
    

& Other (b)
    
    
    TotalCapital expenditures for drilling,
land and seismic in 2007 (in
millions)
    
    $
    64.3
    
    
    $
    12.2
    
    
    $
    37.1
    
    
    $
    0.7
    
    
    $
    114.3Proved Reserves at December 31, 2007Pre-tax PV10% (in millions) (c)
    
    $
    319.4
    
    
    $
    82.7
    
    
    $
    50.4
    
    
    $
    39.1
    
    
    $
    491.6Oil (MMBbls)
    
    
    2.5
    
    
    
    0.3
    
    
    
    1.6
    
    
    
    1.1
    
    
    
    5.5Natural gas (Bcf)
    
    
    71.7
    
    
    
    32.5
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    106.6Natural gas equivalents (Bcfe)
    
    
    86.6
    
    
    
    34.6
    
    
    
    11.0
    
    
    
    8.0
    
    
    
    140.2% Natural gas
    
    
    83
    %
    
    
    94
    %
    
    
    12
    %
    
    
    14
    %
    
    
    76
    %Average daily production (MMcfe/d)
    
    
    30.3
    
    
    
    8.2
    
    
    
    0.8
    
    
    
    2.3
    
    
    
    41.6Productive wells at December 31, 2007Gross
    
    
    94
    
    
    
    98
    
    
    
    9
    
    
    
    83
    
    
    
    284Net
    
    
    45.3
    
    
    
    28.4
    
    
    
    5.1
    
    
    
    25.5
    
    
    
    104.33-D Seismic Data (square miles)
    
    
    4,423
    
    
    
    2,381
    
    
    
    358
    
    
    
    4,669
    
    
    
    11,831
 
 (a)
    
    Includes the Williston Basin located in North Dakota and Montana and the Powder River Basin
located in Wyoming.(b)
    
    Capital expenditures for drilling, land and seismic in 2007 for West Texas & Other includes
capital associated with the Barnett Shale.(c)
    
    The standardized measure for our proved reserves at December 31, 2007, was $394.5 million.
See  Reconciliation of Standardized Measure to Pre-tax PV10% for a definition of pre-tax
PV10% and a reconciliation of our standardized measure to our pre-tax PV10% value.  21




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Onshore Gulf Coast Province
      Vicksburg Trend
      22




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Frio Trend
   Southern Louisiana Trend
      23




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Anadarko Basin Province
     Hunton Trend
  Granite Wash Trend
   24




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Rocky Mountains Province
  Williston Basin
          25




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Powder River Basin
      West Texas and Other Province
   26




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3-D Seismic Exploration
         27




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Title to Properties
  Oil and Natural Gas Reserves
  At December 31,2007
    
    
    2006
    
    
    2005Estimated Net Proved Reserves:Oil (MBbls)
    
    
    5,593
    
    
    
    4,494
    
    
    
    3,326Natural gas (MMcf)
    
    
    106,643
    
    
    
    119,486
    
    
    
    113,264Natural gas equivalent (MMcfe)
    
    
    140,202
    
    
    
    146,452
    
    
    
    133,223Proved developed reserves as a percentage of net proved reserves
    
    
    49
    %
    
    
    55
    %
    
    
    51
    %Pre-tax PV10% (in millions)(a)
    
    $
    491.6
    
    
    $
    338.5
    
    
    $
    519.8Standardized measure (in millions)
    
    
    394.5
    
    
    
    302.7
    
    
    
    396.3Estimated future development cost (in millions)
    
    
    160.5
    
    
    
    145.9
    
    
    
    122.4Base price used to calculate reserves(b):Natural gas (per MMbtu)
    
    $
    7.10
    
    
    $
    5.48
    
    
    $
    9.44Oil (per Bbl)
    
    
    96.01
    
    
    
    61.06
    
    
    
    61.04
 
 (a)
    
    See - Reconciliation of Standardized Measure to Pre-tax PV10% for a definition of pre-tax
PV10% and a reconciliation of our standardized measure to our pre-tax PV10% value.(b)
    
    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.    28




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Reconciliation of Standardized Measure to Pre-tax PV10%
  At December 31,2007
    
    
    2006
    
    
    2005Standardized measure of discounted future net cash flows
    
    $
    394.5
    
    
    $
    302.7
    
    
    $
    396.3Add present value of future income tax discounted at 10%
    
    
    97.1
    
    
    
    34.6
    
    
    
    123.5FAS 143 assumption differences
    
    
    
    
    
    
    1.2
    
    
    
    Pre-tax PV10%
    
    $
    491.6
    
    
    $
    338.5
    
    
    $
    519.8
  29




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Drilling Activities
  Year Ended December 31,2007 (a)
    
    
    2006 (b)
    
    
    2005 (c)Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetExploratory wells:Natural gas
    
    
    0
    
    
    
    0.0
    
    
    
    4
    
    
    
    1.4
    
    
    
    8
    
    
    
    4.5Oil
    
    
    2
    
    
    
    1.0
    
    
    
    6
    
    
    
    4.6
    
    
    
    0
    
    
    
    0.0Non-productive
    
    
    6
    
    
    
    3.2
    
    
    
    10
    
    
    
    5.2
    
    
    
    4
    
    
    
    3.5Total
    
    
    8
    
    
    
    4.2
    
    
    
    20
    
    
    
    11.2
    
    
    
    12
    
    
    
    8.0Development wells:Natural gas
    
    
    8
    
    
    
    5.7
    
    
    
    13
    
    
    
    9.7
    
    
    
    19
    
    
    
    10.4Oil
    
    
    5
    
    
    
    1.0
    
    
    
    1
    
    
    
    0.0
    
    
    
    2
    
    
    
    1.1Non-productive
    
    
    0
    
    
    
    0.0
    
    
    
    3
    
    
    
    1.4
    
    
    
    3
    
    
    
    2.2Total
    
    
    13
    
    
    
    6.7
    
    
    
    17
    
    
    
    11.1
    
    
    
    24
    
    
    
    13.7
 
 (a)
    
    Excludes two (0.6 net) exploratory wells and two (1.0 net) development wells that were
drilling and four (2.2 net) development wells that were completing.(b)
    
    Excludes three (1.9 net) exploratory and two (0.8 net) development wells that were completing
and one (0.4 net) development well that was drilling.(c)
    
    Includes two (1.0 net) development wells that commenced drilling in 2005 and was completed
productive in 2006.  Productive Wells and Acreage
 Productive Wells
  Natural Gas
    
    
    Oil
    
    
    TotalGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOnshore Gulf Coast
    
    
    72
    
    
    
    40.2
    
    
    
    22
    
    
    
    5.1
    
    
    
    94
    
    
    
    45.3Anadarko Basin
    
    
    84
    
    
    
    25.3
    
    
    
    14
    
    
    
    3.1
    
    
    
    98
    
    
    
    28.4Rocky Mountains
    
    
    0
    
    
    
    0
    
    
    
    9
    
    
    
    5.1
    
    
    
    9
    
    
    
    5.1West Texas and Other
    
    
    13
    
    
    
    1.9
    
    
    
    70
    
    
    
    23.6
    
    
    
    83
    
    
    
    25.5Total
    
    
    169
    
    
    
    67.4
    
    
    
    115
    
    
    
    36.9
    
    
    
    284
    
    
    
    104.3
   30




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##### Table of Contents



Acreage
  Developed(a)
    
    
    Undeveloped(a)
    
    
    TotalGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOnshore Gulf Coast
    
    
    19,080
    
    
    
    8,943
    
    
    
    31,468
    
    
    
    22,691
    
    
    
    50,548
    
    
    
    31,634Anadarko Basin
    
    
    49,573
    
    
    
    18,249
    
    
    
    16,694
    
    
    
    15,398
    
    
    
    66,267
    
    
    
    33,647Rocky Mountains
    
    
    16,714
    
    
    
    12,643
    
    
    
    293,544
    
    
    
    225,915
    
    
    
    310,258
    
    
    
    238,558West Texas & Other
    
    
    15,175
    
    
    
    5,648
    
    
    
    15,124
    
    
    
    9,207
    
    
    
    30,299
    
    
    
    14,855Total
    
    
    100,542
    
    
    
    45,483
    
    
    
    356,830
    
    
    
    273,211
    
    
    
    457,372
    
    
    
    318,694
 
 (a)
    
    Does not include acreage for which assignments have not been received.  Acres ExpiringTwelve Months Ending:
    
    Gross
    
    
    NetDecember 31, 2008
    
    
    72,047
    
    
    
    48,858December 31, 2009
    
    
    58,938
    
    
    
    42,008December 31, 2010
    
    
    32,408
    
    
    
    27,477December 31, 2011
    
    
    92,782
    
    
    
    77,278December 31, 2012
    
    
    52,317
    
    
    
    43,319Thereafter
    
    
    48,338
    
    
    
    34,271Total
    
    
    356,830
    
    
    
    273,211
   Acres ExpiringTwelve Months Ending:
    


Gross
        
    NetDecember 31, 2008
    
    
    6,775
    
    
    
    6,775December 31, 2009
    
    
    3,775
    
    
    
    3,775Total
    
    
    10,550
    
    
    
    10,550
  31




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##### Table of Contents



Volumes, Prices and Production Costs
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Production:Oil (MBbls)
    
    
    392
    
    
    
    442
    
    
    
    450Natural gas (MMcf)
    
    
    12,626
    
    
    
    10,603
    
    
    
    9,213Natural gas equivalent (MMcfe)
    
    
    14,978
    
    
    
    13,254
    
    
    
    11,913Average oil prices:Oil price (per Bbl)
    
    $
    72.30
    
    
    $
    64.04
    
    
    $
    54.73Oil price including derivative settlement gains (losses) (per Bbl)
    
    $
    71.51
    
    
    $
    64.39
    
    
    $
    51.95Oil price including derivative settlements and unrealized gains
(losses) (per Bbl)
    
    $
    65.57
    
    
    
    64.79
    
    
    NAAverage natural gas prices:Natural gas price (per Mcf)
    
    $
    7.30
    
    
    $
    6.74
    
    
    $
    8.29Natural gas price including derivative settlement gains (losses)
(per Mcf)
    
    $
    7.66
    
    
    $
    7.09
    
    
    $
    7.97Natural gas price including derivative settlements and unrealized
gains (losses) (per Mcf)
    
    $
    7.38
    
    
    
    7.31
    
    
    NAAverage equivalent prices:Natural gas equivalent price (per Mcfe)
    
    $
    8.05
    
    
    $
    7.53
    
    
    $
    8.48Natural gas equivalent price including derivative settlement
gains (losses) (per Mcfe)
    
    $
    8.33
    
    
    $
    7.82
    
    
    $
    8.13Natural gas equivalent price including derivative settlements and
unrealized gains (losses) (per Mcfe)
    
    $
    7.94
    
    
    $
    8.01
    
    
    NAAverage production costs(per Mcfe):Lease operating expenses (includes costs for operating and
maintenance and expensed workovers)
    
    $
    0.61
    
    
    $
    0.69
    
    
    $
    0.51Ad valorem taxes
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.09Production taxes
    
    $
    0.17
    
    
    $
    0.30
    
    
    $
    0.28
 
 Item 3. Legal Proceedings
    32




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 Executive Officers of the Registrant
  Name
    
    Age
    
    PositionBen M. Brigham
    
    
    48
    
    
    Chief Executive Officer, President and ChairmanEugene B. Shepherd, Jr.
    
    
    49
    
    
    Executive Vice President and Chief Financial OfficerDavid T. Brigham
    
    
    47
    
    
    Executive Vice President  Land and Administration
and DirectorA. Lance Langford
    
    
    45
    
    
    Executive Vice President  OperationsJeffery E. Larson
    
    
    49
    
    
    Executive Vice President  Exploration
 Ben M. Bud Brigham
 Eugene B. Shepherd, Jr.
 David T. Brigham
 A. Lance Langford
 Jeffery E. Larson
  33




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Price Range of Common Stock, Performance Graph, and Dividend Policy
  High
    
    
    Low2006:First Quarter
    
    $
    13.14
    
    
    $
    7.85Second Quarter
    
    
    10.00
    
    
    
    6.69Third Quarter
    
    
    8.10
    
    
    
    5.72Fourth Quarter
    
    
    8.80
    
    
    
    6.072007:First Quarter
    
    $
    7.44
    
    
    $
    5.30Second Quarter
    
    
    6.85
    
    
    
    5.61Third Quarter
    
    
    6.12
    
    
    
    4.17Fourth Quarter
    
    
    8.08
    
    
    
    5.66
   34




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##### Table of Contents



COMPARE CUMULATIVE TOTAL RETURN
AMONG BRIGHAM EXPLORATION CO.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX
 
 
    35




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##### Table of Contents



Securities Authorized for Issuance under Equity Compensation Plans
  Number ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities to be
    
    
    
    
    
    
    Available forIssued upon
    
    
    Weighted-
    
    
    Future IssuanceExercise of
    
    
    Average Price of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Options
    
    
    Options
    
    
    PlansEquity compensation plans approved by security holders(a)
    
    
    3,044,166
    
    
    $
    7.14
    
    
    
    1,236,123Equity compensation plans not approved by security holders
    
    
    
    
    
    NA
    
    
    
    Total
    
    
    3,044,166
    
    
    $
    7.14
    
    
    
    1,236,123
 
 (a)
    
    Does not include 653,623 shares of restricted stock issued and outstanding at December 31,
2007. Issuer Purchases of Equity Securities
  Total Number of
    
    
    Average PricePeriod
    
    Shares Purchased
    
    
    Paid per ShareOctober 2007
    
    
    3,113
    
    
    $
    5.890July 2007
    
    
    6,724
    
    
    $
    5.985January 2007
    
    
    17,963
    
    
    $
    7.425
 
 Item 6. Selected Consolidated Financial Data
   Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except per share information)Statement of Operations Data:Revenues:Oil and natural gas sales
    
    $
    120,557
    
    
    $
    102,835
    
    
    $
    96,820
    
    
    $
    71,713
    
    
    $
    51,545Gain (loss) on derivatives, net
    
    
    (1,664
    )
    
    
    3,335
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    88
    
    
    
    127
    
    
    
    220
    
    
    
    515
    
    
    
    132Total revenues
    
    
    118,981
    
    
    
    106,297
    
    
    
    97,040
    
    
    
    72,228
    
    
    
    51,677Costs and expenses:Lease operating
    
    
    10,704
    
    
    
    10,701
    
    
    
    7,161
    
    
    
    6,173
    
    
    
    5,200
  36




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##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except per share information)Production taxes
    
    
    2,541
    
    
    
    4,021
    
    
    
    3,353
    
    
    
    3,107
    
    
    
    2,477General and administrative
    
    
    9,276
    
    
    
    7,887
    
    
    
    5,533
    
    
    
    5,392
    
    
    
    4,500Depletion of oil and natural gas properties
    
    
    59,079
    
    
    
    46,386
    
    
    
    33,268
    
    
    
    23,844
    
    
    
    16,819Impairment of oil and natural gas properties
    
    
    6,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    613
    
    
    
    537
    
    
    
    762
    
    
    
    722
    
    
    
    629Accretion of discount on asset retirement obligations
    
    
    379
    
    
    
    317
    
    
    
    180
    
    
    
    159
    
    
    
    142Total costs and expenses
    
    
    89,097
    
    
    
    69,849
    
    
    
    50,257
    
    
    
    39,397
    
    
    
    29,767Operating income
    
    
    29,884
    
    
    
    36,448
    
    
    
    46,783
    
    
    
    32,831
    
    
    
    21,910Other income (expense):Interest income
    
    
    654
    
    
    
    1,207
    
    
    
    245
    
    
    
    84
    
    
    
    45Interest expense, net
    
    
    (14,622
    )
    
    
    (9,688
    )
    
    
    (3,980
    )
    
    
    (3,144
    )
    
    
    (4,815
    )Gain loss on derivatives, net
    
    
    
    
    
    
    3,213
    
    
    
    (814
    )
    
    
    625
    
    
    
    68Other income (expense)
    
    
    1,022
    
    
    
    1,352
    
    
    
    238
    
    
    
    117
    
    
    
    (669
    )Total other income (expense)
    
    
    (12,946
    )
    
    
    (3,916
    )
    
    
    (4,311
    )
    
    
    (2,318
    )
    
    
    (5,371
    )Income before income taxes and cumulative effect of
change in accounting principle
    
    $
    16,938
    
    
    $
    32,532
    
    
    $
    42,472
    
    
    $
    30,513
    
    
    $
    16,539Income tax benefit (expense):Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    (6,728
    )
    
    
    (12,744
    )
    
    
    (15,037
    )
    
    
    (10,863
    )
    
    
    1,223(6,728
    )
    
    
    (12,744
    )
    
    
    (15,037
    )
    
    
    (10,863
    )
    
    
    1,223Income before cumulative effect of change in accounting
principle
    
    
    10,210
    
    
    
    19,788
    
    
    
    27,435
    
    
    
    19,650
    
    
    
    17,762Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268Net income
    
    
    10,210
    
    
    
    19,788
    
    
    
    27,435
    
    
    
    19,650
    
    
    
    18,030Preferred dividend and accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,448Net income (loss) available to common stockholders
    
    $
    10,210
    
    
    $
    19,788
    
    
    $
    27,435
    
    
    $
    19,650
    
    
    $
    14,582Net Income (loss) per share before cumulative effect of
change in accounting principle:Basic
    
    $
    0.23
    
    
    $
    0.44
    
    
    $
    0.65
    
    
    $
    0.49
    
    
    $
    0.62Diluted
    
    
    0.22
    
    
    
    0.43
    
    
    
    0.63
    
    
    
    0.47
    
    
    
    0.51Net income (loss) per share available to common
shareholders:Basic
    
    $
    0.23
    
    
    $
    0.44
    
    
    $
    0.65
    
    
    $
    0.49
    
    
    $
    0.63Diluted
    
    
    0.22
    
    
    
    0.43
    
    
    
    0.63
    
    
    
    0.47
    
    
    
    0.52Weighted average shares outstanding:Basic
    
    
    45,110
    
    
    
    45,017
    
    
    
    42,481
    
    
    
    40,445
    
    
    
    23,363Diluted
    
    
    45,531
    
    
    
    45,597
    
    
    
    43,728
    
    
    
    41,616
    
    
    
    34,354
 At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands)Statement of Cash Flows Data:Net cash provided (used) by:Operating activities
    
    $
    90,449
    
    
    $
    88,687
    
    
    $
    64,379
    
    
    $
    56,381
    
    
    $
    41,691Investing activities
    
    
    (99,093
    )
    
    
    (171,747
    )
    
    
    (113,220
    )
    
    
    (84,645
    )
    
    
    (46,089
    )Financing activities
    
    
    18,207
    
    
    
    83,385
    
    
    
    50,535
    
    
    
    24,766
    
    
    
    (5,141
    )Balance Sheet Data:Cash and cash equivalents
    
    $
    13,863
    
    
    $
    4,300
    
    
    $
    3,975
    
    
    $
    2,281
    
    
    $
    5,779Oil and natural gas
properties, using
 the full
cost method of accounting,
net
    
    
    510,207
    
    
    
    485,525
    
    
    
    347,329
    
    
    
    261,979
    
    
    
    198,490Total assets
    
    
    548,428
    
    
    
    522,587
    
    
    
    380,427
    
    
    
    286,307
    
    
    
    224,982Long-term debt
    
    
    168,492
    
    
    
    149,334
    
    
    
    63,100
    
    
    
    41,000
    
    
    
    39,000Series A preferred stock,
mandatorily redeemable
    
    
    10,101
    
    
    
    10,101
    
    
    
    10,101
    
    
    
    9,520
    
    
    
    8,794Total stockholders equity
    
    
    279,027
    
    
    
    266,015
    
    
    
    241,640
    
    
    
    183,276
    
    
    
    139,111
  37




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Sources of Our Revenues
   Components of Our Cost Structure
 Production Costs
 
    
    Lease operating expenses are generally comprised of several components including: the
cost of labor and supervision to operate our wells and related equipment; repairs and
maintenance; related materials, supplies, and fuel; and insurance applicable to our 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 tax we pay 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 prices rise, the value of our
underlying property interests increase, which 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 wellhead at the time the production is sold or removed from the lease. As a
result, our production tax expense increases when oil and gas prices rise.
    
    Historically, taxing authorities have occasionally encouraged the oil and natural gas
industry to explore for new oil and natural gas reserves, or to develop high cost reserves,
through reduced tax rates or tax credits. These incentives have been narrow in scope and
short-lived. A small number of our wells have qualified for reduced production taxes
because they were discoveries based on the use of 3-D seismic or they are high cost wells.
 Depreciation, Depletion and Amortization
 Asset Retirement Accretion Expense
  38




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##### Table of Contents



General and Administrative Expense
 Interest.
 Income Taxes.
 Capital Commitments
  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 to our exploration professional staff.
  39




---



##### Table of Contents



2008(In millions)Drilling
    
    $
    102.6Net land and seismic
    
    
    18.3Capitalized interest and G&A
    
    
    12.8Other non-oil & gas assets
    
    
    0.7Total
    
    $
    134.4
      
    
    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 and completion equipment; and
    
    the availability of more economically attractive prospects.
    40




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##### Table of Contents



Contractual Obligations
  Payments Due by Year2010-
    
    
    2012 andTotal
    
    
    2008
    
    
    2009
    
    
    2011
    
    
    Thereafter(In thousands)Debt:Senior Notes
    
    $
    160,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    160,000Senior credit agreement
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    Mandatorily redeemable, Series A preferred stock
    
    
    10,101
    
    
    
    
    
    
    
    
    
    
    
    10,101
    
    
    
    Total
    
    $
    180,101
    
    
    $
    
    
    
    $
    
    
    
    $
    20,101
    
    
    $
    160,000Other commitments:Interest, Senior Notes(a)
    
    $
    98,817
    
    
    
    15,400
    
    
    
    15,400
    
    
    
    30,800
    
    
    
    37,217Interest, senior credit agreement(b)
    
    $
    1,470
    
    
    $
    588
    
    
    $
    588
    
    
    $
    294
    
    
    $
    Dividend Mandatorily redeemable, Series A
preferred stock(c)
    
    
    1,716
    
    
    
    606
    
    
    
    606
    
    
    
    504
    
    
    
    Non-cancelable operating leases
    
    
    3,235
    
    
    
    694
    
    
    
    704
    
    
    
    1,459
    
    
    
    378Total
    
    $
    285,339
    
    
    $
    17,288
    
    
    $
    17,298
    
    
    $
    53,158
    
    
    $
    197,595
 
 (a)
    
    Calculated assuming $160 million of Senior Notes outstanding and an interest rate of 9.625%.
The payments are made in May and November until maturity in May 2014.(b)
    
    Calculated assuming $10.0 million outstanding under our senior credit agreement, an interest
rate of 5.88% and maturity in June 2010. This interest rate assumes that we utilize
approximately 10% of the available borrowing base during the period and a Eurodollar rate of
4.63% plus a margin of 1.25%. The Eurodollar rate used for the calculation is the one month
Eurodollar rate on December 31, 2007. The amount of interest that we pay on amounts borrowed
under our senior credit agreement will fluctuate over time as borrowings increase or decrease,
as the applicable Eurodollar rate increases and decreases and as the applicable interest rate
increases or decreases. See Item 7A. Quantitative and Qualitative Disclosures About Market
Risk  Interest Rate Risk.(c)
    
    Calculated assuming $10.1 million of Series A preferred stock outstanding, a cash dividend of
6% per annum and a maturity of October 31, 2010.  Results of Operations
 Comparison of the twelve-month periods ended December 31, 2007, 2006 and 2005
 Production volumes
 Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Oil (MBbls)
    
    
    392
    
    
    
    (11
    %)
    
    
    442
    
    
    
    (2
    %)
    
    
    450Natural gas (MMcf)
    
    
    12,626
    
    
    
    19
    %
    
    
    10,603
    
    
    
    15
    %
    
    
    9,213Total (MMcfe)(1)
    
    
    14,978
    
    
    
    13
    %
    
    
    13,254
    
    
    
    11
    %
    
    
    11,913Average daily production (MMcfe/d)
    
    
    41.6
    
    
    
    
    
    
    
    36.8
    
    
    
    
    
    
    
    33.1
 
 (1)
    
    MMcfe is defined as one million cubic feet equivalent of natural gas, determined using the
ratio of six MMcf of natural gas to one MBbl of crude oil, condensate or natural gas liquids.  41




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##### Table of Contents




    
    Production from our Onshore Gulf Coast province for 2007 increased 36% when compared to
2006, which was largely driven by our Bayou Postillion project in Southern Louisiana.
Production from this province represented 73% of our total production in 2007 versus 61% in
2006. Approximately 89% of our 2007 production from this province was natural gas compared
to 82% in 2006.
    
    Production from our Anadarko Basin province for 2007 decreased 29% when compared to
2006. The decrease in our production volumes was due to the natural decline of the wells as
well as the temporary abandonment of our Mills Ranch 98-2 because of mechanical
difficulties. Production from this province represented 20% of our total production in 2007
versus 31% in 2006. Approximately 94% of our 2007 production from this province was natural
gas compared to 92% in 2006.
    
    Production from our Rocky Mountains province for 2007 increased 167% when compared to
2006. The production increase is attributable to our wells in North Dakota being on line
for a full year as well as our increased level of activity in the Mowry during 2007.
Production from this province represented 2% of our total production in 2007 versus 1% in
2006. Approximately 90% of our 2007 production from this province was oil compared to 92%
in 2006.
    
    Production from our West Texas & Other province for 2007 decreased 12% when compared to
2006. The decrease in production was attributable to the natural decline in our wells.
Production from this province represented 6% of our total production in 2007 versus 7% in
2006. Approximately 86% of our 2007 production from this province was oil compared to 83%
in 2006.
   
    
    Production from our Onshore Gulf Coast province for 2006 increased 18% when compared to
2005. Production from this province represented 61% of our total production in 2006 versus
57% in 2005. Approximately 82% of our 2006 production from this province was natural gas
compared to 78% in 2005.
    
    Production from our Anadarko Basin province for 2006 increased 3% when compared to
2005. Production from this province represented 31% of our total production in 2006 versus
34% in 2005. Approximately 92% of our 2006 and 2005 production from this province was
natural gas.
    
    Production from our Rocky Mountains province for 2006 represented 1% of our total
production in 2006. Approximately 92% of our 2006 production from this province was oil.
    
    Production from our West Texas & Other province for 2006 decreased 10% when compared to
2005. Production from this province represented 7% of our total production in 2006 versus
9% in 2005. Approximately 83% of our 2006 production from this province was oil compared to
85% in 2005.
  42




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##### Table of Contents



Revenue, commodity prices and hedging
  Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands, except per unit measurements)Oil revenue:Oil revenue
    
    $
    28,347
    
    
    
    0
    %
    
    $
    28,291
    
    
    
    15
    %
    
    $
    24,628Oil derivative settlement gains (losses)
    
    
    (311
    )
    
    NM
    
    
    
    157
    
    
    NM
    
    
    
    (1,249
    )Oil revenue including oil derivative settlements
    
    $
    28,036
    
    
    
    (1
    %)
    
    $
    28,448
    
    
    
    22
    %
    
    $
    23,379Oil derivative unrealized gains (losses)
    
    
    (2,328
    )
    
    NM
    
    
    
    175
    
    
    NM
    
    
    NAOil revenue including derivative settlements
and unrealized gains (losses)
    
    
    25,708
    
    
    
    (10
    %)
    
    
    28,623
    
    
    
    22
    %
    
    
    23,379Natural gas revenue:Natural gas revenue
    
    $
    92,210
    
    
    
    29
    %
    
    $
    71,503
    
    
    
    (6
    %)
    
    $
    76,366Natural gas derivative settlement gains (losses)
    
    
    4,478
    
    
    
    23
    %
    
    
    3,639
    
    
    NM
    
    
    
    (2,925
    )Natural gas revenue including derivative
settlements
    
    $
    96,688
    
    
    
    29
    %
    
    $
    75,142
    
    
    
    2
    %
    
    $
    73,441Natural gas derivative unrealized gains (losses)
    
    
    (3,503
    )
    
    NM
    
    
    
    2,405
    
    
    NM
    
    
    NANatural gas revenue including derivative
settlements and unrealized gains (losses)
    
    
    93,185
    
    
    
    20
    %
    
    
    77,547
    
    
    
    6
    %
    
    
    73,441Oil and natural gas revenue:Oil and natural gas revenue
    
    $
    120,557
    
    
    
    21
    %
    
    $
    99,794
    
    
    
    (1
    %)
    
    $
    100,994Oil and natural gas derivative settlement gains
(losses)
    
    
    4,167
    
    
    
    10
    %
    
    
    3,796
    
    
    NM
    
    
    
    (4,174
    )Oil and natural gas revenue including
derivative settlement gains (losses)
    
    
    124,724
    
    
    
    20
    %
    
    
    103,590
    
    
    
    7
    %
    
    $
    96,820Oil and natural gas derivative unrealized gains
(losses)
    
    
    (5,831
    )
    
    NM
    
    
    
    2,580
    
    
    NM
    
    
    NAOil and natural gas revenue including
derivative settlements and unrealized gains
(losses)
    
    
    118,893
    
    
    
    12
    %
    
    
    106,170
    
    
    
    10
    %
    
    
    96,820Other revenue
    
    
    88
    
    
    
    (31
    %)
    
    
    127
    
    
    
    (42
    %)
    
    
    220Total revenue
    
    $
    118,981
    
    
    
    12
    %
    
    $
    106,297
    
    
    
    10
    %
    
    $
    97,040Average oil prices:Oil price (per Bbl)
    
    $
    72.30
    
    
    
    13
    %
    
    $
    64.04
    
    
    
    17
    %
    
    $
    54.73Oil price including derivative settlement gains
(losses) (per Bbl)
    
    $
    71.51
    
    
    
    11
    %
    
    $
    64.39
    
    
    
    24
    %
    
    $
    51.95Oil price including derivative settlements and
unrealized gains (losses) (per Bbl)
    
    $
    65.57
    
    
    
    1
    %
    
    $
    64.79
    
    
    NM
    
    
    NAAverage natural gas prices:Natural gas price (per Mcf)
    
    $
    7.30
    
    
    
    8
    %
    
    $
    6.74
    
    
    
    (19
    %)
    
    $
    8.29
  43




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##### Table of Contents



Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands, except per unit measurements)Natural gas price including derivative settlement
gains (losses) (per Mcf)
    
    $
    7.66
    
    
    
    8
    %
    
    $
    7.09
    
    
    
    (11
    %)
    
    $
    7.97Natural gas price including derivative settlements
and unrealized gains (losses) (per Mcf)
    
    $
    7.38
    
    
    
    1
    %
    
    $
    7.31
    
    
    NM
    
    
    NAAverage equivalent prices:Natural gas equivalent price (per Mcfe)
    
    $
    8.05
    
    
    
    7
    %
    
    $
    7.53
    
    
    
    (11
    %)
    
    $
    8.48Natural gas equivalent price including derivative
settlement gains (losses) (per Mcfe)
    
    $
    8.33
    
    
    
    7
    %
    
    $
    7.82
    
    
    
    (4
    %)
    
    $
    8.13Natural gas equivalent price including derivative
settlements and unrealized gains (losses) (per
Mcfe)
    
    $
    7.94
    
    
    
    (1
    %)
    
    $
    8.01
    
    
    NM
    
    
    NA
 2006
    
    
    2005to 2007
    
    
    to 2006Change in revenue from the sale of oilPrice variance impact
    
    $
    3,240
    
    
    $
    4,112Volume variance impact
    
    
    (3,184
    )
    
    
    (449
    )Cash settlement of derivative hedging contracts
    
    
    (468
    )
    
    
    1,406Unrealized gains (losses) due to derivative hedging contracts
    
    
    (2,503
    )
    
    
    175Total change
    
    $
    (2,915
    )
    
    $
    5,244Change in revenue from the sale of natural gasPrice variance impact
    
    $
    7,110
    
    
    $
    (16,400
    )Volume variance impact
    
    
    13,597
    
    
    
    11,537Cash settlement of derivative hedging contracts
    
    
    839
    
    
    
    6,564Unrealized gains (losses) due to derivative hedging contracts
    
    
    (5,908
    )
    
    
    2,405Total change
    
    $
    15,638
    
    
    $
    4,106Change in revenue from the sale of oil and natural gasPrice variance impact
    
    $
    10,350
    
    
    $
    (12,288
    )Volume variance impact
    
    
    10,413
    
    
    
    11,088Cash settlement of derivative hedging contracts
    
    
    371
    
    
    
    7,970Unrealized gains (losses) due to derivative hedging contracts
    
    
    (8,411
    )
    
    
    2,580Total change
    
    $
    12,723
    
    
    $
    9,350
  
    
    A 13% increase in our production volumes increased revenue by $10.4 million;
    
    A 7% increase in the average natural gas equivalent price increased revenue by $10.4
million;
    
    A $4.2 million gain from the settlement of derivative contracts in 2007 versus a $3.8
million settlement gain in 2006 increased revenue by $0.4 million; and
    
    A $5.8 million unrealized loss due to derivative hedging contracts in 2007 versus a
$2.6 million unrealized gain due to derivative hedging contracts in 2006 decreased revenue
by $8.4 million.
  
    
    An 11% decrease in the average natural gas equivalent price decreased revenue by $12.3
million;
  44




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##### Table of Contents




    
    An 11% increase in our production volumes increased revenue by $11.1 million;
    
    A $3.8 million gain from the settlement of derivative contracts in 2006 versus a $4.2
million settlement loss in 2005 increased revenue by $8.0 million; and
    
    A $2.6 million unrealized gain due to derivative hedging contracts in 2006 versus no
unrealized gain (loss) due to derivative hedging contracts in 2005 increased revenue by
$2.6 million.
 Other revenue.
 Hedging.
  Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Oil collars and three way costless collarsVolumes (Bbls)
    
    
    263,000
    
    
    
    59
    %
    
    
    165,000
    
    
    
    40
    %
    
    
    118,105Average floor price (per Bbl)
    
    $
    56.82
    
    
    
    2
    %
    
    $
    55.86
    
    
    
    49
    %
    
    $
    37.40Average ceiling price (per Bbl)
    
    $
    81.50
    
    
    
    7
    %
    
    $
    76.23
    
    
    
    62
    %
    
    $
    47.20Gain /(loss) upon settlement (in thousands)
    
    $
    (311
    )
    
    NM
    
    
    $
    157
    
    
    NM
    
    
    $
    (1,249
    )Total oilVolumes (Bbls)
    
    
    263,000
    
    
    
    59
    %
    
    
    165,000
    
    
    
    40
    %
    
    
    118,105Gain /(loss) upon settlement (in thousands)
    
    $
    (311
    )
    
    NM
    
    
    $
    157
    
    
    NM
    
    
    $
    (1,249
    )Natural gas collars and three way costless collarsVolumes (MMbtu)
    
    
    7,425,000
    
    
    
    82
    %
    
    
    4,070,000
    
    
    
    54
    %
    
    
    2,643,000Average floor price (per MMbtu)
    
    $
    7.34
    
    
    
    (7
    %)
    
    $
    7.90
    
    
    
    33
    %
    
    $
    5.93Average ceiling price (per MMbtu)
    
    $
    12.40
    
    
    
    (13
    %)
    
    $
    14.33
    
    
    
    82
    %
    
    $
    7.86Gain /(loss) upon settlement (in thousands)
    
    $
    4,478
    
    
    
    23
    %
    
    $
    3,639
    
    
    NM
    
    
    $
    (2,925
    )Total natural gasVolumes (MMbtu)
    
    
    7,425,000
    
    
    
    82
    %
    
    
    4,070,000
    
    
    
    54
    %
    
    
    2,643,000Gain /(loss) upon settlement (in thousands)
    
    $
    4,478
    
    
    
    23
    %
    
    $
    3,639
    
    
    NM
    
    
    $
    (2,925
    )
  45




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##### Table of Contents



Operating costs and expenses
 Production costs.
 Unit-of-Production(Per Mcfe)Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Production costs:Operating & maintenance
    
    $
    0.54
    
    
    
    (14
    %)
    
    $
    0.63
    
    
    
    34
    %
    
    $
    0.47Expensed workovers
    
    
    0.07
    
    
    
    17
    %
    
    
    0.06
    
    
    
    50
    %
    
    
    0.04Ad valorem taxes
    
    
    0.10
    
    
    
    (17
    %)
    
    
    0.12
    
    
    
    33
    %
    
    
    0.09Lease operating expenses
    
    $
    0.71
    
    
    
    (12
    %)
    
    $
    0.81
    
    
    
    35
    %
    
    $
    0.60Production taxes
    
    
    0.17
    
    
    
    (43
    %)
    
    
    0.30
    
    
    
    7
    %
    
    
    0.28Production costs
    
    $
    0.88
    
    
    
    (21
    %)
    
    $
    1.11
    
    
    
    26
    %
    
    $
    0.88
 Amount(In thousands)Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Production costs:Operating & maintenance
    
    $
    8,153
    
    
    
    (1
    %)
    
    $
    8,267
    
    
    
    48
    %
    
    $
    5,568Expensed workovers
    
    
    1,097
    
    
    
    38
    %
    
    
    797
    
    
    
    62
    %
    
    
    492Ad valorem taxes
    
    
    1,454
    
    
    
    (11
    %)
    
    
    1,637
    
    
    
    49
    %
    
    
    1,101Lease operating expenses
    
    $
    10,704
    
    
    
    0
    %
    
    $
    10,701
    
    
    
    49
    %
    
    $
    7,161Production taxes
    
    
    2,541
    
    
    
    (37
    %)
    
    
    4,021
    
    
    
    20
    %
    
    
    3,353Production costs
    
    $
    13,245
    
    
    
    (10
    %)
    
    $
    14,722
    
    
    
    40
    %
    
    $
    10,514
  
    
    Production taxes decreased 43%, or by $0.13 per Mcfe, due to an increase in tax credits
associated with high cost gas production tax abatements. The increase in tax credits is
partially attributable to the fact that we are recording credits immediately upon
commencing production from our Vicksburg and Mills Ranch wells given our 100% success rate
in applying for credits rather than deferring recognition until receiving approval from the
relevant government authority;
    
    O&M expenses decreased 14%, or by $0.09 per Mcfe. Decreases in salt water disposal,
chemical treating, and equipment rental accounted for approximately 85% of the per unit change. The
divestiture of our Granite Wash assets in September 2007 reduced salt water disposal and
chemical treating costs. In South Texas, we elected to purchase production equipment
thereby reducing our equipment rental costs;
    
    Ad valorem taxes decreased 17%, or by $0.02 per Mcfe, due to a decrease in property
valuations for our oil and natural gas properties because of lower commodity prices at
year-end 2006, which were the basis for
determining property tax rates for 2007; and
    
    Expensed workovers increased 17%, or by $0.01 per Mcfe, due to a higher level of
workover activity in 2007.
  46




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##### Table of Contents




    
    O&M expenses increased 34%, or by $0.16 per Mcfe. Increases in salt water disposal,
equipment rental, chemical treating, and well service and repair accounted for approximately 69% of the
per unit change. The increase in O&M expenses was primarily because of an increase in the
number of wells that came on line during 2006 as compared to 2005 and to a lesser extent by
service cost inflation;
    
    Expensed workovers increased 50%, or by $0.02 per Mcfe, due to a higher level of
workover activity in 2006;
    
    Ad valorem taxes increased 33%, or by $0.03 per Mcfe, due to an increase in estimated
property valuations for our oil and natural gas properties because of higher commodity
prices at year-end 2005, which were the basis for determining property tax rates for 2006;
and
    
    Production taxes increased 7%, or by $0.02 per Mcfe, due to $0.5 million less in
severance tax refunds received in 2006 as compared to 2005.
 General and administrative expenses.
 Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands, except per unit measurements)General and administrative costs
    
    $
    17,442
    
    
    
    21
    %
    
    $
    14,439
    
    
    
    39
    %
    
    $
    10,380Capitalized general and administrative costs
    
    
    (8,166
    )
    
    
    25
    %
    
    
    (6,552
    )
    
    
    35
    %
    
    
    (4,847
    )General and administrative expenses
    
    $
    9,276
    
    
    
    18
    %
    
    $
    7,887
    
    
    
    43
    %
    
    $
    5,533General and administrative expenses (per
Mcfe)
    
    $
    0.62
    
    
    
    3
    %
    
    $
    0.60
    
    
    
    30
    %
    
    $
    0.46
  
    
    Increases in payroll, benefits expense, bonuses and FICA tax totaled $1.4 million. This
increase was primarily because of an increase in employee salaries for retention purposes;
and
    
    Increases in non-cash stock compensation costs increased general and administrative
costs by $1.1 million.
  
    
    Increases in payroll, benefits expense, bonuses and FICA tax totaled $2.1 million. This
increase was primarily because of an increase in employee salaries for retention purposes
and to a lesser extent an increase in the number of employees;
    
    General and administrative costs increased $1.6 million due to non-cash stock
compensation costs associated with our 2006 adoption of SFAS 123R dealing with a change in
accounting methodology for non-cash stock compensation costs; and
    
    Increases in fees paid to our independent public accountants accounted for $0.5 million
of the increase and resulted primarily from our change in auditors and the requirement that
both our old and new auditors review
our financial statements for a two year transition period.
  47




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##### Table of Contents



Depletion of oil and natural gas properties.
 Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands, except per unit measurements)Depletion of oil and natural gas properties
    
    $
    59,079
    
    
    
    27
    %
    
    $
    46,386
    
    
    
    39
    %
    
    $
    33,268Depletion of oil and natural gas properties (per Mcfe)
    
    $
    3.94
    
    
    
    13
    %
    
    $
    3.50
    
    
    
    25
    %
    
    $
    2.79
   Net interest expense.
 Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands)Interest on Senior Notes
    
    $
    14,483
    
    
    
    68
    %
    
    $
    8,632
    
    
    NM
    
    
    $
    Interest on senior credit facility
    
    
    1,900
    
    
    
    156
    %
    
    
    743
    
    
    
    (67
    %)
    
    
    2,267Interest on senior subordinated notes(a)
    
    
    
    
    
    
    (100
    %)
    
    
    699
    
    
    
    (64
    %)
    
    
    1,948Commitment fees
    
    
    166
    
    
    
    (5
    %)
    
    
    174
    
    
    
    31
    %
    
    
    133Dividend on mandatorily redeemable preferred stock
    
    
    606
    
    
    
    0
    %
    
    
    606
    
    
    
    (17
    %)
    
    
    734Amortization of deferred loan and debt issuance cost
    
    
    932
    
    
    
    (44
    %)
    
    
    1,665
    
    
    
    239
    %
    
    
    491Other general interest expense
    
    
    2
    
    
    
    (60
    %)
    
    
    5
    
    
    
    (55
    %)
    
    
    11Capitalized interest expense
    
    
    (3,467
    )
    
    
    22
    %
    
    
    (2,836
    )
    
    
    77
    %
    
    
    (1,604
    )Net interest expense
    
    $
    14,622
    
    
    
    51
    %
    
    $
    9,688
    
    
    
    143
    %
    
    $
    3,980Weighted average debt outstanding
    
    $
    189,080
    
    
    
    54
    %
    
    $
    123,031
    
    
    
    53
    %
    
    $
    80,180Average interest rate on outstanding indebtedness(b)
    
    
    9.1
    %
    
    
    
    
    
    
    8.8
    %
    
    
    
    
    
    
    6.3
    %
 
 (a)
    
    Our senior subordinated notes were repaid in April 2006 in conjunction with our Senior Notes
issuance. The agreement was terminated upon repayment. In conjunction with the termination of
the subordinated notes agreement, the associated interest rate swap was terminated. The $0.8
million gain associated with the termination of the swap is included within other income
(expense).(b)
    
    Calculated as the sum of the interest on our outstanding indebtedness, commitment fees that
we pay on our unused
borrowing capacity and the dividend on our mandatorily redeemable preferred stock divided by the
weighted average debt and preferred stock outstanding for the period.  48




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##### Table of Contents



Other income (expense).
 Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands)Derivative:Non-cash gain (loss) due to change in
fair market value of undesignated hedges
    
    $
    NA
    
    
    NM
    
    
    $
    NA
    
    
    NM
    
    
    $
    (92
    )Non-cash gain (loss) for ineffective
portion of cash flow hedges
    
    
    NA
    
    
    
    (100
    %)
    
    
    3,213
    
    
    NM
    
    
    
    (722
    )Cash settlement of undesignated hedges
    
    
    NA
    
    
    NM
    
    
    
    NA
    
    
    NM
    
    
    
    Derivative other income
    
    
    
    
    
    
    (100
    %)
    
    
    3,213
    
    
    NM
    
    
    
    (814
    )Other:Gain (loss) on sale of inventory or assets
    
    
    71
    
    
    NM
    
    
    
    (64
    )
    
    
    (52
    %)
    
    
    (134
    )Other income (loss)
    
    
    951
    
    
    
    (33
    %)
    
    
    1,416
    
    
    
    281
    %
    
    
    372Miscellaneous other income (loss)
    
    
    1,022
    
    
    
    (24
    %)
    
    
    1,352
    
    
    
    468
    %
    
    
    238Total other income (loss)
    
    $
    1,022
    
    
    
    (78
    %)
    
    $
    4,565
    
    
    NM
    
    
    $
    (576
    )
  49




---



##### Table of Contents



Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Written oil putsVolumes (Bbls)
    
    
    NA
    
    
    NM
    
    
    
    40,500
    
    
    
    (44
    %)
    
    
    72,000Average price ($  per Bbl)
    
    $
    NA
    
    
    NM
    
    
    $
    43.56
    
    
    
    26
    %
    
    $
    34.67Total oil hedgesVolumes (Bbls)
    
    
    NA
    
    
    NM
    
    
    
    40,500
    
    
    
    (44
    %)
    
    
    72,000Average price ($  per Bbl)
    
    $
    NA
    
    
    NM
    
    
    $
    43.56
    
    
    
    26
    %
    
    $
    34.67Written natural gas putsVolumes (MMbtu)
    
    
    NA
    
    
    NM
    
    
    
    1,510,000
    
    
    
    21
    %
    
    
    1,250,000Average price ($  per MMbtu)
    
    $
    NA
    
    
    NM
    
    
    $
    6.81
    
    
    
    16
    %
    
    $
    5.88Written  natural gas basis swapsVolumes (MMbtu)
    
    
    NA
    
    
    NM
    
    
    
    1,260,000
    
    
    NM
    
    
    
    Average price ($  per MMbtu)
    
    $
    NA
    
    
    NM
    
    
    $
    0.20
    
    
    NM
    
    
    $
    Total  natural gas hedgesVolumes (MMbtu)
    
    
    NA
    
    
    NM
    
    
    
    2,770,000
    
    
    
    122
    %
    
    
    1,250,000Average price ($  per MMbtu)
    
    $
    NA
    
    
    NM
    
    
    $
    3.80
    
    
    
    (35
    %)
    
    $
    5.88
  Income taxes:
     50




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Capital
  9 5/8% Senior Notes due 2014
      
    
    rank equally in right of payment with all our existing and future senior indebtedness;
    
    rank senior to all of our future subordinated indebtedness; and
    
    are effectively junior in right of payment to all of our and the Guarantors existing
and future secured indebtedness, including debt of our senior credit agreement.
    51




---



##### Table of Contents



Senior Credit Agreement
      Percent of
    
    EurodollarBorrowing Base
    
    Rate
    
    Base RateUtilized
    
    Advances
    
    Advances(1)< 50%
    
    
    1.250
    %
    
    
    0.000
    %50% and < 75%
    
    
    1.500
    %
    
    
    0.000
    %75% and < 90%
    
    
    1.750
    %
    
    
    0.250
    %90%
    
    
    2.000
    %
    
    
    0.500
    %
 
 (1)
    
    Base rate is defined as for any day a fluctuating rate per annum equal to the higher of: (a)
the Federal Funds Rate plus 1/2 of 1% or (b) the rate of interest in effect for such day as
publicly announced from time to time by Bank of America as its prime rate. The prime rate
is a rate set by Bank of America based upon various factors including Bank of Americas costs
and desired return, general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below such announced rate. Any
change in such rate announced by Bank of America shall take effect at the opening of business
on the day specified in the public announcement of such change.  52




---



##### Table of Contents



Percent ofBorrowing Base
    
    QuarterlyUtilized
    
    Commitment Fee< 50%
    
    
    0.250
    %50% and < 75%
    
    
    0.250
    %75% and < 90%
    
    
    0.375
    %90%
    
    
    0.375
    %
    Mandatorily Redeemable Preferred Stock
  Access to Capital Markets
     53




---



##### Table of Contents



Off Balance Sheet Arrangements
  Analysis of Changes In Cash and Cash Equivalents
  Year Ended December 31,2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005(In thousands)Net income
    
    $
    10,210
    
    
    
    (48
    %)
    
    $
    19,788
    
    
    
    (28
    %)
    
    $
    27,435Non-cash charges
    
    
    82,004
    
    
    
    42
    %
    
    
    57,555
    
    
    
    11
    %
    
    
    51,723Changes in working capital and other items
    
    
    (1,765
    )
    
    NM
    
    
    
    11,344
    
    
    NM
    
    
    
    (14,779
    )Cash flows provided by operating activities
    
    $
    90,449
    
    
    
    2
    %
    
    $
    88,687
    
    
    
    38
    %
    
    $
    64,379Cash flows used by investing activities
    
    
    (99,093
    )
    
    
    (42
    %)
    
    
    (171,747
    )
    
    
    52
    %
    
    
    (113,220
    )Cash flows provided (used) by financing
activities
    
    
    18,207
    
    
    
    (78
    %)
    
    
    83,385
    
    
    
    65
    %
    
    
    50,535Net increase (decrease) in cash and cash
equivalents
    
    $
    9,563
    
    
    
    2,842
    %
    
    $
    325
    
    
    
    (81
    %)
    
    $
    1,694
 Analysis of net cash provided by operating activities
  
    
    A 13% increase in our production volumes from 2006 to 2007 combined with a 7% increase
in prices including hedge settlements from 2006 to 2007 increased net cash provided by
operating activities by $21.1 million.
    
    The change in working capital reduced operating cash flow by $13.1 million.
    
    An increase in net interest expense reduced cash provided by operating activities by
$4.9 million
    
    A reduction in interest income and other income reduced operating cash flow by $0.9
million.
  
    
    An 11% increase in our production volumes from 2005 to 2006 combined with an $8.0
million increase from 2005 to 2006 in the settlements of our derivative contracts increased
net cash provided by operating activities by $19 million. This increase was partially
offset by a $12.3 million decline in revenue due to lower commodity prices.
    
    An increase in production costs, cash general and administrative costs and net interest
expense for 2006 reduced cash provided by operating activities by $11.7 million.
    
    The change in working capital increased cash by $26.1 million.
 Working Capital
   54




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##### Table of Contents



Analysis of changes in cash flows used by investing activities
    2007
    
    
    % Change
    
    
    2006
    
    
    % Change
    
    
    2005Capital expenditures for oil and
natural gas activities:Drilling
    
    $
    96,833
    
    
    
    (32
    %)
    
    $
    142,338
    
    
    
    57
    %
    
    $
    90,873Land and seismic
    
    
    17,527
    
    
    
    (45
    %)
    
    
    31,683
    
    
    
    61
    %
    
    
    19,641Capitalized cost
    
    
    11,631
    
    
    
    17
    %
    
    
    9,954
    
    
    
    47
    %
    
    
    6,789Capitalized asset retirement obligation
    
    
    325
    
    
    
    (47
    %)
    
    
    609
    
    
    
    (54
    %)
    
    
    1,324Total
    
    $
    126,316
    
    
    
    (32
    %)
    
    $
    184,584
    
    
    
    56
    %
    
    $
    118,627Reconciling Items:Granite Wash proceeds & ARO reduction
    
    $
    (36,050
    )
    
    
    100
    %
    
    $
    
    
    
    
    0
    %
    
    $
    Other property and equipment
    
    
    378
    
    
    NM
    
    
    
    (213
    )
    
    
    (81
    %)
    
    
    (1,122
    )Change in accrued drilling costs
    
    
    8,469
    
    
    NM
    
    
    
    (11,092
    )
    
    
    81
    %
    
    
    (6,119
    )Other
    
    
    (20
    )
    
    
    (99
    %)
    
    
    (1,532
    )
    
    NM
    
    
    
    1,834Total Reconciling Items
    
    
    (27,223
    )
    
    
    112
    %
    
    
    (12,837
    )
    
    
    137
    %
    
    
    (5,407
    )Net cash used in investing activities
    
    $
    (99,093
    )
    
    
    (42
    %)
    
    $
    (171,747
    )
    
    
    52
    %
    
    $
    (113,220
    )
 Analysis of changes in cash flows from financing activities
    55




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##### Table of Contents



Common Stock Transactions
   Shares Issued
    
    
    Net Proceeds2007 common stock transactions:Sale of common stock under universal shelf registration statement
    
    
    
    
    
    $
    Exercise of employee stock options
    
    
    123,500
    
    
    
    4722006 common stock transactions:Sale of common stock under universal shelf registration statement
    
    
    
    
    
    $
    Exercise of employee stock options
    
    
    95,100
    
    
    
    4672005 common stock transactions:Sale of common stock under universal shelf registration statement(a)
    
    
    2,500,000
    
    
    $
    28,321Exercise of employee stock options
    
    
    340,467
    
    
    
    1,314
 
 (a)
    
    The net proceeds from the sale were used to repay debt outstanding under our senior credit
agreement. Net proceeds does not include the net proceeds from the sale of common stock used
to purchase 6,125,000 shares of our stock held by funds managed by affiliates of Credit Suisse
First Boston (USA), Inc. Critical Accounting Policies
  Use of Estimates
  Oil and Natural Gas Reserves
   56




---



##### Table of Contents



Oil and Natural Gas Property
      57




---



##### Table of Contents



Asset Retirement Obligations
   Income Taxes
    Revenue Recognition
    58




---



##### Table of Contents



Derivative Instruments and Hedging Activities
    New Accounting Pronouncements
    59




---



##### Table of Contents



Other Matters
 Commodity Prices
    Derivative Instruments
   60




---



##### Table of Contents



Effects of Inflation and Changes in Prices
  Environmental and Other Regulatory Matters
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Management Opinion Concerning Derivative Instruments
  Fair Value of Derivative Contracts
    61




---



##### Table of Contents



Fair Value ofUndesignatedDerivativeContractsEstimated fair value of open contracts at December 31, 2006
    
    $
    6,575Changes in fair values of derivative contracts:Natural gas collars
    
    $
    (9,316
    )Oil collars
    
    
    (2,054
    )Settlements of derivative contracts that were open at December 31, 2006:Natural gas collars
    
    $
    4,478Oil collars
    
    
    (310
    )Estimated fair value of open contracts at December 31, 2007
    
    $
    (627
    )
 Derivative Instruments and Hedging Activities
       62




---



##### Table of Contents



Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars01/01/08 - 01/31/08
    
    
    30,000
    
    
    $
    8.00
    
    
    $
    10.2001/01/08 - 03/31/08
    
    
    150,000
    
    
    $
    8.00
    
    
    $
    13.4001/01/08 - 03/31/08
    
    
    180,000
    
    
    $
    8.85
    
    
    $
    15.0001/01/08 - 03/31/08
    
    
    180,000
    
    
    $
    9.30
    
    
    $
    15.0001/01/08 - 03/31/08
    
    
    300,000
    
    
    $
    7.50
    
    
    $
    13.3001/01/08 - 03/31/08
    
    
    150,000
    
    
    $
    8.00
    
    
    $
    12.6501/01/08 - 03/31/08
    
    
    150,000
    
    
    $
    8.00
    
    
    $
    13.1501/01/08 - 03/31/08
    
    
    240,000
    
    
    $
    6.75
    
    
    $
    8.5002/01/08 - 02/29/08
    
    
    20,000
    
    
    $
    8.00
    
    
    $
    10.2003/01/08 - 03/31/08
    
    
    10,000
    
    
    $
    8.00
    
    
    $
    10.2004/01/08 - 05/31/08
    
    
    140,000
    
    
    $
    7.00
    
    
    $
    8.3504/01/08 - 06/30/08
    
    
    120,000
    
    
    $
    7.00
    
    
    $
    9.0004/01/08 - 07/30/08
    
    
    120,000
    
    
    $
    7.00
    
    
    $
    9.2504/01/08 - 09/30/08
    
    
    420,000
    
    
    $
    6.75
    
    
    $
    9.7504/01/08 - 09/30/08
    
    
    540,000
    
    
    $
    7.00
    
    
    $
    9.6804/01/08 - 10/31/08
    
    
    350,000
    
    
    $
    7.25
    
    
    $
    10.4006/01/08 - 09/30/08
    
    
    120,000
    
    
    $
    7.00
    
    
    $
    8.3507/01/08 - 09/30/08
    
    
    90,000
    
    
    $
    6.75
    
    
    $
    9.6210/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    7.75
    
    
    $
    9.8204/01/09 - 09/30/09
    
    
    300,000
    
    
    $
    7.00
    
    
    $
    9.73
 Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Three Way Costless Collars10/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
 Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Oil Costless Collars01/01/08 - 03/31/08
    
    
    9,000
    
    
    $
    56.00
    
    
    $
    89.9501/01/08 - 03/31/08
    
    
    3,000
    
    
    $
    65.00
    
    
    $
    80.2501/01/08 - 04/31/08
    
    
    8,000
    
    
    $
    60.00
    
    
    $
    74.7501/01/08 - 03/31/08
    
    
    6,000
    
    
    $
    68.40
    
    
    $
    90.0001/01/08 - 01/31/08
    
    
    3,000
    
    
    $
    65.00
    
    
    $
    82.1001/01/08 - 03/31/08
    
    
    7,500
    
    
    $
    57.60
    
    
    $
    90.0001/01/08 - 12/31/08
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    75.5002/01/08 - 02/29/08
    
    
    1,000
    
    
    $
    65.00
    
    
    $
    82.1002/01/08 - 06/30/08
    
    
    5,000
    
    
    $
    65.00
    
    
    $
    82.6004/01/08 - 06/30/08
    
    
    9,000
    
    
    $
    62.00
    
    
    $
    81.6004/01/08 - 10/31/08
    
    
    21,000
    
    
    $
    65.70
    
    
    $
    90.0004/01/08 - 12/31/08
    
    
    18,000
    
    
    $
    57.50
    
    
    $
    76.0007/01/08 - 08/31/08
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6011/01/08 - 06/31/09
    
    
    24,000
    
    
    $
    62.00
    
    
    $
    81.75
  63




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##### Table of Contents



Natural
    
    
    Purchased
    
    
    WrittenGas
    
    
    Put
    
    
    CallSettlement Period
    
    (MMbtu)
    
    
    (Nymex)
    
    
    (Nymex)Natural Gas Costless Collars02/01/08 - 02/29/08
    
    
    80,000
    
    
    $
    6.75
    
    
    $
    9.1003/01/08 - 05/31/08
    
    
    90,000
    
    
    $
    7.00
    
    
    $
    8.7004/01/08 - 04/30/08
    
    
    60,000
    
    
    $
    7.25
    
    
    $
    9.0004/01/08 - 07/31/08
    
    
    200,000
    
    
    $
    7.50
    
    
    $
    10.2005/01/08 - 05/31/08
    
    
    30,000
    
    
    $
    8.50
    
    
    $
    10.4006/01/08 - 06/30/08
    
    
    40,000
    
    
    $
    8.50
    
    
    $
    10.4006/01/08 - 09/30/08
    
    
    80,000
    
    
    $
    7.25
    
    
    $
    9.5307/01/08 - 07/31/08
    
    
    20,000
    
    
    $
    8.50
    
    
    $
    10.4010/01/08 - 03/31/09
    
    
    180,000
    
    
    $
    8.00
    
    
    $
    10.2010/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    11.2004/01/09 - 09/30/09
    
    
    120,000
    
    
    $
    7.25
    
    
    $
    9.80
 Crude
    
    
    Purchased
    
    
    WrittenOil
    
    
    Put
    
    
    CallSettlement Period
    
    (Bbls)
    
    
    (Nymex)
    
    
    (Nymex)Oil Costless Collars03/01/08 - 12/31/08
    
    
    20,000
    
    
    $
    85.00
    
    
    $
    117.00
 Interest Rate Risk
    
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   64




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##### Table of Contents



Item 9A. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
  Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
   65




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    1.
    Consolidated Financial Statements: See Index to Financial Statements on page F-1.
 2.
    
    No schedules are required.3.
    
    Exhibits:
   66




---



##### Table of Contents



GLOSSARY OF OIL AND GAS TERMS
  3-D seismic.
 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.
 Mcfe.
 MMBtu.
 MMcf.
  67




---



##### Table of Contents



MMcfe.
 MMcfe/d.
 Net Acres or Net Wells.
 Net Production.
 Oil.
 Operator.
 Pay.
 Pre-tax PV10%.
 Proved Developed Reserves.
 Proved Reserves.
 Proved Undeveloped Reserves.
 Royalty.
 Spud.
 Standardized Measure.
 Trend.
 Working Interest.
  68




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##### Table of Contents



SIGNATURES
  BRIGHAM
EXPLORATION COMPANYBy
    /s/  BEN M. BRIGHAMBen M. BrighamChief Executive Officer,

President and Chairman of the Board  /s/  BEN M. BRIGHAM

Ben 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. BRIGHAM

David T. Brigham
    
    Executive Vice President  Land and
Administration and Director/s/  HAROLD D. CARTER

Harold D. Carter
    
    Director/s/  STEPHEN C. HURLEY

Stephen C. Hurley
    
    Director/s/  STEPHEN P. REYNOLDS

Stephen P. Reynolds
    
    Director/s/  HOBART A. SMITH

Hobart A. Smith
    
    Director/s/  SCOTT W. TINKER

Scott W. Tinker
    
    Director
  69




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 INDEX TO FINANCIAL STATEMENTS
 PageReports of Independent Registered Public Accounting Firms
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    F-5Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    F-6Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2007, 2006
and 2005
    
    F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    
    F-8Notes to the Consolidated Financial Statements
    
    F-9Supplemental Oil and Gas Information (Unaudited)
    
    F-31Supplemental
Quarterly Financial Information (Unaudited)
    
    F-34
  F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment
 Internal Control  Integrated Framework
  
  F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework .
    Internal Control  Integrated Framework .
 .
  
  F-3




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
  F-4




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,863
    
    
    $
    4,300Accounts receivable
    
    
    14,609
    
    
    
    18,352Derivative assets
    
    
    1,416
    
    
    
    5,676Other current assets
    
    
    2,617
    
    
    
    2,390Property held for sale
    
    
    
    
    
    
    500Total current assets
    
    
    32,505
    
    
    
    31,218Oil and natural gas properties, using the full cost method of accountingProved
    
    
    728,607
    
    
    
    631,339Unproved
    
    
    61,544
    
    
    
    75,051Accumulated depletion
    
    
    (279,944
    )
    
    
    (220,865
    )510,207
    
    
    
    485,525Other property and equipment, net
    
    
    1,034
    
    
    
    936Deferred loan fees
    
    
    3,687
    
    
    
    3,420Other noncurrent assets
    
    
    995
    
    
    
    1,488Total assets
    
    $
    548,428
    
    
    $
    522,587LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,301
    
    
    $
    19,464Royalties payable
    
    
    5,978
    
    
    
    5,012Accrued drilling costs
    
    
    14,841
    
    
    
    23,310Participant advances received
    
    
    2,095
    
    
    
    3,990Other current liabilities
    
    
    6,503
    
    
    
    5,677Total current liabilities
    
    
    41,718
    
    
    
    57,453Senior Notes
    
    
    158,492
    
    
    
    123,434Senior credit facility
    
    
    10,000
    
    
    
    25,900Series A Preferred Stock, mandatorily redeemable, $.01 par value, $20
stated and redemption value, 2,250,000 shares authorized, 505,051 and
505,051 shares issued and outstanding at December 31, 2007 and 2006,
respectively
    
    
    10,101
    
    
    
    10,101Deferred income taxes
    
    
    41,625
    
    
    
    34,609Other taxes payable
    
    
    2,162
    
    
    
    Other noncurrent liabilities
    
    
    5,303
    
    
    
    5,075Commitments and contingencies (Note 9)
    
    
    
    
    
    
    Stockholders equity:Common stock, $.01 par value, 90 million shares authorized, 45,304,139
and 45,090,398 shares issued and 45,197,303 and 45,011,362 shares
outstanding at December 31, 2007 and 2006, respectively
    
    
    453
    
    
    
    451Additional paid-in capital
    
    
    207,526
    
    
    
    203,643Treasury stock, at cost; 106,836 and 79,036 shares at December 31, 2007
and 2006, respectively
    
    
    (854
    )
    
    
    (662
    )Accumulated other comprehensive income (loss)
    
    
    115
    
    
    
    1,006Retained earnings
    
    
    71,787
    
    
    
    61,577Total stockholders equity
    
    
    279,027
    
    
    
    266,015Total liabilities and stockholders equity
    
    $
    548,428
    
    
    $
    522,587
   F-5




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Oil and natural gas sales
    
    $
    120,557
    
    
    $
    102,835
    
    
    $
    96,820Gain (loss) on derivatives, net
    
    
    (1,664
    )
    
    
    3,335
    
    
    
    Other revenue
    
    
    88
    
    
    
    127
    
    
    
    220118,981
    
    
    
    106,297
    
    
    
    97,040Costs and expenses:Lease operating
    
    
    10,704
    
    
    
    10,701
    
    
    
    7,161Production taxes
    
    
    2,541
    
    
    
    4,021
    
    
    
    3,353General and administrative
    
    
    9,276
    
    
    
    7,887
    
    
    
    5,533Depletion of oil and natural gas properties
    
    
    59,079
    
    
    
    46,386
    
    
    
    33,268Impairment of oil and natural gas properties
    
    
    6,505
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    613
    
    
    
    537
    
    
    
    762Accretion of discount on asset retirement obligations
    
    
    379
    
    
    
    317
    
    
    
    18089,097
    
    
    
    69,849
    
    
    
    50,257Operating income
    
    
    29,884
    
    
    
    36,448
    
    
    
    46,783Other income (expense):Interest income
    
    
    654
    
    
    
    1,207
    
    
    
    245Interest expense, net
    
    
    (14,622
    )
    
    
    (9,688
    )
    
    
    (3,980
    )Other income (expense)
    
    
    1,022
    
    
    
    4,565
    
    
    
    (576
    )(12,946
    )
    
    
    (3,916
    )
    
    
    (4,311
    )Income before income taxes
    
    
    16,938
    
    
    
    32,532
    
    
    
    42,472Income tax benefit (expense):Current
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    (6,728
    )
    
    
    (12,744
    )
    
    
    (15,037
    )(6,728
    )
    
    
    (12,744
    )
    
    
    (15,037
    )Net Income
    
    $
    10,210
    
    
    $
    19,788
    
    
    $
    27,435Net income (loss) per share available to common stockholders:Basic
    
    $
    0.23
    
    
    $
    0.44
    
    
    $
    0.65Diluted
    
    $
    0.22
    
    
    $
    0.43
    
    
    $
    0.63Weighted average common shares outstanding:Basic
    
    
    45,110
    
    
    
    45,017
    
    
    
    42,481Diluted
    
    
    45,531
    
    
    
    45,597
    
    
    
    43,728
   F-6




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
 AccumulatedOther
    
    
    RetainedAdditional
    
    
    
    
    
    
    Unearned
    
    
    Comprehensive
    
    
    Earnings
    
    
    TotalCommon Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Stock
    
    
    Income
    
    
    (Accumulated
    
    
    StockholdersShares
    
    
    Amounts
    
    
    Capital
    
    
    Stock
    
    
    Compensation
    
    
    (Loss)
    
    
    Deficit)
    
    
    EquityBalance, December 31, 2004
    
    
    43,231
    
    
    $
    432
    
    
    $
    175,270
    
    
    $
    (4,707
    )
    
    $
    (1,570
    )
    
    $
    (503
    )
    
    $
    14,354
    
    
    $
    183,276Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,435
    
    
    
    27,435Unrealized losses on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (603
    )
    
    
    
    
    
    
    (603
    )Tax provisions related to cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Net losses included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    723
    
    
    
    
    
    
    
    723Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,512Issuance of common stock
    
    
    2,500
    
    
    
    25
    
    
    
    28,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,231Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    1,435
    
    
    
    
    
    
    
    (1,435
    )
    
    
    
    
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    65
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    340
    
    
    
    3
    
    
    
    1,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,314Tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    791
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    791Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190
    )Retirement of treasury stock
    
    
    (1,218
    )
    
    
    (12
    )
    
    
    (4,885
    )
    
    
    4,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    706
    
    
    
    
    
    
    
    
    
    
    
    706Balance, December 31, 2005
    
    
    44,918
    
    
    $
    449
    
    
    $
    202,127
    
    
    $
    
    
    
    $
    (2,299
    )
    
    $
    (426
    )
    
    $
    41,789
    
    
    $
    241,640Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,788
    
    
    
    19,788Unrealized gains (losses) on cash flow
hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,016
    
    
    
    
    
    
    
    8,016Tax provisions related to cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770
    )
    
    
    
    
    
    
    (770
    )Net (gains) losses included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,814
    )
    
    
    
    
    
    
    (5,814
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,220Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Vesting of restricted stock
    
    
    77
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    95
    
    
    
    1
    
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    469Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )Forfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    (432
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adoption of FAS 123R
    
    
    
    
    
    
    
    
    
    
    (2,299
    )
    
    
    
    
    
    
    2,299
    
    
    
    
    
    
    
    
    
    
    
    Vesting of share-based payments
    
    
    
    
    
    
    
    
    
    
    2,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,879Balance, December 31, 2006
    
    
    45,090
    
    
    $
    451
    
    
    $
    203,643
    
    
    $
    (662
    )
    
    $
    
    
    
    $
    1,006
    
    
    $
    61,577
    
    
    $
    266,015Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,210
    
    
    
    10,210Tax provisions related to cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480
    
    
    
    
    
    
    
    480Net (gains) losses included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,371
    )
    
    
    
    
    
    
    (1,371
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,319Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vesting of restricted stock
    
    
    90
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    124
    
    
    
    1
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192
    )Vesting of share-based payments
    
    
    
    
    
    
    
    
    
    
    3,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,443Balance, December 31, 2007
    
    
    45,304
    
    
    $
    453
    
    
    $
    207,526
    
    
    $
    (854
    )
    
    $
    
    
    
    $
    115
    
    
    $
    71,787
    
    
    $
    279,027
   F-7




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    10,210
    
    
    $
    19,788
    
    
    $
    27,435Adjustments to reconcile net income to cash provided (used) by
operating activities:Depletion of oil and natural gas properties
    
    
    59,079
    
    
    
    46,386
    
    
    
    33,268Impairment of oil and natural gas properties
    
    
    6,505
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    613
    
    
    
    537
    
    
    
    762Interest paid through issuance of additional mandatorily
redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    581Stock based compensation
    
    
    1,905
    
    
    
    1,571
    
    
    
    Write-off of deferred loan costs
    
    
    
    
    
    
    965
    
    
    
    Amortization of discount and deferred loan fees
    
    
    968
    
    
    
    717
    
    
    
    491Accretion of discount on asset retirement obligations
    
    
    379
    
    
    
    317
    
    
    
    180Market value adjustment for derivative instruments
    
    
    5,831
    
    
    
    (5,794
    )
    
    
    814Deferred income taxes
    
    
    6,728
    
    
    
    12,744
    
    
    
    15,037Provision for doubtful accounts
    
    
    
    
    
    
    48
    
    
    
    456Other noncash items
    
    
    (4
    )
    
    
    64
    
    
    
    134Changes in working capital and other items:Accounts receivable
    
    
    3,743
    
    
    
    4,425
    
    
    
    (3,766
    )Other current assets
    
    
    1,183
    
    
    
    (1,874
    )
    
    
    (61
    )Accounts and royalties payable
    
    
    (6,197
    )
    
    
    7,336
    
    
    
    (9,456
    )Other current liabilities
    
    
    (890
    )
    
    
    1,803
    
    
    
    (989
    )Noncurrent assets
    
    
    514
    
    
    
    
    
    
    
    (514
    )Noncurrent liabilities
    
    
    (118
    )
    
    
    (346
    )
    
    
    7Net cash provided by operating activities
    
    
    90,449
    
    
    
    88,687
    
    
    
    64,379Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (132,932
    )
    
    
    (171,597
    )
    
    
    (112,856
    )Proceeds from sale of oil and natural gas properties
    
    
    35,446
    
    
    
    25
    
    
    
    9Additions to other property and equipment
    
    
    (707
    )
    
    
    (510
    )
    
    
    (345
    )(Increase) decrease in drilling advances paid
    
    
    (900
    )
    
    
    335
    
    
    
    (28
    )Net cash used by investing activities
    
    
    (99,093
    )
    
    
    (171,747
    )
    
    
    (113,220
    )Cash flows from financing activities:Proceeds from issuance of common stock, net of issuance costs
    
    
    
    
    
    
    37
    
    
    
    28,231Proceeds from issuance of senior subordinated notes and warrants
    
    
    
    
    
    
    
    
    
    
    10,000Proceeds from exercise of employee stock options
    
    
    472
    
    
    
    469
    
    
    
    1,314Proceeds from Senior Notes offering
    
    
    34,825
    
    
    
    123,286
    
    
    
    Repurchases of common stock
    
    
    (192
    )
    
    
    (230
    )
    
    
    (190
    )Increase in senior credit facility
    
    
    58,800
    
    
    
    55,800
    
    
    
    63,100Repayment of senior credit facility
    
    
    (74,700
    )
    
    
    (63,000
    )
    
    
    (51,000
    )Principal payments on senior subordinated notes
    
    
    
    
    
    
    (30,000
    )
    
    
    Deferred loan fees paid and equity costs
    
    
    (998
    )
    
    
    (2,977
    )
    
    
    (920
    )Net cash provided (used) by financing activities
    
    
    18,207
    
    
    
    83,385
    
    
    
    50,535Net increase (decrease) in cash and cash equivalents
    
    
    9,563
    
    
    
    325
    
    
    
    1,694Cash and cash equivalents, beginning of year
    
    
    4,300
    
    
    
    3,975
    
    
    
    2,281Cash and cash equivalents, end of year
    
    $
    13,863
    
    
    $
    4,300
    
    
    $
    3,975
   F-8




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Nature of Operations
  2. Summary of Significant Accounting Policies
 Use of Estimates
  Principles of Consolidation
  Cash and Cash Equivalents
  Property and Equipment
    F-9




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Furniture and fixtures
    
    10 yearsMachinery and equipment
    
    5 years3-D seismic interpretation workstations and software
    
    3 years
  Asset Retirement Obligations
  Revenue Recognition
   Derivative Instruments and Hedging Activities
   F-10




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Other Comprehensive Income (Loss)
   2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    $
    1,006
    
    
    $
    (426
    )
    
    $
    (503
    )Current period settlements reclassified to earnings
    
    
    
    
    
    
    (3,042
    )
    
    
    4,174Current period change in fair value of hedges
    
    
    
    
    
    
    11,058
    
    
    
    (4,777
    )Tax benefits (provisions) related to cash flow hedges
    
    
    480
    
    
    
    (770
    )
    
    
    (43
    )Net (gains) losses included in earnings
    
    
    (1,371
    )
    
    
    (5,814
    )
    
    
    723Balance, end of year
    
    $
    115
    
    
    $
    1,006
    
    
    $
    (426
    )
  F-11




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Stock Based Compensation
   Income Taxes
  Deferred Loan Fees
  Segment Information
  Treasury Stock
  Mandatorily Redeemable Preferred Stock
   F-12




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 New Pronouncements
      3. Property and Equipment
  December 31,2007
    
    
    2006Oil and natural gas properties
    
    $
    790,151
    
    
    $
    706,390Accumulated depletion
    
    
    (279,944
    )
    
    
    (220,865
    )510,207
    
    
    
    485,525Other property and equipment:3-D seismic interpretation workstations and software
    
    
    1,442
    
    
    
    1,357Office furniture and equipment
    
    
    3,110
    
    
    
    2,817Accumulated depreciation
    
    
    (3,518
    )
    
    
    (3,238
    )1,034
    
    
    
    936$
    511,241
    
    
    $
    486,461
  F-13




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Year Ended December 31,2007
    
    
    2006
    
    
    2005Capitalized certain payroll and other internal costs
    
    $
    8,164
    
    
    $
    7,118
    
    
    $
    4,847Capitalized interest costs
    
    
    3,467
    
    
    
    2,836
    
    
    
    1,604$
    11,631
    
    
    $
    9,954
    
    
    $
    6,451
      F-14




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4.
Senior Credit Facility, Senior Notes, and Senior Subordinated Notes
  December 31,2007
    
    
    2006(In thousands)Senior Credit Facility
    
    $
    10,000
    
    
    $
    25,900Senior Notes
    
    
    160,000
    
    
    
    125,000Discount on Senior Notes
    
    
    (1,508
    )
    
    
    (1,566
    )Total Debt
    
    $
    168,492
    
    
    $
    149,334Less: Current Maturities
    
    
    
    
    
    
    Total Long-Term Debt
    
    $
    168,492
    
    
    $
    149,334
 Senior Credit Facility
     Senior Subordinated Notes
   F-15




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Senior Notes
    5. Preferred Stock
 Series A Mandatorily Redeemable Preferred Stock
  Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006Shares
    
    
    Amounts
    
    
    Shares
    
    
    AmountsBalance, beginning of year
    
    
    505,051
    
    
    $
    10,101
    
    
    
    505,051
    
    
    $
    10,101Balance, end of year
    
    
    505,051
    
    
    $
    10,101
    
    
    
    505,051
    
    
    $
    10,101
   F-16




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 6. Asset Retirement Obligations
   Year EndedDecember 31,2007
    
    
    2006Beginning asset retirement obligations
    
    $
    5,002
    
    
    $
    4,390Liabilities incurred for new wells placed on production
    
    
    326
    
    
    
    608Liabilities settled
    
    
    (45
    )
    
    
    (313
    )Revisions to estimates due to sale of oil and gas properties
    
    
    (615
    )
    
    
    Accretion of discount on asset retirement obligations
    
    
    379
    
    
    
    317$
    5,047
    
    
    $
    5,002
 7. Income Taxes
   Year Ended December 31,2007
    
    
    2006
    
    
    2005Current income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Deferred income taxes:Federal
    
    
    5,827
    
    
    
    11,528
    
    
    
    15,037State
    
    
    901
    
    
    
    1,216
    
    
    
    $
    6,728
    
    
    $
    12,744
    
    
    $
    15,037
  F-17




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Tax at statutory rate
    
    $
    5,929
    
    
    $
    11,386
    
    
    $
    14,865Add the effect of:Nondeductible expenses
    
    
    6
    
    
    
    27
    
    
    
    Deductible stock compensation
    
    
    
    
    
    
    
    
    
    
    (91
    )Preferred stock dividends
    
    
    212
    
    
    
    212
    
    
    
    257Incentive stock options not exercised
    
    
    34
    
    
    
    252
    
    
    
    State income taxes, net of federal deduction
    
    
    586
    
    
    
    872
    
    
    
    Change in valuation allowance
    
    
    (61
    )
    
    
    
    
    
    
    Other
    
    
    22
    
    
    
    (5
    )
    
    
    6$
    6,728
    
    
    $
    12,744
    
    
    $
    15,037
  December 31,2007
    
    
    2006Deferred tax assetsCurrent:Unrealized hedging and other derivative losses
    
    $
    138
    
    
    $
    State deferred taxes
    
    
    741
    
    
    
    Other
    
    
    36
    
    
    
    Current
    
    
    915
    
    
    
    Non-current:Net operating loss carryforwards (NOLs)
    
    
    53,039
    
    
    
    40,338Capital loss carryforwards
    
    
    
    
    
    
    61Percentage depletion carryforwards
    
    
    3,448
    
    
    
    2,971Stock compensation
    
    
    2,263
    
    
    
    1,516Asset retirement obligations
    
    
    1,766
    
    
    
    1,751Other
    
    
    49
    
    
    
    (85
    )Non-current
    
    
    60,565
    
    
    
    46,55261,480
    
    
    
    46,552Valuation allowance
    
    
    (3,448
    )
    
    
    (3,032
    )Total net deferred tax assets
    
    
    58,032
    
    
    
    43,520Deferred tax liabilitiesCurrent:Unrealized derivative gains
    
    $
    
    
    
    $
    (1,986
    )Current
    
    
    
    
    
    
    (1,986
    )Non-current:Depreciable and depletable property
    
    
    (96,698
    )
    
    
    (76,713
    )Other
    
    
    74
    
    
    
    (200
    )Non-current
    
    
    (96,624
    )
    
    
    (76,913
    )Total net deferred tax liabilities
    
    
    (96,624
    )
    
    
    (78,899
    )Total federal deferred tax asset (liability)
    
    
    (38,592
    )
    
    
    (35,379
    )Total state deferred tax asset (liability)
    
    
    (2,117
    )
    
    
    (1,216
    )Total deferred tax asset (liability)
    
    $
    (40,709
    )
    
    $
    (36,595
    )
  F-18




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      (In thousands)Increases (decreases) resulting from adoption of FIN 48
    
    $
    2,139Increases (decreases) resulting from tax positions taken in the current period
    
    
    23Decreases relating to settlements with taxing authorities
    
    
    Reductions resulting from the lapse of applicable statutes of limitations
    
    
    Unrecognized tax benefits at December 31, 2007
    
    $
    2,162
   F-19




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  8. Net Income Available Per Common Share
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Basic EPS:Income (loss) available to common stockholders
    
    $
    10,210
    
    
    $
    19,788
    
    
    $
    27,435Weighted average common shares outstanding  basic
    
    
    45,110
    
    
    
    45,017
    
    
    
    42,481Basic EPS:Income (loss) available to common stockholders
    
    $
    0.23
    
    
    $
    0.44
    
    
    $
    0.65Diluted EPS:Income (loss) available to common stockholders  diluted
    
    $
    10,210
    
    
    $
    19,788
    
    
    $
    27,435Common shares outstanding
    
    
    45,110
    
    
    
    45,017
    
    
    
    42,481Effect of dilutive securities:Stock options and restricted stock
    
    
    421
    
    
    
    580
    
    
    
    1,247Potentially dilutive common shares
    
    
    421
    
    
    
    580
    
    
    
    1,247Adjusted common shares outstanding  diluted
    
    
    45,531
    
    
    
    45,597
    
    
    
    43,728Diluted EPS:Income (loss) available to common stockholders
    
    $
    0.22
    
    
    $
    0.43
    
    
    $
    0.63
  9. Contingencies, Commitments and Factors Which May Affect Future Operations
 Litigation
   F-20




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Operating Lease Commitments
  2008
    
    $
    6942009
    
    
    7042010
    
    
    7212011
    
    
    7382012
    
    
    378$
    3,235
  Major Purchasers
  2007
    
    
    2006
    
    
    2005Purchaser A
    
    
    
    
    
    
    15
    %
    
    
    20
    %Purchaser B
    
    
    13
    %
    
    
    14
    %
    
    
    Purchaser C
    
    
    27
    %
    
    
    
    
    
    
    Purchaser D
    
    
    13
    %
    
    
    
    
    
    
    Purchaser E
    
    
    11
    %
    
    
    
    
    
    
    
  Factors Which May Affect Future Operations
  10. Derivative Instruments and Hedging Activities
   F-21




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Natural Gas and Crude Oil Derivative Contracts
 Cash flow hedges
     Year Ended December 31,2007
    
    
    2006
    
    
    2005Natural gasAverage price per Mcf realized excluding gas hedging results
    
    $
    7.30
    
    
    $
    6.74
    
    
    $
    8.29Average price per Mcf including gas hedging settlement results
    
    $
    7.66
    
    
    $
    7.09
    
    
    $
    7.97Increase (decrease) in revenue, in thousands
    
    $
    4,478
    
    
    $
    3,639
    
    
    $
    (2,925
    )Average price per Mcf including gas hedging settlement
results and any unrealized gains (losses)
    
    $
    7.38
    
    
    $
    7.31
    
    
    NAIncrease (decrease) in revenue, in thousands
    
    $
    975
    
    
    $
    6,044
    
    
    NAOilAverage price per Bbl realized excluding oil hedging results
    
    $
    72.30
    
    
    $
    64.04
    
    
    $
    54.73Average price per Bbl including oil hedging settlement results
    
    $
    71.51
    
    
    $
    64.39
    
    
    $
    51.95Increase (decrease) in revenue, in thousands
    
    $
    (311
    )
    
    $
    157
    
    
    $
    (1,249
    )Average price per Mcf including oil hedging settlement
results and any unrealized gains (losses)
    
    $
    65.57
    
    
    $
    64.79
    
    
    NAIncrease (decrease) in revenue, in thousands
    
    $
    (2,639
    )
    
    $
    332
    
    
    NA
  F-22




---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Natural
    
    
    
    
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexNatural Gas Costless Collars01/01/08 - 03/31/08
    
    
    240,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    8.5001/01/08 - 03/31/08
    
    
    150,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    13.4001/01/08 - 03/31/08
    
    
    180,000
    
    
    
    
    
    
    $
    8.85
    
    
    $
    15.0001/01/08 - 03/31/08
    
    
    180,000
    
    
    
    
    
    
    $
    9.30
    
    
    $
    15.0001/01/08 - 03/31/08
    
    
    300,000
    
    
    
    
    
    
    $
    7.50
    
    
    $
    13.3001/01/08 - 03/31/08
    
    
    60,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    10.2001/01/08 - 03/31/08
    
    
    150,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    12.6501/01/08 - 03/31/08
    
    
    150,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    13.1504/01/08 - 07/31/08
    
    
    120,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.2504/01/08 - 06/30/08
    
    
    120,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.0004/01/08 - 09/30/08
    
    
    420,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.7504/01/08 - 09/30/08
    
    
    260,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    8.3504/01/08 - 09/30/08
    
    
    540,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.6804/01/08 - 10/31/08
    
    
    350,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    10.4007/01/08 - 09/30/08
    
    
    90,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.6210/01/08 - 03/31/09
    
    
    300,000
    
    
    
    
    
    
    $
    7.75
    
    
    $
    9.8204/01/09 - 09/30/09
    
    
    300,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    9.73Oil Costless Collars01/01/08 - 04/30/08
    
    
    
    
    
    
    8,000
    
    
    $
    60.00
    
    
    $
    74.7501/01/08 - 02/29/08
    
    
    
    
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    82.1001/01/08 - 03/31/08
    
    
    
    
    
    
    9,000
    
    
    $
    56.00
    
    
    $
    89.9501/01/08 - 03/31/08
    
    
    
    
    
    
    3,000
    
    
    $
    65.00
    
    
    $
    80.2501/01/08 - 03/31/08
    
    
    
    
    
    
    6,000
    
    
    $
    68.40
    
    
    $
    90.0001/01/08 - 03/31/08
    
    
    
    
    
    
    7,500
    
    
    $
    57.60
    
    
    $
    90.0001/01/08 - 12/31/08
    
    
    
    
    
    
    24,000
    
    
    $
    57.50
    
    
    $
    75.5002/01/08 - 06/30/08
    
    
    
    
    
    
    5,000
    
    
    $
    65.00
    
    
    $
    82.6004/01/08 - 06/30/08
    
    
    
    
    
    
    9,000
    
    
    $
    62.00
    
    
    $
    81.6004/01/08 - 10/31/08
    
    
    
    
    
    
    21,000
    
    
    $
    65.70
    
    
    $
    90.0004/01/08 - 12/31/08
    
    
    
    
    
    
    18,000
    
    
    $
    57.50
    
    
    $
    76.0007/01/08 - 08/31/08
    
    
    
    
    
    
    4,000
    
    
    $
    65.00
    
    
    $
    80.6011/01/08 - 06/30/09
    
    
    
    
    
    
    24,000
    
    
    $
    62.00
    
    
    $
    81.75
 Natural
    
    
    Purchased
    
    
    Written
    
    
    WrittenGas
    
    
    Put
    
    
    Call
    
    
    PutSettlement Period
    
    (MMBTU)
    
    
    Nymex
    
    
    Nymex
    
    
    NymexNatural Gas Three Way Costless Collars10/01/08 - 03/31/09
    
    
    300,000
    
    
    $
    8.00
    
    
    $
    10.35
    
    
    $
    5.50
  F-23




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Natural
    
    
    
    
    
    
    Purchased
    
    
    WrittenGas
    
    
    Oil
    
    
    Put
    
    
    CallSettlement Period
    
    (MMBTU)
    
    
    (Barrels)
    
    
    Nymex
    
    
    NymexNatural Gas Costless Collars02/01/08 - 02/29/08
    
    
    80,000
    
    
    
    
    
    
    $
    6.75
    
    
    $
    9.1003/01/08 - 05/31/08
    
    
    90,000
    
    
    
    
    
    
    $
    7.00
    
    
    $
    8.7004/01/08 - 04/30/08
    
    
    60,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.0004/01/08 - 07/31/08
    
    
    200,000
    
    
    
    
    
    
    $
    7.50
    
    
    $
    10.2005/01/08 - 07/31/08
    
    
    90,000
    
    
    
    
    
    
    $
    8.50
    
    
    $
    10.4006/01/08 - 09/30/08
    
    
    80,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.5310/01/08 - 03/31/09
    
    
    180,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    10.2010/01/08 - 03/31/09
    
    
    300,000
    
    
    
    
    
    
    $
    8.00
    
    
    $
    11.2004/01/09 - 09/30/09
    
    
    120,000
    
    
    
    
    
    
    $
    7.25
    
    
    $
    9.80Oil Costless Collars03/01/08 - 12/31/08
    
    
    
    
    
    
    20,000
    
    
    $
    85.00
    
    
    $
    117.00
 Interest rate swap
   Fair values
  December 31,2007
    
    
    2006Other current liabilities
    
    $
    (1,812
    )
    
    $
    (5
    )Other noncurrent liabilities
    
    
    (256
    )
    
    
    Current derivative assets
    
    
    1,416
    
    
    
    5,676Other noncurrent assets
    
    
    25
    
    
    
    904Net fair value of derivative contracts
    
    $
    (627
    )
    
    $
    6,575
  F-24




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Financial Instruments
   12. Stock Based Compensation
   2007
    
    
    2006
    
    
    2005Risk-free interest rate
    
    
    3.88
    %
    
  
    4.7
    %
    
    
    4.29
    %Expected life (in years)
    
    
    5.0
    
  
    
    5.0
    
    
    
    4.2Expected volatility
    
    
    47
    %
    
  
    52
    %
    
    
    43
    %Expected dividend yield
    
    
    
    
  
    
    
    
    
    
    Weighted average fair value per share of stock compensation
    
    $
    3.21
    
  
    $
    3.33
    
    
    $
    4.78
   F-25




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Twelve MonthsEndedDec 31, 2005Net income, as reported
    
    $
    27,435Add back: Stock compensation expense
previously included in net income
    
    
    462Effect of total employee stock-based
compensation expense, determined under
fair value method for all awards
    
    
    (1,330
    )Pro forma
    
    $
    26,567Net income per share:Basic, as reported
    
    $
    0.65Basic, pro forma
    
    
    0.63Diluted, as reported
    
    $
    0.63Diluted, pro forma
    
    
    0.61
  Twelve Months EndedDecember 31,2007
    
    
    2006
    
    
    2005Pre-tax stock based compensation expense
    
    $
    3,443
    
    
    $
    2,879
    
    
    $
    706Capitalized stock based compensation
    
    
    (1,538
    )
    
    
    (1,308
    )
    
    
    (337
    )Tax benefit
    
    
    (667
    )
    
    
    (550
    )
    
    
    (129
    )Stock based compensation expense, net
    
    $
    1,238
    
    
    $
    1,021
    
    
    $
    240
   F-26




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    2007
    
    
    2006
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding at beginning
of year
    
    
    3,243,566
    
    
    $
    7.08
    
    
    
    2,946,333
    
    
    $
    6.96
    
    
    
    2,977,600
    
    
    $
    6.01Granted
    
    
    105,000
    
    
    $
    7.06
    
    
    
    608,000
    
    
    $
    6.57
    
    
    
    350,000
    
    
    $
    12.13Forfeited or cancelled
    
    
    (178,900
    )
    
    $
    8.19
    
    
    
    (215,667
    )
    
    $
    4.96
    
    
    
    (40,800
    )
    
    $
    6.92Exercised
    
    
    (123,500
    )
    
    $
    3.82
    
    
    
    (95,100
    )
    
    $
    4.93
    
    
    
    (340,467
    )
    
    $
    3.88Options outstanding at end of year
    
    
    3,046,166
    
    
    $
    7.14
    
    
    
    3,243,566
    
    
    $
    7.08
    
    
    
    2,946,333
    
    
    $
    6.96Options exercisable at end of year
    
    
    1,869,066
    
    
    $
    6.62
    
    
    
    1,439,866
    
    
    $
    6.18
    
    
    
    1,085,133
    
    
    $
    5.31
   Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-Number
    
    
    Average
    
    
    Weighted-
    
    
    Number
    
    
    Average
    
    
    Weighted-Outstanding at
    
    
    Remaining
    
    
    Average
    
    
    Exercisable at
    
    
    Remaining
    
    
    AverageDecember 31,
    
    
    Contractual
    
    
    Exercise
    
    
    December 31,
    
    
    Contractual
    
    
    ExerciseExercise Price
    
    2007
    
    
    Life
    
    
    Price
    
    
    2007
    
    
    Life
    
    
    Price$ 3.05 to $ 3.41
    
    
    207,366
    
    
    0.9 years
    
    $
    3.35
    
    
    
    207,366
    
    
    0.9 years
    
    $
    3.353.66 to    5.08
    
    
    388,900
    
    
    1.7 years
    
    $
    4.30
    
    
    
    385,400
    
    
    1.7 years
    
    $
    4.296.10 to    6.73
    
    
    1,255,000
    
    
    3.9 years
    
    $
    6.49
    
    
    
    709,000
    
    
    3.2 years
    
    $
    6.627.22 to    8.84
    
    
    828,900
    
    
    4.2 years
    
    $
    8.47
    
    
    
    419,300
    
    
    3.7 years
    
    $
    8.658.93
to  12.31
    
    
    366,000
    
    
    4.7 years
    
    $
    11.54
    
    
    
    148,000
    
    
    4.7 years
    
    $
    11.513.05 to  12.31
    
    
    3,046,166
    
    
    3.6 years
    
    $
    7.14
    
    
    
    1,869,066
    
    
    2.9 years
    
    $
    6.62
  F-27




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Restricted Stock
   Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006Weighted-
    
    
    
    
    
    
    Weighted-Number of
    
    
    Average
    
    
    Number of
    
    
    AverageShares
    
    
    Price
    
    
    Shares
    
    
    PriceRestricted Stock Awards:Restricted shares outstanding at the beginning of the year
    
    
    391,367
    
    
    $
    8.60
    
    
    
    397,650
    
    
    $
    7.22Shares granted
    
    
    379,550
    
    
    $
    5.78
    
    
    
    129,595
    
    
    $
    10.84Lapse of restrictions
    
    
    (90,241
    )
    
    $
    7.24
    
    
    
    (77,530
    )
    
    $
    6.37Forfeitures
    
    
    (27,053
    )
    
    $
    8.35
    
    
    
    (58,348
    )
    
    $
    8.16Restricted shares outstanding at the end of the year
    
    
    653,623
    
    
    $
    7.16
    
    
    
    391,367
    
    
    $
    8.60
 13. Employee Benefit Plans
   F-28




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 14. Related Party Transactions
     15. Supplemental Cash Flow Information
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash paid for interest, net of capitalized amounts
    
    $
    14,059
    
    
    $
    5,893
    
    
    $
    2,575Noncash investing and financing activities:Dividends and accretion on mandatorily
redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    581Capitalized asset retirement obligations
    
    
    325
    
    
    
    610
    
    
    
    1,324Accrued drilling costs
    
    
    (8,469
    )
    
    
    11,092
    
    
    
    6,119Capitalized stock compensation
    
    
    1,538
    
    
    
    1,308
    
    
    
    337Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    1,435
  F-29




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 16. Other Assets and Liabilities
  December 312007
    
    
    2006Prepayments
    
    $
    949
    
    
    $
    932Deferred taxes
    
    
    914
    
    
    
    Other
    
    
    754
    
    
    
    1,458$
    2,617
    
    
    $
    2,390
  December 312007
    
    
    2006Accrued interest
    
    $
    2,645
    
    
    $
    2,191Derivative liabilities
    
    
    1,812
    
    
    
    5Other accrued liabilities
    
    
    2,046
    
    
    
    3,481$
    6,503
    
    
    $
    5,677
  F-30




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##### Table of Contents



BRIGHAM EXPORATION COMPANY
 
 SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
 Oil and Natural Gas Exploration and Production Activities
  Costs Incurred and Capitalized Costs
  December 31,2007
    
    
    2006
    
    
    2005Costs incurred for the year:Exploration (including geological and geophysical costs)
    
    $
    37,324
    
    
    $
    77,704
    
    
    $
    54,338Property acquisition
    
    
    18,554
    
    
    
    15,846
    
    
    
    15,701Development
    
    
    69,851
    
    
    
    91,058
    
    
    
    48,588$
    125,729
    
    
    $
    184,608
    
    
    $
    118,627
  December 31,
    
    
    Prior2007
    
    
    2006
    
    
    2005
    
    
    Years
    
    
    TotalProperty acquisition
    
    $
    5,028
    
    
    $
    2,008
    
    
    $
    5,522
    
    
    $
    7,566
    
    
    $
    20,124Exploration
(including
geological and
geophysical costs)
    
    
    3,088
    
    
    
    16,719
    
    
    
    3,625
    
    
    
    11,386
    
    
    
    34,818Drilling
    
    
    1,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,759Capitalized interest
    
    
    3,009
    
    
    
    1,834
    
    
    
    
    
    
    
    
    
    
    
    4,843Total
    
    $
    12,884
    
    
    $
    20,561
    
    
    $
    9,147
    
    
    $
    18,952
    
    
    $
    61,544
 Oil and Natural Gas Reserves and Related Financial Data
  Oil and Natural Gas Reserve Data
   F-31




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)  (Continued)
 NaturalGas
    
    
    Oil(MMcf)
    
    
    (MBbls)Proved reserves at December 31, 2004
    
    
    101,875
    
    
    
    3,236Revisions of previous estimates
    
    
    (595
    )
    
    
    (11
    )Purchases of reserves in place
    
    
    4,054
    
    
    
    65Extensions, discoveries and other additions
    
    
    17,143
    
    
    
    486Production
    
    
    (9,213
    )
    
    
    (450
    )Proved reserves at December 31, 2005
    
    
    113,264
    
    
    
    3,326Revisions of previous estimates
    
    
    (861
    )
    
    
    97Extensions, discoveries and other additions
    
    
    17,687
    
    
    
    1,513Production
    
    
    (10,603
    )
    
    
    (442
    )Proved reserves at December 31, 2006
    
    
    119,487
    
    
    
    4,494Revisions of previous estimates
    
    
    7,926
    
    
    
    172Extensions, discoveries and other additions
    
    
    14,349
    
    
    
    1,546Sales of mineral in place
    
    
    (22,493
    )
    
    
    (227
    )Production
    
    
    (12,626
    )
    
    
    (392
    )Proved reserves at December 31, 2007
    
    
    106,643
    
    
    
    5,593Proved developed reserves at December 31:2004
    
    
    47,494
    
    
    
    2,1242005
    
    
    55,664
    
    
    
    2,0692006
    
    
    64,401
    
    
    
    2,7522007
    
    
    49,367
    
    
    
    3,321
  Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein
   F-32




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)  (Continued)
 December 31,2007
    
    
    2006
    
    
    2005Future cash inflows
    
    $
    1,319,011
    
    
    $
    900,982
    
    
    $
    1,259,009Future production costs
    
    
    (248,116
    )
    
    
    (186,440
    )
    
    
    (220,499
    )Future development costs
    
    
    (160,506
    )
    
    
    (145,949
    )
    
    
    (122,419
    )Future income tax expense
    
    
    (219,748
    )
    
    
    (83,591
    )
    
    
    (237,268
    )Future net cash inflows
    
    
    690,641
    
    
    
    485,002
    
    
    
    678,82310% annual discount for estimated timing of cash flows
    
    
    (296,127
    )
    
    
    (182,328
    )
    
    
    (282,482
    )Standardized measure of discounted future net cash
flows
    
    $
    394,514
    
    
    $
    302,674
    
    
    $
    396,341
  NaturalGas
    
    
    Oil(MMbtu)
    
    
    (Bbl)December 31, 2007
    
    $
    7.10
    
    
    $
    96.01December 31, 2006
    
    
    5.48
    
    
    
    61.06December 31, 2005
    
    
    9.44
    
    
    
    61.04
  December 31,2007
    
    
    2006
    
    
    2005Beginning of period
    
    $
    302,674
    
    
    $
    396,341
    
    
    $
    239,709Sales of oil and natural gas produced,
net of production costs
    
    
    (107,221
    )
    
    
    (85,070
    )
    
    
    (90,480
    )Previously estimated development costs
incurred during the period
    
    
    24,502
    
    
    
    51,373
    
    
    
    17,524Extensions and discoveries
    
    
    66,342
    
    
    
    55,020
    
    
    
    78,184Net change of prices and production costs
    
    
    164,728
    
    
    
    (243,607
    )
    
    
    171,764Change in future development costs
    
    
    (31,586
    )
    
    
    (27,214
    )
    
    
    (32,838
    )Changes in production rates (timing)
    
    
    (33,995
    )
    
    
    5,905
    
    
    
    32,284Revisions of previous quantity estimates
    
    
    41,017
    
    
    
    (883
    )
    
    
    (2,871
    )Accretion of discount
    
    
    33,730
    
    
    
    51,981
    
    
    
    29,447Change in income taxes
    
    
    (62,161
    )
    
    
    88,842
    
    
    
    (68,711
    )Purchases of reserves in place
    
    
    
    
    
    
    
    
    
    
    14,221Sales of reserves in place
    
    
    (2,923
    )
    
    
    
    
    
    
    Other
    
    
    (593
    )
    
    
    9,986
    
    
    
    8,108End of period
    
    $
    394,514
    
    
    $
    302,674
    
    
    $
    396,341
  F-33




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##### Table of Contents



BRIGHAM EXPLORATION COMPANY
 SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)  (Continued)
 
 Quarterly Financial Data (Unaudited)
 Year Ended December 31, 2007Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter1
    
    
    2
    
    
    3
    
    
    4Revenue
    
    $
    25,021
    
    
    $
    36,576
    
    
    $
    31,146
    
    
    $
    26,238Operating income
    
    
    5,964
    
    
    
    7,050
    
    
    
    10,107
    
    
    
    6,763Net income
    
    
    1,873
    
    
    
    2,310
    
    
    
    4,183
    
    
    
    1,844Net income per share:Basic
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.04Diluted
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.04
 Year Ended December 31, 2006Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter1
    
    
    2
    
    
    3
    
    
    4Revenue
    
    $
    25,546
    
    
    $
    25,828
    
    
    $
    26,023
    
    
    $
    28,900Operating income
    
    
    9,462
    
    
    
    8,752
    
    
    
    7,977
    
    
    
    10,257Net income
    
    
    5,875
    
    
    
    3,666
    
    
    
    5,246
    
    
    
    5,001Net income per share:Basic
    
    $
    0.13
    
    
    $
    0.08
    
    
    $
    0.12
    
    
    $
    0.11Diluted
    
    $
    0.13
    
    
    $
    0.08
    
    
    $
    0.12
    
    
    $
    0.11
  F-34




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##### Table of Contents



INDEX TO EXHIBITS
 Number
    
    
    
    Description3.1
    
    
    
    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).4.6
    
    
    
    Indenture, dated April 20, 2006, among Brigham
Exploration Company, the Guarantors named therein and
Wells Fargo Bank, N.A., as trustee (filed as Exhibit
4.1 to Brighams Current Report on Form 8-K, as amended
(filed April 24, 2006), and incorporated herein by
reference).4.7
    
    
    
    Notations of Guarantees, dated April 20, 2006, among
Brigham Exploration Company, the Guarantors named
therein and Wells Fargo Bank, N.A., as trustee, (filed
as Exhibit 4.2 to Brighams Current Report on Form 8-K,
as amended (filed April 24, 2006), and incorporated
herein by reference).4.8
    
    
    
    Rule 144A 9 5/8% Senior Notes due 2014, dated April 20,
2006 (filed as Exhibit 4.3 to Brighams Current Report
on Form 8-K, as amended (filed April 24, 2006), and
incorporated herein by reference).4.9
    
    
    
    Reg S 9 5/8% Senior Notes due 2014, dated April 20,
2006 (filed as Exhibit 4.4 to Brighams Current Report
on Form 8-K, as amended (filed April 24, 2006), and
incorporated herein by reference).4.10
    
    
    
    Notations of Guarantees dated as of April 9, 2007,
among Brigham Exploration Company, the Guarantors named
therein and Wells Fargo Bank, N.A., as trustee (filed
as Exhibit 4.2 to Brighams Current Report on Form 8-K
filed on April 13, 2007 and incorporated in by
reference).4.11
    
    
    
    Rule 144A 9 5/8% Senior Notes due 2014 (filed as
Exhibit 4.3 to Brighams Current Report on Form 8-K
filed on April 13, 2007 and incorporated in by
reference).4.12
    
    
    
    Reg S 9 5/8% Senior Notes due 2014 (filed as Exhibit
4.4 on Form 8-K filed to Brighams Current Report on
April 13, 2007 and incorporated in 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).




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##### Table of Contents



Number
    
    
    
    Description10.7*
    
    
    
    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).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. (filed as Exhibit 10.14 to Brighams Annual Report on Form
10-K for the year ended December 31, 2004 and incorporated herein by reference).10.14
    
    
    
    Fourth Amendment to Two Bridge Point Lease Agreement dated February 7, 2002 between Hub
Properties Trust and Brigham Oil & Gas, L.P. (filed as Exhibit 10.13 to Brighams Annual
Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by
reference).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. (filed
as Exhibit 10.15 to Brighams Annual Report on Form 10-K for the year ended December 31, 2004
and incorporated herein by reference).10.16
    
    
    
    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).10.17*
    
    
    
    1997 Director Stock Option Plan, as amended as of April 3, 2007. (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).10.18
    
    
    
    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).10.19
    
    
    
    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).10.20
    
    
    
    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).10.21
    
    
    
    First Amendment to Registration Rights Agreement, dated February 20, 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).10.22
    
    
    
    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
    
    
    
    Description10.23
    
    
    
    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).10.24
    
    
    
    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).10.25
    
    
    
    Third Amended and Restated Credit Agreement, dated January 21, 2005 between Brigham Oil & Gas,
L.P., Société Generale, The Royal Bank of Scotland plc and Bank of America, N.A.10.26
    
    
    
    Second Amended and Restated Subordinated Credit Agreement dated January 21, 2005 between
Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc.10.27
    
    
    
    Fourth Amended and Restated Credit Agreement, dated June 29, 2005 between Brigham Oil & Gas,
L.P., Bank of America, N.A., The Royal Bank of Scotland plc, BNP Paribas and Banc of America
Securities LLC. (filed as Exhibit 10.1 to Brighams Quarterly Report on Form 10-Q for the six
month period ended June 30, 2005 and incorporated herein by reference).10.28
    
    
    
    The Resignation of Agent, Appointment of Successor Agent and Assignment of Security
Instruments dated June 29, 2005 by and among Brigham Oil & Gas, L.P., Société Generale and
Bank of America, N.A. (filed as Exhibit 10.2 to Brighams Quarterly Report on Form 10-Q for
the six month period ended June 30, 2005 and incorporated herein by reference).10.29
    
    
    
    First Amendment to Second Amended and Restated Subordinated Credit Agreement dated June 29,
2005, between Brigham Oil & Gas, L.P., and The Royal Bank of Scotland plc. (filed as Exhibit
10.3 to Brighams Quarterly Report on Form 10-Q for the six month period ended June 30, 2005
and incorporated herein by reference).10.30
    
    
    
    Second Amended and Restated Intercreditor and Subordination Agreement, dated January 21, 2005
(filed as Exhibit 10.4 to Brighams Quarterly Report on Form 10-Q for the six month period
ended June 30, 2005 and incorporated herein by reference).10.31
    
    
    
    First Amendment to the Second Amended and Restated Intercreditor and Subordination Agreement
(filed as Exhibit 10.5 to Brighams Quarterly Report on Form 10-Q for the six month period
ended June 30, 2005 and incorporated herein by reference).10.32*
    
    
    
    Form of Restricted Stock Agreement (filed as Exhibit 10.1 to Brighams Quarterly Report on
Form 10-Q for the nine month period ended September 30, 2005 and incorporated herein by
reference).10.33
    
    
    
    Second Amendment to Second Amended Restated Subordinated Credit Agreement dated December 19,
2005 between Brigham Oil & Gas L.P., and The Royal Bank of Scotland plc.10.34
    
    
    
    Purchase Agreement dated April 12, 2006, among Brigham Exploration Company, the Guarantors
named therein (filed as Exhibit 10.1 to Brighams Current Report on Form 8-K, as amended
(filed April 24, 2006), and incorporated herein by reference).10.35
    
    
    
    Registration Rights Agreement, dated April 20, 2006, among Brigham Exploration Company, the
Guarantors named therein and the Initial Purchasers named therein (filed as Exhibit 10.2 to
Brighams Current Report on Form 8-K, as amended (filed April 24, 2006), and incorporated
herein by reference).10.36
    
    
    
    First Amendment to Fourth Amended and Restated Credit Agreement, between Brigham Exploration
Company and the banks named therein, dated April 10, 2006 (filed as Exhibit 10.3 to Brighams
Current Report on Form 8-K, as amended (filed April 24, 2006), and incorporated herein by
reference).10.37
    
    
    
    Second Amendment to Fourth Amended and Restated Credit Agreement, between Brigham Exploration
Company and the banks named therein, dated March 27, 2007 (filed as Exhibit 10.3 to Brighams
Current Report on Form 8-K filed on April 13, 2007 and incorporated in by reference).10.38
    
    
    
    Form of the Amended and Restated Indemnity Agreement, dated November 9, 2006 (filed as Exhibit
99.1 to Brighams Current Report on Form 8-K, as amended (filed December 5, 2006), and
incorporated herein by reference).10.39
    
    
    
    Purchase Agreement dated March 30, 2007, among Brigham Exploration Company, the Guarantors
named therein and the Initial Purchasers named therein (filed as Exhibit 10.1 to Brighams
Current Report on Form 8-K filed on April 13, 2007 and incorporated in by reference).10.40
    
    
    
    Registration Rights Agreement dated April 9, 2007, among Brigham Exploration Company, the
Guarantors named therein and the Initial Purchasers named therein (filed as Exhibit 10.2 to
Brighams Current Report on Form 8-K filed on April 13, 2007 and incorporated in by
reference).21
    
    
    
    Subsidiaries of the Registrant.23.1
    
    
    
    Consent of KPMG LLP, Independent Registered Public Accounting Firm.




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##### Table of Contents



Number
    
    
    
    Description23.2
    
    
    
    Consent of PricewaterhouseCoopers, LLP.23.3
    
    
    
    Consent of Cawley Gillespie & Associates, Inc.31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    
    Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. SECTION 135032.2
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350
 
 *
    
    Management contract or compensatory plan.
    
    Filed herewith.