##### 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, 2005                                                 
|  
|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                                                           |  | 75-2692967                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

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


(Address of principal executive offices) (Zip Code)


(512) 427-3300


(Registrants telephone number, including area code)


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


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

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


Common Stock, $.01 par value


(Title of Class)


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12-b o þ


sm




DOCUMENTS INCORPORATED BY REFERENCE


10-K.










---



##### 










BRIGHAM EXPLORATION COMPANY


TABLE OF CONTENTS


|                                                                 |  |                                                                                                                      |     |      |    | 
|---------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                                 |  |                                                                                                                      |     | Page
|                                                                 |  |                                                                                                                      |     |     
|Part I                                                          
|Item 1.                                                          |  | Business                                                                                                             |     |      | 2  | 
|Item 1A.                                                         |  | Risk Factors                                                                                                         |     |      | 9  | 
|Item 1B.                                                         |  | Unresolved Staff Comments                                                                                            |     |      | 19 | 
|Item 2.                                                          |  | Properties                                                                                                           |     |      | 20 | 
|Item 3.                                                          |  | Legal Proceedings                                                                                                    |     |      | 33 | 
|Item 4.                                                          |  | Submission of Matters to a Vote of Security
    Holders                                                              |     |      | 33 | 
|                                                                 |  | Executive Officers of the Registrant                                                                                 |     |      | 34 | 
|Part II                                                         
|Item 5.                                                          |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |     |      | 36 | 
|Item 6.                                                          |  | Selected Consolidated Financial Data                                                                                 |     |      | 39 | 
|Item 7.                                                          |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |     |      | 41 | 
|Item 7A.                                                         |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |     |      | 71 | 
|Item 8.                                                          |  | Financial Statements and Supplementary
    Data                                                                      |     |      | 75 | 
|Item 9.                                                          |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |     |      | 75 | 
|Item 9A.                                                         |  | Controls and Procedures                                                                                              |     |      | 75 | 
|Item 9B.                                                         |  | Other Information                                                                                                    |     |      | 75 | 
|Part III                                                        
|Item 10.                                                         |  | Directors and Executive Officers of the
    Registrant                                                               |     |      | 76 | 
|Item 11.                                                         |  | Executive Compensation                                                                                               |     |      | 76 | 
|Item 12.                                                         |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |     |      | 76 | 
|Item 13.                                                         |  | Certain Relationships and Related
    Transactions                                                                   |     |      | 76 | 
|Item 14.                                                         |  | Principal Accounting Fees and Services                                                                               |     |      | 76 | 
|Part IV                                                         
|Item 15.                                                         |  | Exhibits, Financial Statement Schedules                                                                              |     |      | 76 | 
|Glossary of Oil and Gas Terms                                    |  |                                                                                                                      | 77  |     
|Signatures                                                       |  |                                                                                                                      | 79  |     
|Index to Financial Statements                                    |  |                                                                                                                      | F-1 |     
|Second Amendment to Second Amended Subordinated Credit Agreement
|Subsidiaries of the Registrant                                  
|Consent of PricewaterhouseCoopers LLP                           
|Consent of Cawley Gillespie & Associates, Inc.                  
|Certification of CEO pursuant to Section 302                    
|Certification of CFO pursuant to Section 302                    
|Certification of CEO pursuant to Section 1350                   
|Certification of CFO pursuant to Section 1350                   



1



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


2005 ANNUAL REPORT ON
FORM 10-K





PART I







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

Overview


3-D 3-D






|                   |  |                      |       |            |            |   |       |         |      |     |       |  |         |             |     |  |         |  |       |            |  |  |        |  |  |  |      | 
|------------------ |  | -------------------- | ----- | ---------- | ---------- | - | ----- | ------- | ---- | --- | ----- |  | ------- | ----------- | --- |  | ------- |  | ----- | ---------- |  |  | ------ |  |  |  | ---- | 
|                   |  | At December 31, 2005 |       |            |           
|                   |  |                      |       |            |           
|                   |  |                      |       | Productive |            |   |       |         | 2005 |    
|                   |  |                      |       | %          |            |   | Wells |         |      | 3-D |       |  | Average |            
|                   |  | Proved               |       |            | Pre-tax    |   |       | Natural |      |     |       |  |         | Seismic     |     |  | Daily   | 
|Province           |  | Reserves             |       |            | PV10%(a)   |   |       | Gas     |      |     | Gross |  |         | Net         |     |  | Data    |  |       | Production | 
|                   |  |                      |       |            |            |   |       |         |      |     |       |  |         |             |     |  |         |  |       |            | 
|                   |  | (Bcfe)               |       |            | (Millions) |   |       |         |      |     |       |  |         | (Sq. Miles) |     |  | (MMcfe) | 
|Onshore Gulf Coast |  |                      | 75.8  |            |            | $ | 313.6 |         |      |     | 84%   |  |         |             | 86  |  |         |  | 42.0  |            |  |  | 3,992  |  |  |  | 18.9 | 
|Anadarko Basin     |  |                      | 52.2  |            |            |   | 184.4 |         |      |     | 93%   |  |         |             | 189 |  |         |  | 36.8  |            |  |  | 2,204  |  |  |  | 11.3 | 
|West Texas/ Other  |  |                      | 5.2   |            |            |   | 21.8  |         |      |     | 19%   |  |         |             | 88  |  |         |  | 25.3  |            |  |  | 4,514  |  |  |  | 2.9  | 
|                   |  |                      |       |            |            |   |       |         |      |     |       |  |         |             |     |  |         |  |       |            | 
|Total              |  |                      | 133.2 |            |            | $ | 519.8 | (b)     |      |     | 85%   |  |         |             | 363 |  |         |  | 104.1 |            |  |  | 10,710 |  |  |  | 33.1 | 
|                   |  |                      |       |            |            |   |       |         |      |     |       |  |         |             |     |  |         |  |       |            | 






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The prices used to calculate this measure were $61.04 per
    barrel of oil and $9.44 per MMbtu of natural gas, both as
    of December 31, 2005.



|    |  |                                                                                                                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The standardized measure for our proved reserves at
    December 31, 2005 was $396.3 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.

3-D


2



---



##### Table of Contents







3-D 3-D 3-D 3-D 3-D 3-D


3-D


#3-28,




Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focus on Core Provinces and Trends. We have built our
    multi-year inventory of drilling prospects around a large and
    growing inventory of
    3-D seismic data and
    our staffs strong technical knowledge base in the
    following geologic trends within our core provinces: the
    Vicksburg and Frio trends in the onshore Gulf Coast, the
    Springer and Hunton trends in the Anadarko Basin and the
    Horseshoe Atoll trend of West Texas. Further, we believe our
    focus on these five proven onshore trends within

3



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | our three core provinces 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 a majority of our near term
    capital expenditures in these trends, where we believe our
    accumulated data and 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 five
    geophysicists and ten geologists generates the majority of our
    drilling prospects. Historically, we have not relied on third
    party generated opportunities, which usually involve the payment
    of consideration over and above the costs incurred to generate
    and drill the prospect. We believe that our 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.                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Evaluate and Selectively Pursue New Potential Plays. We
    have a 15 year track record of successfully evaluating and
    initiating new oil and natural gas plays. We are particularly
    interested in those plays with attractive exploration and
    development potential that complements our current exploration
    and production activities. After identifying such a play, we
    will often selectively build an acreage position in the play.
    Our current Frio, Vicksburg and Hunton plays are all examples of
    successful plays where our position in the play was identified
    and originated by us. We believe our recently announced acreage
    acquisition in the Bakken play and our recently announced joint
    ventures with two operators in Southern Louisiana are examples
    of new plays that could lead to growth in our future reserves
    and production. For 2006, we currently plan to spend
    approximately $17.7 million to drill four pilot wells
    within our Bakken acreage and $16.2 million to drill six
    wells in South 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. Our exploratory drilling success over the
    past years has resulted in an
    multi-year inventory of
    development drilling locations, and over the three year period
    ended December 31, 2005, approximately 61% 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 2006, we intend to allocate approximately 61% of our planned
    drilling expenditures to development activities.                                                                                                                                                                                                                                                                                    
|
| |  | Continue to Actively Drill Our Multi-Year Prospect
    Inventory. To capitalize on our multi-year inventory of
    exploration and development locations, for 2006 we plan to
    continue with our accelerated level of drilling activity. In
    2005, we spent $90.9 million on drilling, representing a
    33% increase over the amount we spent in 2004 and a 159%
    increase over the amount we spent in 2003. In 2006, we currently
    plan to spend $120.4 million in drilling capital. As has
    historically been the case, our 2006 drilling program will test
    several higher risk, but higher reserve potential prospects.
    During 2006, we plan to drill a total of seven such higher risk,
    but higher reserve potential tests.                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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 optimize our finding and development costs and 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, 2005, we operated
    approximately 69% of the pre-tax PV10% value of our proved
    reserves. Further, in 2005 we operated 69% of the wells we
    drilled, representing 94% of our drilling capital expenditures.
    We expect to operate approximately 79% of our wells planned for
    2006, representing approximately 96% of our planned 2006
    drilling capital expenditures.                                                                                                                               

4



---



##### Table of Contents



Exploration and Development Staff




3-D


Oil and Natural Gas Market and Major Customers














5



---



##### Table of Contents





Competition




Operating Hazards and Uninsured Risks




3-D 3-D




6



---



##### Table of Contents



3-D


Employees




Facilities




Governmental Regulation








Environmental Matters




7



---



##### Table of Contents





clean-up




Coastal Coordination.




8



---



##### Table of Contents









Operations and Operations Staff






Website Access to Our Reports


10-K, 10-Q, 8-K,







|         |             
|-------- | ------------
|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.



9



---



##### Table of Contents







| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | 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 oil and natural gas inventories;                                                                            
|
| |  | the price and level of foreign imports;                                                                                         
|
| |  | the level of consumer demand;                                                                                                   
|
| |  | the price and availability of alternative fuels;                                                                                
|
| |  | the availability of pipeline capacity;                                                                                          
|
| |  | weather conditions;                                                                                                             
|
| |  | domestic and foreign governmental regulations and taxes; and                                                                    
|
| |  | the overall economic environment.                                                                                               





| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | limiting our financial condition, liquidity, ability to finance
    planned capital expenditures and results of operations;
|
| |  | reducing the amount of oil and natural gas that we can produce
    economically;                                           
|
| |  | causing us to delay or postpone some of our capital projects;                                                              
|
| |  | reducing our revenues, operating income and cash flow;                                                                     
|
| |  | reducing the carrying value of our oil and natural gas
    properties; and                                                 
|
| |  | limiting our access to sources of capital, such as equity and
    long-term debt.                                          



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | We may have difficulty financing our planned capital
    expenditures, which could adversely affect our business.



10



---



##### Table of Contents





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our exploration, development and drilling efforts and the
    operation of our wells may not be profitable or achieve our
    targeted returns.

3-D 3-D 3-D






| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | 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.



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exploratory drilling is a speculative activity that may
    not result in commercially productive reserves and may require
    expenditures in excess of budgeted amounts.

3-D




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Although our oil and natural gas reserve data is
    independently estimated, these estimates may still prove to be
    inaccurate.



11



---



##### Table of Contents







| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | 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.











12



---



##### Table of Contents







| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 unavailability 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.



13



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.                                                                                                                                            







| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Lower oil and natural gas prices may cause us to record
    ceiling limitation write-downs, which would reduce our
    stockholders equity.



14



---



##### Table of Contents





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;    
|
| |  | capital availability;         

15



---



##### Table of Contents





| |   |                                               
| | - | ----------------------------------------------
| |  | 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.



16



---



##### Table of Contents









| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on our key management personnel and technical
    experts and the loss any of these individuals could adversely
    affect our business.

3-D 3-D




| |                                           
| | ------------------------------------------
| | 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.



17



---



##### Table of Contents







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


10-K






| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | our growth strategies;                                                                         
|
| |  | our ability to successfully and economically explore for and
    develop oil and gas resources;
|
| |  | anticipated trends in our business;                                                            

18



---



##### Table of Contents





| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | our future results of operations;                                                   
|
| |  | our liquidity and ability to finance our exploration and
    development activities;
|
| |  | market conditions in the oil and gas industry;                                      
|
| |  | our ability to make and integrate acquisitions; and                                 
|
| |  | the impact of governmental regulation.                                              










|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



19



---



##### Table of Contents








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





|                                                                              |  |            |       |          |  |            |       |       |  |   |       |   |  |   |        |    
|----------------------------------------------------------------------------- |  | ---------- | ----- | -------- |  | ---------- | ----- | ----- |  | - | ----- | - |  | - | ------ | ---
|                                                                              |  | Onshore    |       | Anadarko |  | West Texas |       |      
|                                                                              |  | Gulf Coast |       | Basin    |  | & Other(a) |       | Total
|                                                                              |  |            |       |          |  |            |       |      
|Capital expenditures for drilling, land and seismic in 2005 (in
    millions) |  | $          | 71.5  |          |  | $          | 27.4  |       |  | $ | 11.6  |   |  | $ | 110.5  |    
|                                                                             
|Proved Reserves at December 31, 2005                                          |  |            |       |          |  |            |       |       |  |   |       |   |  |   |        |    
|Pre-tax PV10% (in millions)                                                   |  | $          | 313.6 |          |  | $          | 184.4 |       |  | $ | 21.8  |   |  | $ | 519.8  | (b)
|Oil (MMBbls)                                                                  |  |            | 2.0   |          |  |            | 0.6   |       |  |   | 0.7   |   |  |   | 3.3    |    
|Natural gas (Bcf)                                                             |  |            | 63.5  |          |  |            | 48.8  |       |  |   | 1.0   |   |  |   | 113.3  |    
|Natural gas equivalents (Bcfe)                                                |  |            | 75.8  |          |  |            | 52.2  |       |  |   | 5.2   |   |  |   | 133.2  |    
|% Natural gas                                                                 |  |            | 84    | %        |  |            | 93    | %     |  |   | 19    | % |  |   | 85     | %  
|                                                                             
|Average daily production (MMcfe/d)                                            |  |            | 18.9  |          |  |            | 11.3  |       |  |   | 2.9   |   |  |   | 33.1   |    
|                                                                             
|Productive wells at December 31, 2005                                         |  |            |       |          |  |            |       |       |  |   |       |   |  |   |        |    
|Gross                                                                         |  |            | 86    |          |  |            | 189   |       |  |   | 88    |   |  |   | 363    |    
|Net                                                                           |  |            | 42.0  |          |  |            | 36.8  |       |  |   | 25.3  |   |  |   | 104.1  |    
|                                                                             
|3-D Seismic Data (square miles)                                               |  |            | 3,992 |          |  |            | 2,204 |       |  |   | 4,514 |   |  |   | 10,710 |    






|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(a) | Includes capital expenditures associated with Williston Basin
    activities.



|    |  |                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The standardized measure for our proved reserves at
    December 31, 2005, was $396.3 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.

Onshore Gulf Coast


3-D 3-D


20



---



##### Table of Contents



















| |                
| | ---------------
| | Vicksburg Trend







21



---



##### Table of Contents







| |           
| | ----------
| | Frio Trend











3-D


22



---



##### Table of Contents





3-D




3-D 3-D




| |                                                            
| | -----------------------------------------------------------
| | Gulf Coast Louisiana Miocene and Upper Oligocene
    Trends

3-D








Anadarko Basin




23



---



##### Table of Contents





3-D
















| |             
| | ------------
| | Hunton Trend

#2-98


#1-99S


24



---



##### Table of Contents





#1-96, #1-97 #1-96


Granite Wash




59-1 60-3, 60-4, 60-4


59-2


West Texas










25



---



##### Table of Contents



3-D


Williston Basin




| |       
| | ------
| | Bakken





3-D


3-D 3-D 3-D 3-D 3-D 3-D 3-D 3-D 3-D 3-D


3-D 2-D 3-D 3-D 2-D


3-D


26



---



##### Table of Contents



3-D 3-D 3-D


3-D 3-D 3-D 3-D 3-D


3-D 3-D 3-D


3-D 3-D 3-D


3-D 3-D 3-D




27



---



##### Table of Contents



Title to Properties




28



---



##### Table of Contents



Oil and Natural Gas Reserves




|                                                                 |                                |                 |         |         |      |   |         |         |  |   |         |         | 
|---------------------------------------------------------------- | ------------------------------ | --------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                 |                                | At December 31, |        
|                                                                 |                                |                 |        
|                                                                 |                                | 2005            |         |         | 2004 |   |         | 2003    | 
|                                                                 |                                |                 |         |         |      |   |         |         | 
|Estimated Net Proved Reserves:                                   |                                |                 |         |         |      |   |         |         |  |   |         |        
|Oil (MBbls)                                                      |                                |                 | 3,326   |         |      |   | 3,236   |         |  |   | 4,130   |        
|Natural gas (MMcf)                                               |                                |                 | 113,264 |         |      |   | 101,875 |         |  |   | 109,403 |        
|                                                                 | Natural gas equivalent (MMcfe) |                 |         | 133,223 |      |   |         | 121,290 |  |   |         | 134,182 | 
|Proved developed reserves as a percentage of net proved reserves |                                |                 | 51      | %       |      |   | 50      | %       |  |   | 50      | %      
|Pre-tax PV10% (in millions)(a)                                   |                                | $               | 519.8   |         |      | $ | 294.5   |         |  | $ | 343.8   |        
|Standardized measure (in millions)                               |                                |                 | 396.3   |         |      |   | 239.7   |         |  |   | 261.6   |        
|Estimated future development cost (in millions)                  |                                |                 | 122.4   |         |      |   | 79.9    |         |  |   | 59.0    |        
|Base price used to calculate reserves(b):                        |                                |                 |         |         |      |   |         |         |  |   |         |        
|Natural gas (per MMbtu)                                          |                                | $               | 9.44    |         |      | $ | 6.19    |         |  | $ | 5.83    |        
|Oil (per Bbl)                                                    |                                |                 | 61.04   |         |      |   | 43.46   |         |  |   | 32.55   |        






|    |  |                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.







29



---



##### Table of Contents





Reconciliation of Standardized Measure to Pre-tax PV10%




|                                                         |  |                 |       |  |      |   |       |      |  |   |       | 
|-------------------------------------------------------- |  | --------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                         |  | At December 31, |      
|                                                         |  |                 |      
|                                                         |  | 2005            |       |  | 2004 |   |       | 2003 | 
|                                                         |  |                 |       |  |      |   |       |      | 
|Standardized measure of discounted future net cash flows |  | $               | 396.3 |  |      | $ | 239.7 |      |  | $ | 261.6 | 
|Add present value of future income tax discounted at 10% |  |                 | 123.5 |  |      |   | 54.8  |      |  |   | 82.2  | 
|                                                         |  |                 |       |  |      |   |       |      | 
|Pre-tax PV10%                                            |  | $               | 519.8 |  |      | $ | 294.5 |      |  | $ | 343.8 | 
|                                                         |  |                 |       |  |      |   |       |      | 

Drilling Activities




|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     |  |    |    |  |  |     |     | 
|------------------ | ----- | ----------------------- | -- | -- | ------- |  | --- | ----- |  |  | --- | -- |  | ----- | ---- | ---- | --- |  | -- | -- |  |  | --- | --- | 
|                   |       | Year Ended December 31, |   
|                   |       |                         |   
|                   |       | 2005(a)                 |    |    | 2004(b) |  |     | 2003  | 
|                   |       |                         |    |    |         |  |     |       | 
|                   |       | Gross                   |    |    | Net     |  |     | Gross |  |  | Net |    |  | Gross |      |      | Net | 
|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     | 
|Exploratory wells: |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     |  |    |    |  |  |     |    
|Natural gas        |       |                         | 8  |    |         |  | 4.5 |       |  |  | 10  |    |  |       | 5.4  |      |     |  | 14 |    |  |  | 6.8 |    
|Oil                |       |                         | 0  |    |         |  | 0.0 |       |  |  | 1   |    |  |       | 0.9  |      |     |  | 4  |    |  |  | 1.3 |    
|Non-productive     |       |                         | 4  |    |         |  | 3.5 |       |  |  | 7   |    |  |       | 5.2  |      |     |  | 4  |    |  |  | 1.8 |    
|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     | 
|                   | Total |                         |    | 12 |         |  |     | 8.0   |  |  |     | 18 |  |       |      | 11.5 |     |  |    | 22 |  |  |     | 9.9 | 
|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     | 
|Development wells: |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     |  |    |    |  |  |     |    
|Natural gas        |       |                         | 17 |    |         |  | 9.4 |       |  |  | 35  |    |  |       | 13.9 |      |     |  | 11 |    |  |  | 3.9 |    
|Oil                |       |                         | 2  |    |         |  | 1.1 |       |  |  | 2   |    |  |       | 0.3  |      |     |  | 1  |    |  |  | 0.4 |    
|Non-productive     |       |                         | 3  |    |         |  | 2.2 |       |  |  | 5   |    |  |       | 1.5  |      |     |  | 3  |    |  |  | 1.8 |    
|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     | 
|                   | Total |                         |    | 22 |         |  |     | 12.7  |  |  |     | 42 |  |       |      | 15.7 |     |  |    | 15 |  |  |     | 6.1 | 
|                   |       |                         |    |    |         |  |     |       |  |  |     |    |  |       |      |      |     | 






|    |  |                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------
|(a) |  | Excludes two (1.0 net) development wells that are currently
    completing.                                      
|   
|(b) |  | Includes one (1.0 net) exploratory well that commenced
    drilling in 2004 and was completed productive in 2005.



30



---



##### Table of Contents



Productive Wells and Acreage




| |                 
| | ----------------
| | Productive Wells



|                     |       |             |     |     |     |  |      |       |  |  |     |     |  |       |      |      |     |  |     |     |  |  |      |       | 
|-------------------- | ----- | ----------- | --- | --- | --- |  | ---- | ----- |  |  | --- | --- |  | ----- | ---- | ---- | --- |  | --- | --- |  |  | ---- | ----- | 
|                     |       | Natural Gas |     |     | Oil |  |      | Total | 
|                     |       |             |     |     |     |  |      |       | 
|                     |       | Gross       |     |     | Net |  |      | Gross |  |  | Net |     |  | Gross |      |      | Net | 
|                     |       |             |     |     |     |  |      |       |  |  |     |     |  |       |      |      |     | 
|Onshore Gulf Coast   |       |             | 63  |     |     |  | 30.7 |       |  |  | 23  |     |  |       | 6.1  |      |     |  | 86  |     |  |  | 36.8 |      
|Anadarko Basin       |       |             | 167 |     |     |  | 37.7 |       |  |  | 22  |     |  |       | 4.3  |      |     |  | 189 |     |  |  | 42.0 |      
|West Texas and other |       |             | 14  |     |     |  | 1.9  |       |  |  | 74  |     |  |       | 23.4 |      |     |  | 88  |     |  |  | 25.3 |      
|                     |       |             |     |     |     |  |      |       |  |  |     |     |  |       |      |      |     | 
|                     | Total |             |     | 244 |     |  |      | 70.3  |  |  |     | 119 |  |       |      | 33.8 |     |  |     | 363 |  |  |      | 104.1 | 
|                     |       |             |     |     |     |  |      |       |  |  |     |     |  |       |      |      |     | 





| |        
| | -------
| | Acreage



|                   |       |           |        |        |             |  |        |        |  |  |        |         |  |       |        |        |     |  |        |         |  |  |        |         | 
|------------------ | ----- | --------- | ------ | ------ | ----------- |  | ------ | ------ |  |  | ------ | ------- |  | ----- | ------ | ------ | --- |  | ------ | ------- |  |  | ------ | ------- | 
|                   |       | Developed |        |        | Undeveloped |  |        | Total  | 
|                   |       |           |        |        |             |  |        |        | 
|                   |       | Gross     |        |        | Net         |  |        | Gross  |  |  | Net    |         |  | Gross |        |        | Net | 
|                   |       |           |        |        |             |  |        |        |  |  |        |         |  |       |        |        |     | 
|Onshore Gulf Coast |       |           | 17,172 |        |             |  | 8,091  |        |  |  | 32,162 |         |  |       | 22,389 |        |     |  | 49,334 |         |  |  | 30,480 |        
|Anadarko Basin     |       |           | 56,707 |        |             |  | 23,138 |        |  |  | 23,374 |         |  |       | 15,134 |        |     |  | 80,081 |         |  |  | 38,272 |        
|West Texas         |       |           | 15,834 |        |             |  | 5,052  |        |  |  | 8,682  |         |  |       | 7,957  |        |     |  | 24,516 |         |  |  | 13,009 |        
|Other              |       |           | 3,041  |        |             |  | 1,284  |        |  |  | 48,417 |         |  |       | 48,030 |        |     |  | 51,458 |         |  |  | 49,314 |        
|                   |       |           |        |        |             |  |        |        |  |  |        |         |  |       |        |        |     | 
|                   | Total |           |        | 92,754 |             |  |        | 37,565 |  |  |        | 112,635 |  |       |        | 93,510 |     |  |        | 205,389 |  |  |        | 131,075 | 
|                   |       |           |        |        |             |  |        |        |  |  |        |         |  |       |        |        |     | 





|                      |       |                |        |         |     |  |        |        | 
|--------------------- | ----- | -------------- | ------ | ------- | --- |  | ------ | ------ | 
|                      |       | Acres Expiring |       
|                      |       |                |       
|Twelve Months Ending: |       | Gross          |        |         | Net | 
|                      |       |                |        |         |     | 
|December 31, 2006     |       |                | 17,491 |         |     |  | 10,296 |       
|December 31, 2007     |       |                | 15,958 |         |     |  | 11,005 |       
|December 31, 2008     |       |                | 27,560 |         |     |  | 23,565 |       
|Thereafter            |       |                | 51,626 |         |     |  | 48,644 |       
|                      |       |                |        |         |     | 
|                      | Total |                |        | 112,635 |     |  |        | 93,510 | 
|                      |       |                |        |         |     | 

31



---



##### Table of Contents





|                      |  |                |        |  |     |  |        | 
|--------------------- |  | -------------- | ------ |  | --- |  | ------ | 
|                      |  | Acres Expiring |       
|                      |  |                |       
|Twelve Months Ending: |  | Gross          |        |  | Net | 
|                      |  |                |        |  |     | 
|December 31, 2006     |  |                | 53,446 |  |     |  | 50,505 | 

Volumes, Prices and Production Costs




|                                    |                                                                                                    |                         |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                    |                                                                                                    | Year Ended December 31, |  
|                                    |                                                                                                    |                         |  
|                                    |                                                                                                    | 2005                    |   |        | 2004 |  |   | 2003   |  
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|Production:                         |                                                                                                    |                         |   |        |      |  |   |        |   |  |   |       
|                                    | Oil (MBbls)                                                                                        |                         |   | 450    |      |  |   | 573    |   |  |   | 720    |  
|                                    | Natural gas (MMcf)                                                                                 |                         |   | 9,213  |      |  |   | 8,830  |   |  |   | 6,356  |  
|                                    | Natural gas equivalent (MMcfe)                                                                     |                         |   | 11,913 |      |  |   | 12,265 |   |  |   | 10,674 |  
|                                   
|Average sales price per unit:       |                                                                                                    |                         |   |        |      |  |   |        |   |  |   |       
|                                    | Oil revenues (per Bbl)                                                                             |                         | $ | 54.73  |      |  | $ | 40.13  |   |  | $ | 30.79  |  
|                                    | Effects of hedging activities (per Bbl)                                                            |                         |   | (2.78  | )    |  |   | (4.96  | ) |  |   | (2.62  | )
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                    | Average price (per Bbl)                                                                            |                         | $ | 51.95  |      |  | $ | 35.17  |   |  | $ | 28.17  |  
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                   
|                                    | Natural gas revenues (per Mcf)                                                                     |                         | $ | 8.29   |      |  | $ | 6.05   |   |  | $ | 5.68   |  
|                                    | Effects of hedging activities (per Mcf)                                                            |                         |   | (0.32  | )    |  |   | (0.21  | ) |  |   | (0.76  | )
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                    | Average price (per Mcf)                                                                            |                         | $ | 7.97   |      |  | $ | 5.84   |   |  | $ | 4.92   |  
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                   
|                                    | Total oil and natural gas revenues (per Mcfe)                                                      |                         | $ | 8.48   |      |  | $ | 6.23   |   |  | $ | 5.46   |  
|                                    | Effects of hedging activities (per Mcfe)                                                           |                         |   | (0.35  | )    |  |   | (0.38  | ) |  |   | (0.63  | )
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                    | Average price (per Mcfe)                                                                           |                         | $ | 8.13   |      |  | $ | 5.85   |   |  | $ | 4.83   |  
|                                    |                                                                                                    |                         |   |        |      |  |   |        |  
|                                   
|Average production costs(per Mcfe): |                                                                                                    |                         |   |        |      |  |   |        |   |  |   |       
|                                    | Lease operating expenses (includes costs for operating and
    maintenance and expensed workovers) |                         | $ | 0.51   |      |  | $ | 0.43   |   |  | $ | 0.43   |  
|                                    | Ad valorem taxes                                                                                   |                         |   | 0.09   |      |  |   | 0.07   |   |  |   | 0.06   |  
|                                    | Production taxes                                                                                   |                         |   | 0.28   |      |  |   | 0.25   |   |  |   | 0.23   |  

32



---



##### Table of Contents








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










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



33



---



##### Table of Contents






Executive Officers of the Registrant


S-K 10-K,


|                        |  |     |    |  |          |                                                                    
|----------------------- |  | --- | -- |  | -------- | -------------------------------------------------------------------
|Name                    |  | Age |    |  | Position
|                        |  |     |    |  |         
|Ben M. Brigham          |  |     | 46 |  |          | Chief Executive Officer, President and Chairman                    
|Eugene B. Shepherd, Jr. |  |     | 47 |  |          | Executive Vice President and Chief Financial Officer               
|David T. Brigham        |  |     | 45 |  |          | Executive Vice President  Land and Administration and
    Director
|A. Lance Langford       |  |     | 43 |  |          | Executive Vice President  Operations                              
|Jeffery E. Larson       |  |     | 47 |  |          | Executive Vice President  Exploration                             

Ben M. Bud Brigham 3-D


Eugene B. Shepherd, Jr.


David T. Brigham


A. Lance Langford


34



---



##### Table of Contents



Jeffery E. Larson


35



---



##### 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 and Dividend Policy




|      |                |      |   |       |     |  |   |       | 
|----- | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|      |                | High |   |       | Low | 
|      |                |      |   |       |     | 
|2004: |                |      |   |       |     |  |   |      
|      | First Quarter  |      | $ | 8.63  |     |  | $ | 6.60  | 
|      | Second Quarter |      |   | 10.04 |     |  |   | 7.34  | 
|      | Third Quarter  |      |   | 9.89  |     |  |   | 7.56  | 
|      | Fourth Quarter |      |   | 10.05 |     |  |   | 7.72  | 
|2005: |                |      |   |       |     |  |   |      
|      | First Quarter  |      | $ | 9.83  |     |  | $ | 7.60  | 
|      | Second Quarter |      |   | 9.65  |     |  |   | 7.10  | 
|      | Third Quarter  |      |   | 13.42 |     |  |   | 7.80  | 
|      | Fourth Quarter |      |   | 14.68 |     |  |   | 11.35 | 







Securities Authorized for Issuance under Equity Compensation
Plans




|                                                           |       |                     |           |           |                     |   |                      |                     |  |  |           |           | 
|---------------------------------------------------------- | ----- | ------------------- | --------- | --------- | ------------------- | - | -------------------- | ------------------- |  |  | --------- | --------- | 
|                                                           |       | Number of           |           |           |                     |   | Number of Securities |                    
|                                                           |       | Securities to be    |           |           |                     |   | Remaining Available  |                    
|                                                           |       | Issued upon         |           |           | Weighted-Average    |   |                      | for Future Issuance | 
|                                                           |       | Exercise of         |           |           | Price of            |   |                      | Under Equity        | 
|Plan Category                                              |       | Outstanding Options |           |           | Outstanding Options |   |                      | Compensation Plans  | 
|                                                           |       |                     |           |           |                     |   |                      |                     | 
|Equity compensation plans approved by security holders(a)  |       |                     | 2,946,333 |           |                     | $ | 6.96                 |                     |  |  | 1,344,000 |          
|Equity compensation plans not approved by security holders |       |                     |          |           |                     |   |                     |                     |  |  |          |          
|                                                           |       |                     |           |           |                     |   |                      |                     | 
|                                                           | Total |                     |           | 2,946,333 |                     |   | $                    | 6.96                |  |  |           | 1,344,000 | 
|                                                           |       |                     |           |           |                     |   |                      |                     | 






|    |  |                                                                              
|--- |  | -----------------------------------------------------------------------------
|(a) |  | Does not include 397,650 shares of restricted stock at
    December 31, 2005.

36



---



##### Table of Contents



Issuer Purchases of Equity Securities




|              |  |                  |           |  |                |   |        | 
|------------- |  | ---------------- | --------- |  | -------------- | - | ------ | 
|              |  | Total Number of  |           |  | Average Price  |  
|Period        |  | Shares Purchased |           |  | Paid per Share |  
|              |  |                  |           |  |                |  
|December 2005 |  |                  | 1,125,000 |  |                | $ | 11.460 | 
|November 2005 |  |                  | 5,000,000 |  |                |   | 11.460 | 
|January 2005  |  |                  | 21,229    |  |                |   | 8.930  | 
|October 2004  |  |                  | 15,790    |  |                |   | 9.205  | 
|January 2004  |  |                  | 19,596    |  |                |   | 7.970  | 
|October 2003  |  |                  | 16,351    |  |                |   | 6.705  | 

Recent Issuance of Unregistered Securities




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











37



---



##### Table of Contents











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







38



---



##### Table of Contents








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





|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |        |        |        | 
|---------------------------------------------------------------------------------------- | ----------------------- | -------------------------------------------------- | ---------------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ------ | 
|                                                                                         |                         | Year Ended December 31,                            |                 
|                                                                                         |                         |                                                    |                 
|                                                                                         |                         | 2005                                               |                  |        | 2004   |        |         | 2003   |        |        | 2002   |        |        | 2001   |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | (In thousands, except per share information)       |                 
|Statement of Operations Data:                                                            |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |       
|Oil and natural gas sales                                                                |                         | $                                                  | 96,820           |        |        | $      | 71,713  |        |        | $      | 51,545 |        |        | $      | 35,100 |        |        | $     | 32,293 |       
|Other revenues                                                                           |                         |                                                    | 220              |        |        |        | 515     |        |        |        | 132    |        |        |        | 76     |        |        |       | 255    |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | Total revenues                                     |                  |        | 97,040 |        |         |        | 72,228 |        |        |        | 51,677 |        |        |        | 35,176 |       |        |        | 32,548 |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|Lease operating expenses                                                                 |                         |                                                    | 7,161            |        |        |        | 6,173   |        |        |        | 5,200  |        |        |        | 3,759  |        |        |       | 3,486  |       
|Production taxes                                                                         |                         |                                                    | 3,353            |        |        |        | 3,107   |        |        |        | 2,477  |        |        |        | 1,977  |        |        |       | 1,511  |       
|General and administrative expenses                                                      |                         |                                                    | 5,533            |        |        |        | 5,392   |        |        |        | 4,500  |        |        |        | 4,971  |        |        |       | 3,638  |       
|Depletion of oil and natural gas properties                                              |                         |                                                    | 33,268           |        |        |        | 23,844  |        |        |        | 16,819 |        |        |        | 14,694 |        |        |       | 13,225 |       
|Depreciation and amortization                                                            |                         |                                                    | 762              |        |        |        | 722     |        |        |        | 629    |        |        |        | 440    |        |        |       | 677    |       
|Accretion of discount on asset retirement obligations                                    |                         |                                                    | 180              |        |        |        | 159     |        |        |        | 142    |        |        |        |       |        |        |       |       |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | Total costs and expenses                           |                  |        | 50,257 |        |         |        | 39,397 |        |        |        | 29,767 |        |        |        | 25,841 |       |        |        | 22,537 |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         |                                                    | Operating income |        |        | 46,783 |         |        |        | 32,831 |        |        |        | 21,910 |        |        |        | 9,335 |        |        |        | 10,011 | 
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|Other income (expense)                                                                   |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                                                         | Interest expense, net   |                                                    |                  | (3,980 | )      |        |         | (3,144 | )      |        |        | (4,815 | )      |        |        | (6,238 | )      |       |        | (6,681 | )     
|                                                                                         | Interest income         |                                                    |                  | 245    |        |        |         | 84     |        |        |        | 45     |        |        |        | 119    |        |       |        | 264    |       
|                                                                                         | Other income (expense)  |                                                    |                  | (576   | )      |        |         | 742    |        |        |        | (601   | )      |        |        | (310   | )      |       |        | 8,080  |       
|                                                                                         | Debt conversion expense |                                                    |                  |       |        |        |         |       |        |        |        |       |        |        |        | (630   | )      |       |        |       |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | Total other income (expense)                       |                  |        | (4,311 | )      |         |        | (2,318 | )      |        |        | (5,371 | )      |        |        | (7,059 | )     |        |        | 1,663  |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|Income before income taxes and cumulative effect of change in
    accounting principle   |                         | $                                                  | 42,472           |        |        | $      | 30,513  |        |        | $      | 16,539 |        |        | $      | 2,276  |        |        | $     | 11,674 |       
|Income tax benefit (expense)                                                             |                         |                                                    | (15,037          | )      |        |        | (10,863 | )      |        |        | 1,223  |        |        |        |       |        |        |       |       |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|Income before cumulative effect of change in accounting principle                        |                         |                                                    | 27,435           |        |        |        | 19,650  |        |        |        | 17,762 |        |        |        | 2,276  |        |        |       | 11,674 |       
|Cumulative effect of change in accounting principle                                      |                         |                                                    |                 |        |        |        |        |        |        |        | 268    |        |        |        |       |        |        |       |       |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | Net income                                         |                  |        | 27,435 |        |         |        | 19,650 |        |        |        | 18,030 |        |        |        | 2,276  |       |        |        | 11,674 |       
|Preferred dividend and accretion                                                         |                         |                                                    |                 |        |        |        |        |        |        |        | 3,448  |        |        |        | 2,952  |        |        |       | 2,450  |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|                                                                                         |                         | Net income (loss) available to common stockholders |                  | $      | 27,435 |        |         | $      | 19,650 |        |        | $      | 14,582 |        |        | $      | (676   | )     |        | $      | 9,224  |       
|                                                                                         |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |       
|Earnings (loss) per share before cumulative effect of change in
    accounting principle |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                                                         | Basic                   |                                                    | $                | 0.65   |        |        | $       | 0.49   |        |        | $      | 0.62   |        |        | $      | (0.04  | )      |       | $      | 0.58   |       
|                                                                                         | Diluted                 |                                                    |                  | 0.63   |        |        |         | 0.47   |        |        |        | 0.51   |        |        |        | (0.04  | )      |       |        | 0.44   |       
|Earnings (loss) per share                                                                |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                                                         | Basic                   |                                                    | $                | 0.65   |        |        | $       | 0.49   |        |        | $      | 0.63   |        |        | $      | (0.04  | )      |       | $      | 0.58   |       
|                                                                                         | Diluted                 |                                                    |                  | 0.63   |        |        |         | 0.47   |        |        |        | 0.52   |        |        |        | (0.04  | )      |       |        | 0.44   |       
|Weighted average shares outstanding                                                      |                         |                                                    |                  |        |        |        |         |        |        |        |        |        |        |        |        |        |        |       |        |       
|                                                                                         | Basic                   |                                                    |                  | 42,481 |        |        |         | 40,445 |        |        |        | 23,363 |        |        |        | 16,138 |        |       |        | 15,988 |       
|                                                                                         | Diluted                 |                                                    |                  | 43,728 |        |        |         | 41,616 |        |        |        | 34,354 |        |        |        | 16,138 |        |       |        | 28,205 |       

39



---



##### Table of Contents



|                                                                                  |                      |                 |         |          |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------------------------------- | -------------------- | --------------- | ------- | -------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                  |                      | At December 31, |        
|                                                                                  |                      |                 |        
|                                                                                  |                      | 2005            |         |          | 2004 |   |         | 2003    |   |   | 2002    |         |   | 2001 |        
|                                                                                  |                      |                 |         |          |      |   |         |         |   |   |         |         |   |      |        
|                                                                                  |                      | (In thousands)  |        
|Statement of Cash Flows Data:                                                     |                      |                 |         |          |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |        
|Net cash provided (used) by:                                                      |                      |                 |         |          |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |        
|                                                                                  | Operating activities |                 | $       | 64,379   |      |   | $       | 56,381  |   |   | $       | 41,691  |   |      | $       | 28,973  |   |   | $       | 18,922  |  
|                                                                                  | Investing activities |                 |         | (113,220 | )    |   |         | (84,645 | ) |   |         | (46,089 | ) |      |         | (27,206 | ) |   |         | (33,571 | )
|                                                                                  | Financing activities |                 |         | 50,535   |      |   |         | 24,766  |   |   |         | (5,141  | ) |      |         | 8,439   |   |   |         | 18,924  |  
|Balance Sheet Data:                                                               |                      |                 |         |          |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |        
|Cash and cash equivalents                                                         |                      | $               | 3,975   |          |      | $ | 2,281   |         |   | $ | 5,779   |         |   | $    | 15,318  |         |   | $ | 5,112   |        
|Oil and natural gas properties, using the full cost method of
    accounting, net |                      |                 | 347,329 |          |      |   | 261,979 |         |   |   | 198,490 |         |   |      | 166,006 |         |   |   | 153,017 |        
|Total assets                                                                      |                      |                 | 380,427 |          |      |   | 286,307 |         |   |   | 224,982 |         |   |      | 203,085 |         |   |   | 174,201 |        
|Long-term debt                                                                    |                      |                 | 63,100  |          |      |   | 41,000  |         |   |   | 39,000  |         |   |      | 81,797  |         |   |   | 91,721  |        
|Series A preferred stock, mandatorily redeemable                                  |                      |                 | 10,101  |          |      |   | 9,520   |         |   |   | 8,794   |         |   |      | 19,540  |         |   |   | 16,614  |        
|Series B preferred stock, mandatorily redeemable                                  |                      |                 |        |          |      |   |        |         |   |   |        |         |   |      | 4,777   |         |   |   |        |        
|Total stockholders equity                                                        |                      |                 | 241,640 |          |      |   | 183,276 |         |   |   | 139,111 |         |   |      | 62,775  |         |   |   | 50,727  |        

40



---



##### Table of Contents








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



Overview of Our Business


3-D




Critical Accounting Policies






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





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



41



---



##### Table of Contents









| |                             
| | ----------------------------
| | Oil and Natural Gas Property









42



---



##### Table of Contents









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







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







43



---



##### Table of Contents





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











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









| |                             
| | ----------------------------
| | New Accounting Pronouncement

Share-Based




44



---



##### Table of Contents

















45



---



##### Table of Contents



Source of Our Revenues






Components of Our Cost Structure




| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production Costsare the
    day-to-day costs we
    incur to bring hydrocarbons out of the ground and to the market
    combined with the daily costs we incur to maintain our producing
    properties. This includes lease operating expenses and
    production taxes.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lease operating expenses are generally comprised of several
    components including the cost of labor and supervision to
    operate our wells and related equipment; repairs and
    maintenance; related materials, supplies, fuel, and supplies
    utilized in operating our wells and related equipment and
    facilities; 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, and result in higher 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
    currently qualify 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 Amortizationis the
    systematic expensing of the capital costs incurred to acquire,
    explore and develop oil and natural gas. As a full cost company,
    we capitalize all direct costs associated with our exploration
    and development efforts, including a portion of our interest and
    certain general and administrative costs, and apportion these
    costs to each unit of production sold through depletion expense.
    Generally, if reserve quantities are revised up or down, our
    depletion rate per unit of production will change inversely.
    When the depreciable base increases or decreases, the depletion
    rate will move in the same direction.

46



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Asset Retirement Accretion Expenseis the systematic,
    monthly accretion of future abandonment costs of tangible assets
    such as wells, service assets, pipelines, and other facilities.                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | General and Administrativeis our overhead, and includes
    payroll and benefits for our corporate staff, costs of
    maintaining our headquarters, managing our production and
    development operations and legal compliance. We capitalize
    general and administrative costs directly related to our
    exploration and development activities.                                                                                                                                                                                                                                  
|
| |  | Interest. We rely on our senior credit agreement to fund
    our short-term liquidity (working capital) and a portion of our
    long-term financing needs. As a result, we incur interest
    expense that correlates to both fluctuations in interest rates
    and to the extent that our cash flows from operations do not
    exceed our spending. We expect to continue to incur interest
    expense as we continue to grow. We capitalize interest directly
    related to our unevaluated properties and certain properties
    under development, which are not being amortized.
|
| |  | Income Taxes. We are generally subject to a 35% federal
    income tax rate. For income tax purposes, we are allowed
    deductions for accelerated depreciation, depletion and
    intangible drilling costs that reduce our current tax liability.
    Through 2005, all of our income taxes were deferred.                                                                                                                                                                                                                                                                             

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;       

47



---



##### Table of Contents





| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cost related to plugging and abandoning unproductive or
    uneconomic wells; and,                                                                 
|
| |  | indirect costs related to our exploration activities, including
    payroll and other expenses attributable our exploration
    professional staff.



|                             |  |              |       | 
|---------------------------- |  | ------------ | ----- | 
|                             |  | 2006         |      
|                             |  |              |      
|                             |  | (In million) |      
|Drilling                     |  | $            | 120.4 | 
|Net land and seismic         |  |              | 28.6  | 
|Capitalized interest and G&A |  |              | 7.3   | 
|Other assets                 |  |              | 0.6   | 
|                             |  |              |      
|Total                        |  | $            | 156.9 | 
|                             |  |              |      













48



---



##### Table of Contents







| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                           





Contractual Obligations




|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |        |  |  |   |        | 
|------------------------------------------------------------ |  | -------------------- | ------ | ----- | ---- | - | -------- | ---- |  | - | ----- |  |  | ---------- | ------ |  |  | - | ------ | 
|                                                             |  | Payments Due by Year |       
|                                                             |  |                      |       
|                                                             |  |                      |        | 2008- |      |   | 2010 and |     
|                                                             |  | Total                |        |       | 2006 |   |          | 2007 |  |   | 2009  |  |  | Thereafter |       
|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |       
|                                                             |  | (In thousands)       |       
|Debt:                                                        |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |        |  |  |   |        | 
|Senior credit agreement                                      |  | $                    | 33,100 |       |      | $ |         |      |  | $ |      |  |  | $          |       |  |  | $ | 33,100 | 
|Subordinated credit agreement                                |  |                      | 30,000 |       |      |   |         |      |  |   |      |  |  |            |       |  |  |   | 30,000 | 
|Mandatorily redeemable, Series A preferred stock             |  |                      | 10,101 |       |      |   |         |      |  |   |      |  |  |            |       |  |  |   | 10,101 | 
|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |       
|Total                                                        |  | $                    | 73,201 |       |      | $ |         |      |  | $ |      |  |  | $          |       |  |  | $ | 73,201 | 
|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |       
|Other commitments:                                           |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |        |  |  |   |        | 
|Interest, senior credit agreement(a)                         |  | $                    | 8,401  |       |      | $ | 1,868    |      |  | $ | 1,868 |  |  | $          | 3,736  |  |  | $ | 929    | 
|Interest, subordinated credit agreement(b)                   |  |                      | 10,640 |       |      |   | 2,366    |      |  |   | 2,366 |  |  |            | 4,732  |  |  |   | 1,176  | 
|Dividend Mandatorily redeemable, Series A preferred stock(c) |  |                      | 2,928  |       |      |   | 606      |      |  |   | 606   |  |  |            | 1,212  |  |  |   | 504    | 
|Non-cancelable operating leases(d)                           |  |                      | 4,634  |       |      |   | 709      |      |  |   | 698   |  |  |            | 1,390  |  |  |   | 1,837  | 
|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |       
|Total                                                        |  | $                    | 26,603 |       |      | $ | 5,549    |      |  | $ | 5,538 |  |  | $          | 11,070 |  |  | $ | 4,446  | 
|                                                             |  |                      |        |       |      |   |          |      |  |   |       |  |  |            |       






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Calculated assuming $33.1 million outstanding under our
    senior credit agreement, an interest rate of 5.64% and the
    agreement matures in June 2010. This interest rate assumes that
    we utilize approximately 37% of the available borrowing base
    during the period and a Eurodollar rate of 4.39% plus a margin
    of 1.25%. The Eurodollar rate used for the calculation is the
    one month Eurodollar rate on December 30, 2005. 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.
|   
|(b) |  | Calculated assuming $30 million of notes outstanding under
    our subordinated credit agreement, an interest rate of 7.89% and
    the agreement matures in June 2010. The interest rate on
    $20 million of our subordinated notes is fixed at 7.61%
    using an interest rate swap. The interest on the remaining
    $10 million of subordinated notes outstanding was
    calculated assuming a Eurodollar rate of 4.54% and a margin of
    3.9% for a total interest rate of 8.44%. The Eurodollar rate
    used for the calculation is the three month Eurodollar rate on
    December 30, 2005. The amount of interest that we pay on                                                                                                                                                                                                           

49



---



##### Table of Contents



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | amounts borrowed under our subordinated credit agreement will
    fluctuate over time as borrowings under our subordinated credit
    agreement increase and the applicable Eurodollar rate increases
    or decreases. In addition, the margin that we pay on amounts
    borrowed under our subordinated credit agreement will increase
    if the amounts we borrow under our senior credit agreement
    equals or exceeds 75% of the available borrowing base. 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.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) |  | Not reduced by rental payments that we will receive from a
    non-cancelable sublease of approximately $44,000 due in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                               





| |                        
| | -----------------------
| | Senior Credit Agreement







|                    |  |            |        |             |  |  |        | 
|------------------- |  | ---------- | ------ | ----------- |  |  | ------ | 
|Percent of          |  | Eurodollar |        |            
|Borrowing Base      |  | Rate       |        | Base Rate  
|Utilized            |  | Advances   |        | Advances(1)
|                    |  |            |        |            
|< 50%               |  |            | 1.250% |             |  |  | 0.000% | 
|3 50% and <
    75% |  |            | 1.500% |             |  |  | 0.000% | 
|3 75% and <
    90% |  |            | 1.750% |             |  |  | 0.250% | 
|3 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.

50



---



##### Table of Contents





|                    |  |                |        | 
|------------------- |  | -------------- | ------ | 
|Percent of          |  |               
|Borrowing Base      |  | Quarterly     
|Utilized            |  | Commitment Fee
|                    |  |               
|< 50%               |  |                | 0.250% | 
|3 50% and <
    75% |  |                | 0.250% | 
|3 75% and <
    90% |  |                | 0.375% | 
|3 90%               |  |                | 0.375% | 









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





|                    |  |                                                      |      |               |  |              |      |   |  |  |      |  
|------------------- |  | ---------------------------------------------------- | ---- | ------------- |  | ------------ | ---- | - |  |  | ---- | -
|                    |  | Debt Outstanding under Subordinated Credit Agreement
|Percent of Senior   |  |                                                     
|Credit Agreement    |  |                                                      |      | >$30 Million  |  |             
|Borrowing Base      |  |                                                      |      | and           |  |             
|Utilized            |  | <$30 Million                                         |      | < $35 Million |  | >$35 Million
|                    |  |                                                      |      |               |  |             
|< 75%               |  |                                                      | 3.90 | %             |  |              | 3.90 | % |  |  | 3.90 | %
|3 75% and <
    90% |  |                                                      | 3.90 | %             |  |              | 4.25 | % |  |  | 4.50 | %
|3 90%               |  |                                                      | 3.90 | %             |  |              | 4.25 | % |  |  | 4.50 | %





51



---



##### Table of Contents











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









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



Capital Resources




52



---



##### Table of Contents





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





| |                        
| | -----------------------
| | Senior Credit Agreement









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







53



---



##### Table of Contents





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





Commodity Prices








Results of Operations




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Comparison of the twelve-month periods ended
    December 31, 2005, 2004 and 2003



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

|                                   |  |                         |        |          |  |      |     |          |  |      |        |  |  |  |     |    |  |  |        | 
|---------------------------------- |  | ----------------------- | ------ | -------- |  | ---- | --- | -------- |  | ---- | ------ |  |  |  | --- | -- |  |  | ------ | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2005                    |        | % Change |  | 2004 |     | % Change |  | 2003
|                                   |  |                         |        |          |  |      |     |          |  |     
|Oil (MBbls)                        |  |                         | 450    |          |  |      | (21 | )%       |  |      | 573    |  |  |  | (20 | )% |  |  | 720    | 
|Natural gas (MMcf)                 |  |                         | 9,213  |          |  |      | 4   | %        |  |      | 8,830  |  |  |  | 39  | %  |  |  | 6,356  | 
|Total (MMcfe)(1)                   |  |                         | 11,913 |          |  |      | (3  | )%       |  |      | 12,265 |  |  |  | 15  | %  |  |  | 10,674 | 
|Average daily production (MMcfe/d) |  |                         | 33.1   |          |  |      |     |          |  |      | 34.1   |  |  |  |     |    |  |  | 29.7   | 

54



---



##### Table of Contents








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







| |   |                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production from our onshore Gulf Coast province for 2005
    decreased 10% when compared to 2004. Production from this
    province represented 57% of our total production in 2005 versus
    61% in 2004. Approximately 78% of our 2005 production from this
    province was natural gas compared to 74% in 2004.                                    
|
| |  | Production from our Anadarko Basin province for 2005 increased
    17% when compared to 2004. Production from this province
    represented 34% of our total production in 2005 versus 29% in
    2004. Approximately 92% of our 2005 production from this
    province was natural gas compared to 88% in 2004.                                        
|
| |  | Production from our West Texas province for 2005 decreased 18%
    when compared to 2004. Production from this province represented
    9% of our total production in 2005 versus 10% in 2004.
    Production from this province is primarily oil and approximately
    85% of our production from this province in 2005 was oil versus
    86% in 2004.







| |   |                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Production from our onshore Gulf Coast province for 2004
    increased 14% when compared to 2003. Production from this
    province represented 61% of our total production in 2004 versus
    62% in 2003. Approximately 74% of our 2004 production from this
    province was natural gas compared to 60% in 2003.                          
|
| |  | Production from our Anadarko Basin province for 2004 increased
    46% when compared to 2003. Production from this province
    represented 29% of our total production in 2004 versus 22% in
    2003. Approximately 88% of our 2004 production from this
    province was natural gas compared to 90% in 2003.                              
|
| |  | Production from our West Texas province for 2004 decreased 26%
    when compared to 2003. West Texas production represented
    10% of our total production versus 16% in 2003. Production from
    our West Texas province is primarily oil and in both 2004 and
    2003 approximately 90% of our production from this province was
    oil.

55



---



##### Table of Contents





| |                                       
| | --------------------------------------
| | Hedging, commodity prices and revenues



|                                            |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|------------------------------------------- |  | ----------------------- | ------ | -------- |  | ---- | --- | -------- |  | ---- | ------ | - |  |  | --- | -- |  | - | ------ | -
|                                            |  | Year Ended December 31,
|                                            |  |                        
|                                            |  | 2005                    |        | % Change |  | 2004 |     | % Change |  | 2003
|                                            |  |                         |        |          |  |      |     |          |  |     
|Oil swaps                                   |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                             |  |                         |       |          |  |      | NM  |          |  |      | 73     |   |  |  | (67 | )% |  |   | 226    |  
|Average swap price (per Bbl)                |  | $                       |       |          |  |      | NM  |          |  | $    | 24.65  |   |  |  | 1   | %  |  | $ | 24.51  |  
|Gain /(loss) upon settlement (in thousands) |  | $                       |       |          |  |      | NM  |          |  | $    | (1,073 | ) |  |  | (28 | )% |  | $ | (1,488 | )
|                                           
|Oil collars                                 |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                             |  |                         | 118    |          |  |      | (34 | )%       |  |      | 179    |   |  |  | 298 | %  |  |   | 45     |  
|Average floor price (per Bbl)               |  | $                       | 37.40  |          |  |      | 50  | %        |  | $    | 24.92  |   |  |  | 38  | %  |  | $ | 18.00  |  
|Average ceiling price (per Bbl)             |  | $                       | 47.20  |          |  |      | 51  | %        |  | $    | 31.21  |   |  |  | 38  | %  |  | $ | 22.56  |  
|Gain /(loss) upon settlement (in thousands) |  | $                       | (1,249 | )        |  |      | (29 | )%       |  | $    | (1,768 | ) |  |  | 345 | %  |  | $ | (397   | )
|                                           
|Total oil                                   |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MBbls)                             |  |                         | 118    |          |  |      | (53 | )%       |  |      | 252    |   |  |  | (8  | )% |  |   | 271    |  
|Gain /(loss) upon settlement (in thousands) |  | $                       | (1,249 | )        |  |      | (56 | )%       |  | $    | (2,841 | ) |  |  | 51  | %  |  | $ | (1,885 | )
|                                           
|Natural gas swaps                           |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                             |  |                         |       |          |  |      | NM  |          |  |      | 753    |   |  |  | (72 | )% |  |   | 2,664  |  
|Average swap price (per MMbtu)              |  | $                       |       |          |  |      | NM  |          |  | $    | 4.53   |   |  |  | 19  | %  |  | $ | 3.81   |  
|Gain /(loss) upon settlement (in thousands) |  | $                       |       |          |  |      | NM  |          |  | $    | (1,066 | ) |  |  | (78 | )% |  | $ | (4,807 | )
|                                           
|Natural gas collars                         |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                             |  |                         | 2,643  |          |  |      | 6   | %        |  |      | 2,504  |   |  |  | NM  |    |  |   |       |  
|Average floor price (per MMbtu)             |  | $                       | 5.93   |          |  |      | 31  | %        |  | $    | 4.54   |   |  |  | NM  |    |  | $ |       |  
|Average ceiling price (per MMbtu)           |  | $                       | 7.86   |          |  |      | 15  | %        |  | $    | 6.85   |   |  |  | NM  |    |  | $ |       |  
|Gain /(loss) upon settlement (in thousands) |  | $                       | (2,925 | )        |  |      | 272 | %        |  | $    | (787   | ) |  |  | NM  |    |  | $ |       |  
|                                           
|Natural gas floors                          |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                             |  |                         |       |          |  |      | NM  |          |  |      |       |   |  |  | NM  |    |  |   | 1,070  |  
|Average floor price (per MMbtu)             |  | $                       |       |          |  |      | NM  |          |  | $    |       |   |  |  | NM  |    |  | $ | 4.50   |  
|Gain /(loss) upon settlement (in thousands) |  | $                       |       |          |  |      | NM  |          |  | $    |       |   |  |  | NM  |    |  | $ |       |  
|                                           
|Total natural gas                           |  |                         |        |          |  |      |     |          |  |      |        |   |  |  |     |    |  |   |        |  
|Volumes (MMbtu)                             |  |                         | 2,643  |          |  |      | (19 | )%       |  |      | 3,257  |   |  |  | (13 | )% |  |   | 3,734  |  
|Gain /(loss) upon settlement (in thousands) |  | $                       | (2,925 | )        |  |      | 58  | %        |  | $    | (1,853 | ) |  |  | (61 | )% |  | $ | (4,807 | )





56



---



##### Table of Contents









Commodity prices and
revenues




|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |        | 
|--------------------------------------------- | -------------------------------------------------- | -------------------------------------------- | ------- | -------- |  | ---- | --- | -------- | - | ---- | ------ | ------ |  |  | --- | -- | -- | - | ------ | ------ | 
|                                              |                                                    | Year Ended December 31,                     
|                                              |                                                    |                                             
|                                              |                                                    | 2005                                         |         | % Change |  | 2004 |     | % Change |   | 2003
|                                              |                                                    |                                              |         |          |  |      |     |          |   |     
|                                              |                                                    | (In thousands, except per unit measurements)
|Revenue from the sale of oil and natural gas: |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|Oil sales                                     |                                                    | $                                            | 24,628  |          |  |      | 7   | %        |   | $    | 22,976 |        |  |  | 4   | %  |    | $ | 22,157 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (1,249  | )        |  |      | (56 | )%       |   |      | (2,841 | )      |  |  | 51  | %  |    |   | (1,885 | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Total revenue from the sale of oil                 |                                              | $       | 23,379   |  |      |     | 16       | % |      | $      | 20,135 |  |  |     | (1 | )% |   | $      | 20,272 | 
|                                             
|Natural gas sales                             |                                                    | $                                            | 76,366  |          |  |      | 43  | %        |   | $    | 53,431 |        |  |  | 48  | %  |    | $ | 36,080 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (2,925  | )        |  |      | 58  | %        |   |      | (1,853 | )      |  |  | (61 | )% |    |   | (4,807 | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Total revenue from the sale of natural gas         |                                              | $       | 73,441   |  |      |     | 42       | % |      | $      | 51,578 |  |  |     | 65 | %  |   | $      | 31,273 | 
|                                             
|Oil and natural gas sales                     |                                                    | $                                            | 100,994 |          |  |      | 32  | %        |   | $    | 76,407 |        |  |  | 31  | %  |    | $ | 58,237 |       
|Gain (loss) due to hedging                    |                                                    |                                              | (4,174  | )        |  |      | (11 | )%       |   |      | (4,694 | )      |  |  | (30 | )% |    |   | (6,692 | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Total revenue from the sale of oil and natural gas |                                              | $       | 96,820   |  |      |     | 35       | % |      | $      | 71,713 |  |  |     | 39 | %  |   | $      | 51,545 | 
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                             
|Average prices:                               |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|Oil sales price (per Bbl)                     |                                                    | $                                            | 54.73   |          |  |      | 36  | %        |   | $    | 40.13  |        |  |  | 30  | %  |    | $ | 30.79  |       
|Gain (loss) due to hedging (per Bbl)          |                                                    |                                              | (2.78   | )        |  |      | (44 | )%       |   |      | (4.96  | )      |  |  | 89  | %  |    |   | (2.62  | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Realized oil price (per Bbl)                       |                                              | $       | 51.95    |  |      |     | 48       | % |      | $      | 35.17  |  |  |     | 25 | %  |   | $      | 28.17  | 
|                                             
|Natural gas sales price (per Mcf)             |                                                    | $                                            | 8.29    |          |  |      | 37  | %        |   | $    | 6.05   |        |  |  | 7   | %  |    | $ | 5.68   |       
|Gain (loss) due to hedging (per Mcf)          |                                                    |                                              | (0.32   | )        |  |      | 52  | %        |   |      | (0.21  | )      |  |  | (72 | )% |    |   | (0.76  | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Realized natural gas price (per Mcf)               |                                              | $       | 7.97     |  |      |     | 36       | % |      | $      | 5.84   |  |  |     | 19 | %  |   | $      | 4.92   | 
|                                             
|Natural gas equivalent sales price (per Mcfe) |                                                    | $                                            | 8.48    |          |  |      | 36  | %        |   | $    | 6.23   |        |  |  | 14  | %  |    | $ | 5.46   |       
|Gain (loss) due to hedging (per Mcfe)         |                                                    |                                              | (0.35   | )        |  |      | (8  | )%       |   |      | (0.38  | )      |  |  | (40 | )% |    |   | (0.63  | )     
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       
|                                              | Realized natural gas equivalent (per Mcfe)         |                                              | $       | 8.13     |  |      |     | 39       | % |      | $      | 5.85   |  |  |     | 21 | %  |   | $      | 4.83   | 
|                                              |                                                    |                                              |         |          |  |      |     |          |   |      |        |        |  |  |     |    |    |   |        |       

57



---



##### Table of Contents



|                                               |              |         |        |         |  |   |        |        |  
|---------------------------------------------- | ------------ | ------- | ------ | ------- |  | - | ------ | ------ | -
|                                               |              | 2004    |        | 2003   
|                                               |              | to 2005 |        | to 2004
|                                               |              |         |        |        
|Change in revenue from the sale of oil         |              |         |        |         |  |   |        |       
|Price variance impact                          |              | $       | 6,570  |         |  | $ | 5,348  |       
|Volume variance impact                         |              |         | (4,918 | )       |  |   | (4,529 | )     
|Cash settlement of hedging contracts           |              |         | 1,592  |         |  |   | (956   | )     
|                                               |              |         |        |         |  |   |        |       
|                                               | Total change |         | $      | 3,244   |  |   | $      | (137   | )
|                                               |              |         |        |         |  |   |        |       
|Change in revenue from the sale of natural gas |              |         |        |         |  |   |        |       
|Price variance impact                          |              | $       | 20,627 |         |  | $ | 3,275  |       
|Volume variance impact                         |              |         | 2,308  |         |  |   | 14,076 |       
|Cash settlement of hedging contracts           |              |         | (1,072 | )       |  |   | 2,954  |       
|                                               |              |         |        |         |  |   |        |       
|                                               | Total change |         | $      | 21,863  |  |   | $      | 20,305 |  
|                                               |              |         |        |         |  |   |        |       







| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $2.25 increase in the sales price we received for oil and
    natural gas combined with a decrease in losses related to the
    settlement of derivative contracts increased our revenues by
    $27.2 million and $520,000 respectively.
|
| |  | These increases were partially offset by a $2.6 million
    decrease to revenues due to lower production.                                                                                                                                  





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

Other revenue.


Operating costs and
expenses


Production costs.


|                        |                          |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |       | 
|----------------------- | ------------------------ | -------------------------------------------- | ----- | -------- |  | ---- | --- | -------- | - | ---- | ----- | ----- |  |  | --- | -- | - | - | ----- | ----- | 
|                        |                          | Year Ended December 31,                     
|                        |                          |                                             
|                        |                          | 2005                                         |       | % Change |  | 2004 |     | % Change |   | 2003
|                        |                          |                                              |       |          |  |      |     |          |   |     
|                        |                          | (In thousands, except per unit measurements)
|Production costs:       |                          |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|Operating & maintenance |                          | $                                            | 5,568 |          |  |      | 24  | %        |   | $    | 4,480 |       |  |  | 31  | %  |   | $ | 3,420 |      
|Expensed workovers      |                          |                                              | 492   |          |  |      | (44 | )%       |   |      | 878   |       |  |  | (22 | )% |   |   | 1,123 |      
|Ad valorem taxes        |                          |                                              | 1,101 |          |  |      | 35  | %        |   |      | 815   |       |  |  | 24  | %  |   |   | 657   |      
|                        |                          |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|                        | Lease operating expenses |                                              | $     | 7,161    |  |      |     | 16       | % |      | $     | 6,173 |  |  |     | 19 | % |   | $     | 5,200 | 
|Production taxes        |                          |                                              | 3,353 |          |  |      | 8   | %        |   |      | 3,107 |       |  |  | 25  | %  |   |   | 2,477 |      
|                        |                          |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      
|                        | Production costs         |                                              | $     | 10,514   |  |      |     | 13       | % |      | $     | 9,280 |  |  |     | 21 | % |   | $     | 7,677 | 
|                        |                          |                                              |       |          |  |      |     |          |   |      |       |       |  |  |     |    |   |   |       |      

58



---



##### Table of Contents



|                             |                          |                                              |      |          |  |      |     |          |   |      |      |      |  |  |     |    |   |   |      |      | 
|---------------------------- | ------------------------ | -------------------------------------------- | ---- | -------- |  | ---- | --- | -------- | - | ---- | ---- | ---- |  |  | --- | -- | - | - | ---- | ---- | 
|                             |                          | Year Ended December 31,                     
|                             |                          |                                             
|                             |                          | 2005                                         |      | % Change |  | 2004 |     | % Change |   | 2003
|                             |                          |                                              |      |          |  |      |     |          |   |     
|                             |                          | (In thousands, except per unit measurements)
|Production costs (per Mcfe): |                          |                                              |      |          |  |      |     |          |   |      |      |      |  |  |     |    |   |   |      |     
|Operating & maintenance      |                          | $                                            | 0.47 |          |  |      | 31  | %        |   | $    | 0.36 |      |  |  | 13  | %  |   | $ | 0.32 |     
|Expensed workovers           |                          |                                              | 0.04 |          |  |      | (43 | )%       |   |      | 0.07 |      |  |  | (36 | )% |   |   | 0.11 |     
|Ad valorem taxes             |                          |                                              | 0.09 |          |  |      | 29  | %        |   |      | 0.07 |      |  |  | 17  | %  |   |   | 0.06 |     
|                             |                          |                                              |      |          |  |      |     |          |   |      |      |      |  |  |     |    |   |   |      |     
|                             | Lease operating expenses |                                              | $    | 0.60     |  |      |     | 20       | % |      | $    | 0.50 |  |  |     | 2  | % |   | $    | 0.49 | 
|Production taxes             |                          |                                              | 0.28 |          |  |      | 12  | %        |   |      | 0.25 |      |  |  | 9   | %  |   |   | 0.23 |     
|                             |                          |                                              |      |          |  |      |     |          |   |      |      |      |  |  |     |    |   |   |      |     
|                             | Production costs         |                                              | $    | 0.88     |  |      |     | 17       | % |      | $    | 0.75 |  |  |     | 4  | % |   | $    | 0.72 | 
|                             |                          |                                              |      |          |  |      |     |          |   |      |      |      |  |  |     |    |   |   |      |     









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | O&M expenses associated with new wells that began producing
    in 2005 were $480,000.                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | O&M expenses associated with wells that were producing at
    the start of 2005 were up 14% when compared to 2004. Increases
    in costs for compressor rental and maintenance, saltwater
    disposal, overhead fees, contract labor, equipment rental,
    pumping services, water treating and miscellaneous expenses were
    the primary reasons for this increase. These increases were
    partially offset by a decrease in lease maintenance costs.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | O&M expenses associated with new wells that began producing
    in 2004 were $638,000.                                                                                                                                                                                                                                                                                                                                                               
|
| |  | O&M expenses associated with wells that were producing at
    the start of 2004 were up 12% when compared to 2003. Increases
    in costs for compressor rental and maintenance, saltwater
    disposal, and electricity were the primary reasons for this
    increase. These increases were partially offset by a decrease in
    costs for contract labor, testing and treating chemicals, well
    service and repair and miscellaneous expenses.









59



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 36% increase in the pre-hedge sales price that we received for
    our oil and natural gas was partially offset by a reduction in
    our 2005 production combined with our receipt of
    $1.6 million of production tax credits related to 16 high
    cost gas wells. Our effective production tax rate for 2005 was
    3.3% of our pre-hedge revenue from the sale of oil and natural
    gas compared to 4.1% in 2004.





| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher production volumes combined with a 14% increase in the
    pre-hedge sales price that we received for our oil and natural
    gas. Our effective production tax rate for 2004 was 4.1% of our
    pre-hedge revenue from the sale oil and natural compared to 4.3%
    in 2003.









| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $0.04 per Mcfe of the increase in our O&M
    expenses was due to cost associated with new wells that began
    producing in 2005.                                                                                                                                                 
|
| |  | Ad valorem taxes increased due to higher property valuations for
    our oil and natural gas properties due to higher commodity
    prices.                                                                                                                                                      
|
| |  | Production taxes were $0.03 higher per Mcfe due to an increase
    in the sales price that we received for our oil and natural gas.
    The increase in our production tax on a per unit basis due to
    higher prices was partially offset by $0.14 decrease due to
    production tax credits.
|
| |  | A decrease in expensed workover costs partially offset
    $0.03 per Mcfe of this increase.                                                                                                                                                                                                      





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $0.05 per Mcfe of the increase in our O&M
    expenses was due to cost associated with new wells that began
    producing in 2004.
|
| |  | Ad valorem taxes increased due to higher property valuations for
    our oil and natural gas properties due to higher commodity
    prices.     
|
| |  | Production taxes were $0.02 higher due to an increase in the
    sales price that we received for our oil and natural gas.                      
|
| |  | A decrease in expensed workover cost partially offset
    $0.04 per Mcfe of this increase.                                                      

General and administrative expenses.


|                                              |  |                                              |        |          |  |      |    |          |  |      |        |   |  |  |    |   |  |   |        |  
|--------------------------------------------- |  | -------------------------------------------- | ------ | -------- |  | ---- | -- | -------- |  | ---- | ------ | - |  |  | -- | - |  | - | ------ | -
|                                              |  | Year Ended December 31,                     
|                                              |  |                                             
|                                              |  | 2005                                         |        | % Change |  | 2004 |    | % Change |  | 2003
|                                              |  |                                              |        |          |  |      |    |          |  |     
|                                              |  | (In thousands, except per unit measurements)
|General and administrative costs              |  | $                                            | 10,380 |          |  |      | 1  | %        |  | $    | 10,264 |   |  |  | 13 | % |  | $ | 9,121  |  
|Capitalized general and administrative costs  |  |                                              | (4,847 | )        |  |      | (1 | )%       |  |      | (4,872 | ) |  |  | 5  | % |  |   | (4,621 | )
|                                              |  |                                              |        |          |  |      |    |          |  |      |        |   |  |  |    |   |  |   |        |  
|General and administrative expenses           |  | $                                            | 5,533  |          |  |      | 3  | %        |  | $    | 5,392  |   |  |  | 20 | % |  | $ | 4,500  |  
|General and administrative expense (per Mcfe) |  | $                                            | 0.46   |          |  |      | 5  | %        |  | $    | 0.44   |   |  |  | 5  | % |  | $ | 0.42   |  

60



---



##### Table of Contents









| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $147,000 increase in total compensation expense due to a
    combination of an increase in the number of employees hired and
    higher medical benefit costs.                                                                                                                                                                                 
|
| |  | A $435,000 increase in bad debt expense. In 2005, we recorded
    $447,000 in bad debt expense related to an unpaid account
    receivable. This amount is our estimate of the amount that will
    not be collected. Additionally, we recorded $9,000 in bad debt
    expense for an account receivable that has been deemed
    uncollectible. 
|
| |  | These increases were offset by $188,000 decrease in fees paid
    for contract and professional services, $161,000 decrease in
    office rent, a $31,000 decrease in costs for financial
    reporting. A decrease in the legal fees we paid was the primary
    reason for the decrease in our 2005 contract and professional
    service cost.





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

Depletion of oil and natural gas properties.


|                                                       |  |                                              |        |          |  |      |    |          |  |      |        |  |  |  |    |   |  |   |        | 
|------------------------------------------------------ |  | -------------------------------------------- | ------ | -------- |  | ---- | -- | -------- |  | ---- | ------ |  |  |  | -- | - |  | - | ------ | 
|                                                       |  | Year Ended December 31,                     
|                                                       |  |                                             
|                                                       |  | 2005                                         |        | % Change |  | 2004 |    | % Change |  | 2003
|                                                       |  |                                              |        |          |  |      |    |          |  |     
|                                                       |  | (In thousands, except per unit measurements)
|Depletion of oil and natural gas properties            |  | $                                            | 33,268 |          |  |      | 40 | %        |  | $    | 23,844 |  |  |  | 42 | % |  | $ | 16,819 | 
|Depletion of oil and natural gas properties (per Mcfe) |  | $                                            | 2.79   |          |  |      | 44 | %        |  | $    | 1.94   |  |  |  | 23 | % |  | $ | 1.58   | 









61



---



##### Table of Contents



Net interest expense.


|                                                     |                      |                         |        |          |  |      |     |          |   |      |        |       |  |  |     |     |    |   |        |       | 
|---------------------------------------------------- | -------------------- | ----------------------- | ------ | -------- |  | ---- | --- | -------- | - | ---- | ------ | ----- |  |  | --- | --- | -- | - | ------ | ----- | 
|                                                     |                      | Year Ended December 31,
|                                                     |                      |                        
|                                                     |                      | 2005                    |        | % Change |  | 2004 |     | % Change |   | 2003
|                                                     |                      |                         |        |          |  |      |     |          |   |     
|                                                     |                      | (In thousands)         
|Interest on senior credit facility                   |                      | $                       | 2,267  |          |  |      | 157 | %        |   | $    | 882    |       |  |  | (47 | )%  |    | $ | 1,674  |      
|Interest on senior subordinated notes(a)             |                      |                         | 1,948  |          |  |      | 14  | %        |   |      | 1,703  |       |  |  | (28 | )%  |    |   | 2,369  |      
|Commitment fees                                      |                      |                         | 133    |          |  |      | (44 | )%       |   |      | 236    |       |  |  | 61  | %   |    |   | 147    |      
|Dividend on mandatorily redeemable preferred stock   |                      |                         | 734    |          |  |      | 1   | %        |   |      | 726    |       |  |  | 114 | %   |    |   | 340    |      
|Amortization of deferred loan & debt issuance cost   |                      |                         | 491    |          |  |      | (36 | )%       |   |      | 766    |       |  |  | (27 | )%  |    |   | 1,053  |      
|Other general interest expense                       |                      |                         | 11     |          |  |      | (58 | )%       |   |      | 26     |       |  |  | (48 | )%  |    |   | 50     |      
|Capitalized interest expense                         |                      |                         | (1,604 | )        |  |      | 34  | %        |   |      | (1,195 | )     |  |  | 46  | %   |    |   | (818   | )    
|                                                     |                      |                         |        |          |  |      |     |          |   |      |        |       |  |  |     |     |    |   |        |      
|                                                     | Net interest expense |                         | $      | 3,980    |  |      |     | 27       | % |      | $      | 3,144 |  |  |     | (35 | )% |   | $      | 4,815 | 
|                                                     |                      |                         |        |          |  |      |     |          |   |      |        |       |  |  |     |     |    |   |        |      
|Weighted average debt outstanding                    |                      | $                       | 80,180 |          |  |      | 42  | %        |   | $    | 56,352 |       |  |  | (21 | )%  |    | $ | 71,392 |      
|Average interest rate on outstanding indebtedness(b) |                      |                         | 6.3%   |          |  |      |     |          |   |      | 6.3    | %     |  |  |     |     |    |   | 6.3    | %    






|    |                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes the effects of the interest rate swap.                                                                                                                                                                                                                                                        
|   
|(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.







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest related to our senior credit agreement in 2005 was 59%
    higher than 2004. During 2005, we paid $1.4 million more
    interest on amounts borrowed under our senior credit agreement
    than we did in 2004. The primary reason for this was an increase
    in the Eurodollar rate combined with an increase in the weighted
    average amount we borrowed under our senior credit agreement
    during 2005. This increase was partially offset by a decrease in
    the commitment fees we paid on the unused portion of the
    available borrowing base and a decrease in our amortized
    deferred loan and debt issuance costs. Our weighted average debt
    outstanding under our senior credit agreement during 2005
    represented approximately 59% of our available borrowing base,
    compared to 40% in 2004.
|
| |  | Interest related to our subordinated credit agreement in 2005
    was 15% higher than 2004. During 2005, we paid $245,000 more
    interest on the amounts we borrowed under our subordinated
    credit agreement than we did in 2004. The primary reason for
    this was an increase in the weighted average debt outstanding
    under our subordinated credit agreement during 2005. During
    2005, we                                                                                                                                                                                                                                                                                                                                                                                                                               

62



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | also began paying commitment fees on the unused portion of our
    subordinated credit agreement. When we amended the agreement in
    June 2005, we increased the amount available to us for borrowing
    under our subordinated credit agreement from $20 million to
    $40 million. Upon closing of the amendment, we borrowed an
    additional $10 million, which left us with an additional
    $10 million available for borrowing. The commitment fees we
    paid on our subordinated notes in 2005 were related to the
    remaining $10 million available to us.                                                                                                       
|
| |  | Dividends that we paid on our mandatorily redeemable preferred
    stock in 2005 were 1% higher than 2004. During the first three
    quarters of 2005, we issued 29,065 shares of our
    mandatorily redeemable preferred stock to pay the dividend
    obligations related to our preferred stock. Our option to pay
    the dividends on our preferred stock in kind expired in October
    2005. The dividends on our preferred stock for the remainder of
    2005 were paid in cash at a rate of 6% per annum. We will
    continue to pay the 6% cash dividend on our preferred stock
    until the preferred stock matures on October 31, 2010 or
    until it is redeemed.
|
| |  | The amount of interest that we capitalized during 2005 increased
    due to an increase in interest rates throughout the year.
    Approximately $406,000 of our capitalized interest in 2005 was
    related to one exploration well, the Mills Ranch #2-98,
    that was drilling at December 31, 2004 and completed in
    September 2005.                                                                                                                                                                                                                                                                                                                                       





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest related to our senior credit agreement in 2004 was 29%
    lower than 2003. During 2004 we paid $792,000 less interest on
    amounts borrowed under our senior credit agreement than we did
    in 2003. During 2004, we utilized a smaller percentage of our
    available borrowing base during the period which resulted in a
    lower interest rate on amounts borrowed. Our weighted average
    debt outstanding under our senior credit facility during 2004
    represented approximately 40% of our available borrowing base,
    compared to 66% in 2003. The decrease in interest due to a
    decrease in borrowing was partially offset by a 61% increase in
    the commitment fees that we paid on the unused portion of our
    borrowing base during 2004.
|
| |  | Interest related to our subordinated credit agreement in 2004
    was 34% lower than 2003. We paid $666,000 less interest on
    amounts borrowed under our subordinated credit agreement in 2004
    than we did in 2003. One of the primary reasons for this
    decrease was a 10% decrease in our weighted average notes
    outstanding under our subordinated credit agreement during the
    period combined with a decrease in the interest rate that we
    paid on the outstanding notes. Our amortized deferred loan costs
    for 2004 were also $325,000 lower than 2003.                                                                                                                                                                                                
|
| |  | The amount of interest that we capitalized during 2004 increased
    due to an increase in our unevaluated property balance
    throughout the year. Approximately $200,000 of our capitalized
    interest in 2004 was related to the Mills Ranch #2-98
    exploration well that was drilling at December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | A 114% increase in the dividends that we paid on our mandatorily
    redeemable preferred stock due to 2004 includes a full year of
    dividends whereas 2003 only includes dividends for half the year
    due to the adoption of SFAS 150 in July 2003. In 2004 we
    issued 36,264 shares of our mandatorily redeemable
    preferred stock to pay the dividend obligations related to our
    preferred stock.                                                                                                                                                                                                                                                                                                                                                                  

Other income (expense).


63



---



##### Table of Contents





|                                                                                                                                              |                     |                         |      |          |   |      |     |          |  |      |     |     |  |  |      |     |   |   |      |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ----------------------- | ---- | -------- | - | ---- | --- | -------- |  | ---- | --- | --- |  |  | ---- | --- | - | - | ---- | ---- | -
|                                                                                                                                              |                     | Year Ended December 31,
|                                                                                                                                              |                     |                        
|                                                                                                                                              |                     | 2005                    |      | % Change |   | 2004 |     | % Change |  | 2003
|                                                                                                                                              |                     |                         |      |          |   |      |     |          |  |     
|                                                                                                                                              |                     | (In thousands)         
|Non-cash gain (loss) due to change in fair market value of
    derivative contracts that did not qualify as cashflow hedge
    under SFAS 133 |                     | $                       | (92  | )        |   |      | 178 | %        |  | $    | (33 | )   |  |  | NM   |     |   | $ |     |     
|Non-cash gain (loss) for ineffective portion of cash flow hedges                                                                              |                     |                         | (722 | )        |   |      | NM  |          |  |      | 658 |     |  |  | NM   |     |   |   | (455 | )   
|Gain (loss) on disposal of assets                                                                                                             |                     |                         | (134 | )        |   |      | NM  |          |  |      | 117 |     |  |  | NM   |     |   |   |     |     
|Other                                                                                                                                         |                     |                         | 372  |          |   |      | NM  |          |  |      |    |     |  |  | (100 | )%  |   |   | (146 | )   
|                                                                                                                                              |                     |                         |      |          |   |      |     |          |  |      |     |     |  |  |      |     |   |   |      |     
|                                                                                                                                              | Other income (loss) |                         | $    | (576     | ) |      |     | NM       |  |      | $   | 742 |  |  |      | 223 | % |   | $    | (601 | )
|                                                                                                                                              |                     |                         |      |          |   |      |     |          |  |      |     |     |  |  |      |     |   |   |      |     



|                                    |  |                         |           |          |  |      |     |          |  |      |         |  |  |  |    |  |  |   |   | 
|----------------------------------- |  | ----------------------- | --------- | -------- |  | ---- | --- | -------- |  | ---- | ------- |  |  |  | -- |  |  | - | - | 
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2005                    |           | % Change |  | 2004 |     | % Change |  | 2003
|                                    |  |                         |           |          |  |      |     |          |  |     
|Written natural gas puts            |  |                         |           |          |  |      |     |          |  |      |         |  |  |  |    |  |  |   |   | 
|Volumes (MMbtu)                     |  |                         | 1,250,000 |          |  |      | 793 | %        |  |      | 140,000 |  |  |  | NM |  |  |   |  | 
|Average ceiling price ($ per MMbtu) |  | $                       | 5.88      |          |  |      | 7   | %        |  | $    | 5.50    |  |  |  | NM |  |  | $ |  | 
|                                   
|Written oil puts                    |  |                         |           |          |  |      |     |          |  |      |         |  |  |  |    |  |  |   |   | 
|Volumes (MMbtu)                     |  |                         | 72,000    |          |  |      | NM  |          |  |      |        |  |  |  | NM |  |  |   |  | 
|Average ceiling price ($ per MMbtu) |  | $                       | 34.67     |          |  |      | NM  |          |  | $    |        |  |  |  | NM |  |  | $ |  | 



Income taxes:






64



---



##### Table of Contents







Dividends and accretion of mandatorily redeemable preferred
stock.


Analysis of Changes In Cash
and Cash Equivalents




|                                                     |  |                         |          |          |  |      |     |          |  |      |         |   |  |  |     |    |  |   |         |  
|---------------------------------------------------- |  | ----------------------- | -------- | -------- |  | ---- | --- | -------- |  | ---- | ------- | - |  |  | --- | -- |  | - | ------- | -
|                                                     |  | Year Ended December 31,
|                                                     |  |                        
|                                                     |  | 2005                    |          | % Change |  | 2004 |     | % Change |  | 2003
|                                                     |  |                         |          |          |  |      |     |          |  |     
|                                                     |  | (In thousands)         
|Net income                                           |  | $                       | 27,435   |          |  |      | 40  | %        |  | $    | 19,650  |   |  |  | 9   | %  |  | $ | 18,030  |  
|Non-cash charges                                     |  |                         | 51,723   |          |  |      | 42  | %        |  |      | 36,455  |   |  |  | 88  | %  |  |   | 19,357  |  
|Changes in working capital and other items           |  |                         | (14,779  | )        |  |      | NM  |          |  |      | 276     |   |  |  | (94 | )% |  |   | 4,304   |  
|                                                     |  |                         |          |          |  |      |     |          |  |      |         |   |  |  |     |    |  |   |         |  
|Cash flows provided by operating activities          |  | $                       | 64,379   |          |  |      | 14  | %        |  | $    | 56,381  |   |  |  | 35  | %  |  | $ | 41,691  |  
|Cash flows used by investing activities              |  |                         | (113,220 | )        |  |      | 34  | %        |  |      | (84,645 | ) |  |  | 84  | %  |  |   | (46,089 | )
|Cash flows provided (used) by financing activities   |  |                         | 50,535   |          |  |      | 104 | %        |  |      | 24,766  |   |  |  | NM  |    |  |   | (5,141  | )
|                                                     |  |                         |          |          |  |      |     |          |  |      |         |   |  |  |     |    |  |   |         |  
|Net increase (decrease) in cash and cash equivalents |  | $                       | 1,694    |          |  |      | NM  |          |  | $    | (3,498  | ) |  |  | (63 | )% |  | $ | (9,539  | )
|                                                     |  |                         |          |          |  |      |     |          |  |      |         |   |  |  |     |    |  |   |         |  



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







| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in the sales prices we received from the sale of our
    oil and natural gas in 2005 combined with a decrease in losses
    related to the cash settlement of derivative contracts in 2005
    increased net cash provided by operating activities by
    $27.2 million. This increase was partially offset by a
    $2.6 million decline in revenue due to lower production
    volumes.

65



---



##### Table of Contents





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in our production cost and cash general and
    administrative expenses for 2005 reduced net cash provided by
    operating activities in by $919,000.                                
|
| |  | An increase in the cash interest expense that we paid in 2005
    reduced our net cash provided by operating activities in 2005 by
    $1.3 million.                                              
|
| |  | The payment of accounts payable in excess of the collection of
    accounts receivable resulted in a $10.3 million decrease to
    our 2005 net cash provided by operating activities.            
|
| |  | A decrease in advances paid to us by participants in our
    3-D seismic projects
    and certain wells resulted in $4 million decrease to our
    2005 net cash provided by operating activities.





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



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









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







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our additions to oil and natural gas properties for 2005 were up
    34% when compared to 2004. The primary reasons for this increase
    were due to an $18.7 million increase in our drilling
    capital expenditures net of changes in accrued drilling costs, a
    $6.6 million increase in our capital expenditures for land
    and seismic activities and a $1.1 million increase in the
    amount of interest that we capitalized. The primary reason for
    these increases was an increase in our capital

66



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | expenditures for oil and natural gas activities in 2005.
    Additions to oil and natural gas properties also included a
    $2 million gas imbalance receivable related to an
    acquisition of another operators interests in our Triple Crown
    field. (For more information regarding our capital expenditures
    for oil and natural gas activities see below.)
|
| |  | Our capital expenditures for other assets in 2005 were $33,000
    lower than 2004.                                                                                                                                                                                                                                                                                     
|
| |  | Proceeds from the sale of property in 2005 were $83,000 lower
    than 2004.                                                                                                                                                                                                                                                                                            
|
| |  | Our prepaid drilling cost at December 31, 2005, which is
    reported as an asset on our balance sheet, was $405,000 compared
    to $377,000 at December 31, 2004.                                                                                                                                                                                                     





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our additions to oil and natural gas properties for 2004 were up
    84% when compared to 2003. The primary reasons for this increase
    were due to a $32.1 million increase in our drilling
    capital expenditures net of changes in accrued drilling costs, a
    $6.9 million increase in our capital expenditures for land
    and seismic activities and a $251,000 increase in the amount of
    general and administrative costs we capitalized. The primary
    reason for these increases was an increase in our capital
    expenditures for oil and natural gas activities in 2004. These
    increases were partially offset by a $681,000 reduction in the
    amount of interest we capitalized in 2004. (For more information
    regarding our capital expenditures for oil and natural gas
    activities see below.)
|
| |  | Our capital expenditures for other assets in 2004 were $29,000
    higher than 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Proceeds from the sale of property in 2004 were $335,000 lower
    than 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Our prepaid drilling cost at December 31, 2004, which was
    reported as an asset on our balance sheet, were $377,000
    compared to $457,000 at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



|                                                    |                |                         |        |         |      |   |        |        |  |   |        |        | 
|--------------------------------------------------- | -------------- | ----------------------- | ------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                    |                | Year Ended December 31, |       
|                                                    |                |                         |       
|                                                    |                | 2005                    |        |         | 2004 |   |        | 2003   | 
|                                                    |                |                         |        |         |      |   |        |        | 
|                                                    |                | (In thousands)          |       
|Cost Incurred:                                      |                |                         |        |         |      |   |        |        |  |   |        |       
|Exploration(a)                                      |                | $                       | 54,338 |         |      | $ | 30,327 |        |  | $ | 20,243 |       
|Property acquisition(b)                             |                |                         | 15,701 |         |      |   | 6,226  |        |  |   | 4,850  |       
|Development(c)                                      |                |                         | 48,588 |         |      |   | 50,872 |        |  |   | 22,437 |       
|                                                    |                |                         |        |         |      |   |        |        | 
|                                                    | Costs incurred |                         | $      | 118,627 |      |   | $      | 87,425 |  |   | $      | 47,530 | 
|                                                    |                |                         |        |         |      |   |        |        | 
|Amount spent to develop proved undeveloped reserves |                | $                       | 26,568 |         |      | $ | 34,723 |        |  | $ | 11,399 |       
|                                                    |                |                         |        |         |      |   |        |        | 






|    |                                                
|--- | -----------------------------------------------
|(a) | Includes capital expenditures for the following

|                            |  |   |        |  |  |   |        |  |  |   |        | 
|--------------------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|Drilling                    |  | $ | 44,082 |  |  | $ | 18,339 |  |  | $ | 13,586 | 
|Land and seismic            |  |   | 5,878  |  |  |   | 7,991  |  |  |   | 2,470  | 
|Asset retirement obligation |  |   | 356    |  |  |   | 138    |  |  |   | 117    | 
|Capitalized cost            |  |   | 4,022  |  |  |   | 3,859  |  |  |   | 4,070  | 
|                            |  |   |        |  |  |   |        |  | 
|                            |  | $ | 54,338 |  |  | $ | 30,327 |  |  | $ | 20,243 | 
|                            |  |   |        |  |  |   |        |  | 

67



---



##### Table of Contents





|    |                                                
|--- | -----------------------------------------------
|(b) | Includes capital expenditures for the following

|                              |  |   |        |  |  |   |       |  |  |   |       | 
|----------------------------- |  | - | ------ |  |  | - | ----- |  |  | - | ----- | 
|Proved property acquisition   |  | $ | 191    |  |  | $ |      |  |  | $ |      | 
|Unproved property acquisition |  |   | 13,572 |  |  |   | 5,002 |  |  |   | 3,604 | 
|Capitalized cost              |  |   | 1,938  |  |  |   | 1,224 |  |  |   | 1,246 | 
|                              |  |   |        |  |  |   |       |  | 
|                              |  | $ | 15,701 |  |  | $ | 6,226 |  |  | $ | 4,850 | 
|                              |  |   |        |  |  |   |       |  | 



|    |                                                
|--- | -----------------------------------------------
|(c) | Includes capital expenditures for the following

|                            |  |   |        |  |  |   |        |  |  |   |        | 
|--------------------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|Drilling                    |  | $ | 46,791 |  |  | $ | 49,866 |  |  | $ | 21,520 | 
|Asset retirement obligation |  |   | 968    |  |  |   | 375    |  |  |   | 152    | 
|Capitalized cost            |  |   | 829    |  |  |   | 631    |  |  |   | 765    | 
|                            |  |   |        |  |  |   |        |  | 
|                            |  | $ | 48,588 |  |  | $ | 50,872 |  |  | $ | 22,437 | 
|                            |  |   |        |  |  |   |        |  | 



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







| |                        
| | -----------------------
| | Senior Credit Agreement









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







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



68



---



##### Table of Contents





|                                                                         |  |                                  |           |  |              |   |        | 
|------------------------------------------------------------------------ |  | -------------------------------- | --------- |  | ------------ | - | ------ | 
|                                                                         |  | Shares Issued                    |           |  | Net Proceeds |  
|                                                                         |  |                                  |           |  |              |  
|                                                                         |  | (In thousands except share data) |          
|2005 common stock transactions:                                          |  |                                  |           |  |              |   |        | 
|Sale of common stock under universal shelf registration
    statement(a) |  |                                  | 2,500,000 |  |              | $ | 28,321 | 
|Exercise of employee stock options                                       |  |                                  | 340,467   |  |              | $ | 1,314  | 
|2004 common stock transactions:                                          |  |                                  |           |  |              |   |        | 
|Sale of common stock under universal shelf registration
    statement(b) |  |                                  | 2,598,500 |  |              | $ | 22,105 | 
|Exercise of employee stock options                                       |  |                                  | 314,181   |  |              |   | 972    | 
|2003 common stock transactions:                                          |  |                                  |           |  |              |   |        | 
|Sale of common stock(c)                                                  |  |                                  | 7,384,090 |  |              | $ | 40,000 | 
|Exercise of employee stock options                                       |  |                                  | 309,760   |  |              |   | 829    | 






|    |                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.



|    |  |                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The net proceeds from the sale were used to repay debt
    outstanding under our senior credit agreement.                                                                     
|   
|(c) |  | The net proceeds from the sale were used to accelerate the
    amount of capital that we spent on our exploration and
    development program and reduce our outstanding debt.





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



Other Matters




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





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



69



---



##### Table of Contents





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



70



---



##### Table of Contents








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

Management Opinion Concerning Derivative Instruments




Fair Value of Derivative Contracts




|                                                                             |                     |                |      |     |               |   |        |        |   |   |        |        |  
|---------------------------------------------------------------------------- | ------------------- | -------------- | ---- | --- | ------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                             |                     | Fair Value of  |      |     | Fair Value of |   |        |       
|                                                                             |                     | Undesignated   |      |     | Cash Flow     |   |        |       
|                                                                             |                     | Derivative     |      |     | Derivative    |   |        |       
|                                                                             |                     | Contracts      |      |     | Contracts     |   |        | Total  |  
|                                                                             |                     |                |      |     |               |   |        |        |  
|                                                                             |                     | (In thousands) |     
|Estimated fair value of open contracts at December 31, 2004                  |                     | $              | (34  | )   |               | $ | (692   | )      |   | $ | (726   | )     
|                                                                             |                     |                |      |     |               |   |        |        |  
|Changes in fair values of derivative contracts:                              |                     |                |      |     |               |   |        |        |   |   |        |       
|                                                                             | Natural gas collars |                | $    | (66 | )             |   | $      | (2,469 | ) |   | $      | (2,535 | )
|                                                                             | Oil collars         |                |      | (25 | )             |   |        | (372   | ) |   |        | (397   | )
|                                                                             | Interest rate swap  |                |      |    |               |   |        | 642    |   |   |        | 642    |  
|Settlements of derivative contracts that were open at
    December 31, 2004: |                     |                |      |     |               |   |        |        |   |   |        |       
|                                                                             | Natural gas collars |                | $    |    |               |   | $      | 670    |   |   | $      | 670    |  
|                                                                             | Oil collars         |                |      |    |               |   |        | 926    |   |   |        | 926    |  
|                                                                             | Interest rate swap  |                |      |    |               |   |        |       |   |   |        |       |  
|                                                                             |                     |                |      |     |               |   |        |        |  
|Estimated fair value of open contracts at December 31, 2005                  |                     | $              | (125 | )   |               | $ | (1,295 | )      |   | $ | (1,420 | )     
|                                                                             |                     |                |      |     |               |   |        |        |  



Derivative Instruments and Hedging Activities






71



---



##### Table of Contents









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











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



72



---



##### Table of Contents





|                           |                     |            |              |               |                |                 |              |           |       |     |           |         |           |       |        |        |  |  |       |       | 
|-------------------------- | ------------------- | ---------- | ------------ | ------------- | -------------- | --------------- | ------------ | --------- | ----- | --- | --------- | ------- | --------- | ----- | ------ | ------ |  |  | ----- | ----- | 
|                           |                     |            |              |               |                | Notional Amount |              |           |      
|                           |                     |            |              |               |                |                 |              |           | Nymex |    
|                           |                     | Derivative |              |               |                |                 | Gas          |           |       | Oil |           |         | Reference |      
|Settlement Period          |                     | Instrument |              |               | Hedge Strategy |                 |              | (MMBTU)   |       |     | (Barrels) |         |           | Price |       
|                           |                     |            |              |               |                |                 |              |           |       |     |           |         |           |       |       
|Costless Collars           |                     |            |              |               |                |                 |              |           |       |     |           |         |           |       |        |        |  |  |       |      
|                           | 01/01/06  03/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 7,500  |  |  | $     | 62.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 7,500  |        |  |  | 74.50 |      
|                           | 04/01/06  10/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 490,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 490,000   |         |           |       |        |        |  |  | 14.85 |      
|                           | 04/01/06  06/30/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 16,500 |  |  | $     | 54.80 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 16,500 |        |  |  | 75.00 |      
|                           | 04/01/06  7/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 360,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 360,000   |         |           |       |        |        |  |  | 15.60 |      
|                           | 04/01/06  7/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 360,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 360,000   |         |           |       |        |        |  |  | 17.00 |      
|                           | 04/01/06  09/30/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 42,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 42,000 |        |  |  | 75.60 |      
|                           | 11/01/06  03/31/07 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 450,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 450,000   |         |           |       |        |        |  |  | 21.20 |      
|                           | 08/01/06  10/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 360,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 360,000   |         |           |       |        |        |  |  | 16.65 |      
|                           | 10/01/06  12/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 27,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 27,000 |        |  |  | 77.50 |      
|                           | 11/01/06  01/31/07 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 540,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 540,000   |         |           |       |        |        |  |  | 23.25 |      
|                           | 01/01/07  03/31/07 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 24,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 24,000 |        |  |  | 78.25 |      
|Three Way Costless Collars |                     |            |              |               |                |                 |              |           |       |     |           |         |           |       |        |        |  |  |       |      
|                           | 01/01/06  3/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 150,000 |           |       |        |        |  |  | $     | 6.75  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 150,000   |         |           |       |        |        |  |  | 8.80  |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     | 150,000   |         |           |       |        |        |  |  | 5.50  |      
|                           | 01/01/06  3/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 210,000 |           |       |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 210,000   |         |           |       |        |        |  |  | 9.75  |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     | 210,000   |         |           |       |        |        |  |  | 6.50  |      
|                           | 01/01/06  3/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 240,000 |           |       |        |        |  |  | $     | 10.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 240,000   |         |           |       |        |        |  |  | 13.08 |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     | 240,000   |         |           |       |        |        |  |  | 8.50  |      
|                           | 01/01/06  3/31/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 18,000 |  |  | $     | 48.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 18,000 |        |  |  | 60.70 |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     |           |         |           |       | 18,000 |        |  |  | 38.00 |      
|                           | 04/01/06  10/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 420,000 |           |       |        |        |  |  | $     | 7.50  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 420,000   |         |           |       |        |        |  |  | 9.15  |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     | 420,000   |         |           |       |        |        |  |  | 6.25  |      
|                           | 04/01/06  10/31/06 |            |              | Purchased put |                |                 |              | Cash flow |       |     |           | 490,000 |           |       |        |        |  |  | $     | 8.50  | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     | 490,000   |         |           |       |        |        |  |  | 9.96  |      
|                           |                     |            | Written put  |               |                |                 | Undesignated |           |       |     | 490,000   |         |           |       |        |        |  |  | 7.00  |      
|                           | 04/01/06  6/30/06  |            |              | Purchased put |                |                 |              | Cash flow |       |     |           |         |           |       |        | 7,500  |  |  | $     | 63.00 | 
|                           |                     |            | Written call |               |                |                 | Cash flow    |           |       |     |           |         |           |       | 7,500  |        |  |  | 75.25 |      

73



---



##### Table of Contents



|                   |  |            |               |  |                |                 |              |         |       |     |           |  |           |       |        |  |  |   |       | 
|------------------ |  | ---------- | ------------- |  | -------------- | --------------- | ------------ | ------- | ----- | --- | --------- |  | --------- | ----- | ------ |  |  | - | ----- | 
|                   |  |            |               |  |                | Notional Amount |              |         |      
|                   |  |            |               |  |                |                 |              |         | Nymex |    
|                   |  | Derivative |               |  |                |                 | Gas          |         |       | Oil |           |  | Reference |      
|Settlement Period  |  | Instrument |               |  | Hedge Strategy |                 |              | (MMBTU) |       |     | (Barrels) |  |           | Price |       
|                   |  |            |               |  |                |                 |              |         |       |     |           |  |           |       |       
|                   |  |            | Written put   |  |                |                 | Undesignated |         |       |     |           |  |           |       | 7,500  |  |  |   | 48.00 | 
|07/01/06  9/30/06 |  |            | Purchased put |  |                |                 | Cash flow    |         |       |     |           |  |           |       | 15,000 |  |  | $ | 63.00 | 
|                   |  |            | Written call  |  |                |                 | Cash flow    |         |       |     |           |  |           |       | 15,000 |  |  |   | 75.65 | 
|                   |  |            | Written put   |  |                |                 | Undesignated |         |       |     |           |  |           |       | 15,000 |  |  |   | 48.00 | 

Interest Rate Risk












74



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures


13a-15(b)


Managements Report on Internal Control over Financial
Reporting


13a-15(f). Internal Control 
Integrated Framework Internal
Control  Integrated Framework




Changes in Internal Control over Financial Reporting







Item 9B. Other Information




75



---



##### Table of Contents






PART III







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



S-K,







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








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








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








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






PART IV







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







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



76



---



##### Table of Contents






GLOSSARY OF OIL AND GAS TERMS


S-X.


3-D 3-D


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.


Mmcfe.


77



---



##### Table of Contents



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.


78



---



##### Table of Contents






SIGNATURES






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



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

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



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

79



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





INDEX TO FINANCIAL STATEMENTS


|                                                                                                             |  |      |      | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                             |  | Page |     
|                                                                                                             |  |      |     
|Report of Independent Registered Public
    Accounting Firm                                                  |  |      | F-2  | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                             |  |      | F-4  | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2005, 2004 and 2003               |  |      | F-5  | 
|Consolidated Statements of
    Stockholders Equity for the Years Ended December 31,
    2005, 2004 and 2003 |  |      | F-6  | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2005, 2004 and 2003               |  |      | F-7  | 
|Notes to the Consolidated Financial
    Statements                                                           |  |      | F-8  | 
|Supplemental Oil and Gas Information
    (Unaudited)                                                         |  |      | F-31 | 
|Supplemental Quarterly Financial
    Information (Unaudited)                                                 |  |      | F-34 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Consolidated financial statements






Internal control over financial reporting


Internal Control  Integrated Framework Internal Control 
Integrated Framework




F-2



---



##### Table of Contents













F-3



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |          |         |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------------------------------------ | -------- | ------- |  | ------- | -------- | ------- |  | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | December 31,                               |                                     
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                     
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | 2005                                       |                                      |          | 2004    | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | (In thousands,                             |                                     
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | except share data)                         |                                     
|ASSETS                                                                                                                                                                                                                                       
|Current assets:                                                                                                                                                                                                                               |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |         
|                                                                                                                                                                                                                                              | Cash and cash equivalents                                                                                                                                                                                    |                                            | $                                    | 3,975    |         |  | $       | 2,281    |        
|                                                                                                                                                                                                                                              | Accounts receivable                                                                                                                                                                                          |                                            |                                      | 22,825   |         |  |         | 17,573   |        
|                                                                                                                                                                                                                                              | Deferred income taxes                                                                                                                                                                                        |                                            |                                      | 482      |         |  |         | 239      |        
|                                                                                                                                                                                                                                              | Other current assets                                                                                                                                                                                         |                                            |                                      | 1,043    |         |  |         | 901      |        
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total current assets                       |                                      |          | 28,325  |  |         |          | 20,994  | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|Oil and natural gas properties, using the full cost method of
    accounting                                                                                                                                                                  |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |         
|                                                                                                                                                                                                                                              | Proved                                                                                                                                                                                                       |                                            |                                      | 483,760  |         |  |         | 355,834  |        
|                                                                                                                                                                                                                                              | Unproved                                                                                                                                                                                                     |                                            |                                      | 38,048   |         |  |         | 47,356   |        
|                                                                                                                                                                                                                                              | Accumulated depletion                                                                                                                                                                                        |                                            |                                      | (174,479 | )       |  |         | (141,211 | )      
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            | 347,329                              |          |         |  | 261,979 |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|Other property and equipment, net                                                                                                                                                                                                             |                                                                                                                                                                                                              |                                            | 1,027                                |          |         |  | 1,209   |         
|Deferred loan fees                                                                                                                                                                                                                            |                                                                                                                                                                                                              |                                            | 2,174                                |          |         |  | 1,745   |         
|Other noncurrent assets                                                                                                                                                                                                                       |                                                                                                                                                                                                              |                                            | 1,572                                |          |         |  | 380     |         
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total assets                               |                                      | $        | 380,427 |  |         | $        | 286,307 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |         |  |         |          |         |  | 
|Current liabilities:                                                                                                                                                                                                                          |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |         
|                                                                                                                                                                                                                                              | Accounts payable                                                                                                                                                                                             |                                            | $                                    | 12,128   |         |  | $       | 22,465   |        
|                                                                                                                                                                                                                                              | Royalties payable                                                                                                                                                                                            |                                            |                                      | 6,886    |         |  |         | 6,072    |        
|                                                                                                                                                                                                                                              | Accrued drilling costs                                                                                                                                                                                       |                                            |                                      | 12,218   |         |  |         | 6,099    |        
|                                                                                                                                                                                                                                              | Participant advances received                                                                                                                                                                                |                                            |                                      | 2,116    |         |  |         | 3,633    |        
|                                                                                                                                                                                                                                              | Other current liabilities                                                                                                                                                                                    |                                            |                                      | 4,119    |         |  |         | 2,225    |        
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total current liabilities                  |                                      |          | 37,467  |  |         |          | 40,494  | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|Senior credit facility                                                                                                                                                                                                                        |                                                                                                                                                                                                              |                                            | 33,100                               |          |         |  | 21,000  |         
|Senior subordinated notes                                                                                                                                                                                                                     |                                                                                                                                                                                                              |                                            | 30,000                               |          |         |  | 20,000  |         
|Series A Preferred Stock, mandatorily redeemable,
    $.01 par value, $20 stated and redemption value,
    2,250,000 shares authorized, 505,051 and
    475,986 shares issued and outstanding at December 31,
    2005 and 2004, respectively |                                                                                                                                                                                                              |                                            | 10,101                               |          |         |  | 9,520   |         
|Deferred income taxes                                                                                                                                                                                                                         |                                                                                                                                                                                                              |                                            | 23,563                               |          |         |  | 9,031   |         
|Other noncurrent liabilities                                                                                                                                                                                                                  |                                                                                                                                                                                                              |                                            | 4,556                                |          |         |  | 2,986   |         
|Commitments and contingencies (Note 9)                                                                                                                                                                                                        |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |         
|Stockholders equity:                                                                                                                                                                                                                         |                                                                                                                                                                                                              |                                            |                                      |          |         |  |         |         
|                                                                                                                                                                                                                                              | Common stock, $.01 par value, 50 million shares
    authorized, 44,917,768 and 43,231,499 shares issued and
    44,917,768 and 42,034,351 shares outstanding at
    December 31, 2005 and 2004, respectively |                                            |                                      | 449      |         |  |         | 432      |        
|                                                                                                                                                                                                                                              | Additional paid-in capital                                                                                                                                                                                   |                                            |                                      | 202,127  |         |  |         | 175,270  |        
|                                                                                                                                                                                                                                              | Treasury stock, at cost; 1,197,148 shares at
    December 31, 2004                                                                                                                                           |                                            |                                      |         |         |  |         | (4,707   | )      
|                                                                                                                                                                                                                                              | Unearned stock compensation                                                                                                                                                                                  |                                            |                                      | (2,299   | )       |  |         | (1,570   | )      
|                                                                                                                                                                                                                                              | Accumulated other comprehensive income (loss)                                                                                                                                                                |                                            |                                      | (426     | )       |  |         | (503     | )      
|                                                                                                                                                                                                                                              | Retained earnings                                                                                                                                                                                            |                                            |                                      | 41,789   |         |  |         | 14,354   |        
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total stockholders equity                 |                                      |          | 241,640 |  |         |          | 183,276 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              | Total liabilities and stockholders equity |                                      | $        | 380,427 |  |         | $        | 286,307 | 
|                                                                                                                                                                                                                                              |                                                                                                                                                                                                              |                                            |                                      |          |         | 



F-4



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |        |        | 
|-------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------------------------------- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------ | ------ | ------ | 
|                                                                                       |                                                       | Year Ended December 31,                                           |        
|                                                                                       |                                                       |                                                                   |        
|                                                                                       |                                                       | 2005                                                              |         |         | 2004   |   |         | 2003    |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       | (In thousands, except per share data)                             |        
|Revenues:                                                                              |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |       
|                                                                                       | Oil and natural gas sales                             |                                                                   | $       | 96,820  |        |   | $       | 71,713  |        |   | $      | 51,545 |       
|                                                                                       | Other revenue                                         |                                                                   |         | 220     |        |   |         | 515     |        |   |        | 132    |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       |                                                                   | 97,040  |         |        |   | 72,228  |         |        |   | 51,677 |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Costs and expenses:                                                                    |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |       
|                                                                                       | Lease operating                                       |                                                                   |         | 7,161   |        |   |         | 6,173   |        |   |        | 5,200  |       
|                                                                                       | Production taxes                                      |                                                                   |         | 3,353   |        |   |         | 3,107   |        |   |        | 2,477  |       
|                                                                                       | General and administrative                            |                                                                   |         | 5,533   |        |   |         | 5,392   |        |   |        | 4,500  |       
|                                                                                       | Depletion of oil and natural gas properties           |                                                                   |         | 33,268  |        |   |         | 23,844  |        |   |        | 16,819 |       
|                                                                                       | Depreciation and amortization                         |                                                                   |         | 762     |        |   |         | 722     |        |   |        | 629    |       
|                                                                                       | Accretion of discount on asset retirement obligations |                                                                   |         | 180     |        |   |         | 159     |        |   |        | 142    |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       |                                                                   | 50,257  |         |        |   | 39,397  |         |        |   | 29,767 |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       | Operating income                                                  |         |         | 46,783 |   |         |         | 32,831 |   |        |        | 21,910 | 
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Other income (expense):                                                                |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |       
|                                                                                       | Interest income                                       |                                                                   |         | 245     |        |   |         | 84      |        |   |        | 45     |       
|                                                                                       | Interest expense, net                                 |                                                                   |         | (3,980  | )      |   |         | (3,144  | )      |   |        | (4,815 | )     
|                                                                                       | Other income (expense)                                |                                                                   |         | (576    | )      |   |         | 742     |        |   |        | (601   | )     
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       |                                                                   | (4,311  | )       |        |   | (2,318  | )       |        |   | (5,371 | )     
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Income before income taxes and cumulative effect of change in
    accounting principle |                                                       |                                                                   | 42,472  |         |        |   | 30,513  |         |        |   | 16,539 |       
|Income tax benefit (expense):                                                          |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |       
|                                                                                       | Current                                               |                                                                   |         |        |        |   |         |        |        |   |        |       |       
|                                                                                       | Deferred                                              |                                                                   |         | (15,037 | )      |   |         | (10,863 | )      |   |        | 1,223  |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       |                                                                   | (15,037 | )       |        |   | (10,863 | )       |        |   | 1,223  |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Income before cumulative effect of change in accounting principle                      |                                                       |                                                                   | 27,435  |         |        |   | 19,650  |         |        |   | 17,762 |       
|Cumulative effect of change in accounting principle, net of taxes                      |                                                       |                                                                   |        |         |        |   |        |         |        |   | 268    |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Net income                                                                             |                                                       |                                                                   | 27,435  |         |        |   | 19,650  |         |        |   | 18,030 |       
|Less accretion and dividends on redeemable preferred stock                             |                                                       |                                                                   |        |         |        |   |        |         |        |   | 3,448  |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Net income (loss) available to common stockholders                                     |                                                       | $                                                                 | 27,435  |         |        | $ | 19,650  |         |        | $ | 14,582 |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|Net income (loss) per share available to common stockholders:                          |                                                       |                                                                   |         |         |        |   |         |         |        |   |        |       
|                                                                                       | Basic:                                                |                                                                   |         |         |        |   |         |         |        |   |        |        |       
|                                                                                       |                                                       | Income before cumulative effect of change in accounting principle |         | $       | 0.65   |   |         | $       | 0.49   |   |        | $      | 0.62   | 
|                                                                                       |                                                       | Cumulative effect of change in accounting principle               |         |         |       |   |         |         |       |   |        |        | 0.01   | 
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       | $                                                                 | 0.65    |         |        | $ | 0.49    |         |        | $ | 0.63   |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       | Diluted:                                              |                                                                   |         |         |        |   |         |         |        |   |        |        |       
|                                                                                       |                                                       | Income before cumulative effect of change in accounting principle |         | $       | 0.63   |   |         | $       | 0.47   |   |        | $      | 0.51   | 
|                                                                                       |                                                       | Cumulative effect of change in accounting principle               |         |         |       |   |         |         |       |   |        |        | 0.01   | 
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       |                                                       | $                                                                 | 0.63    |         |        | $ | 0.47    |         |        | $ | 0.52   |       
|                                                                                       |                                                       |                                                                   |         |         |        |   |         |         |       
|                                                                                       | Weighted average common shares outstanding:           |                                                                   |         |         |        |   |         |         |        |   |        |        |       
|                                                                                       |                                                       | Basic                                                             |         |         | 42,481 |   |         |         | 40,445 |   |        |        | 23,363 | 
|                                                                                       |                                                       | Diluted                                                           |         |         | 43,728 |   |         |         | 41,616 |   |        |        | 34,354 | 



F-5



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |        |        | 
|------------------------------------------------------------------------ | ------------------------------------------ | -------------------- | ------ | - | ---------- | - | --- | -------- |  | -------- | ------- | ----------- | ------------- | ------------ | ------ | -------- | ------------ | - | ------ | ------------ |  | - | ------ | ----- | - | - | ------- | ------ |  | - | ------- | ------ | ------ | 
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         | Accumulated |               |              |        |          |             
|                                                                         |                                            |                      |        |   |            |   |     |          |  | Other    |         |             | Retained      |              |        |         
|                                                                         |                                            | Common Stock         |        |   | Additional |   |     |          |  | Unearned |         |             | Comprehensive |              |        | Earnings |              |   | Total  |             
|                                                                         |                                            |                      |        |   | Paid In    |   |     | Treasury |  |          | Stock   |             |               | Income       |        |          | (Accumulated |   |        | Stockholders | 
|                                                                         |                                            | Shares               |        |   | Amounts    |   |     | Capital  |  |          | Stock   |             |               | Compensation |        |          | (Loss)       |   |        | Deficit)     |  |   | Equity |      
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|                                                                         |                                            | (In thousands)       |       
|Balance, December 31, 2002                                               |                                            |                      | 20,618 |   |            | $ | 206 |          |  | $        | 93,436  |             |               | $            | (4,282 | )        |              | $ | (212   | )            |  | $ | (3,047 | )     |   | $ | (23,326 | )      |  | $ | 62,775  |       
|Comprehensive income (loss):                                             |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |       
|                                                                         | Net income                                 |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        |      |   |   |         | 18,030 |  |   |         | 18,030 |       
|                                                                         | Unrealized gains on cash flow hedges       |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | 991   |   |   |         |       |  |   |         | 991    |       
|                                                                         | Tax benefits related to cash flow hedges   |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | 561   |   |   |         |       |  |   |         | 561    |       
|                                                                         | Net losses included in net income          |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | 455   |   |   |         |       |  |   |         | 455    |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|                                                                         |                                            | Comprehensive income |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |        | 20,037 | 
|Issuance of common stock                                                 |                                            |                      | 7,384  |   |            |   | 74  |          |  |          | 39,926  |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 40,000  |       
|Issuance of restricted stock                                             |                                            |                      |       |   |            |   |    |          |  |          | 1,831   |             |               |              |       |          |              |   | (1,831 | )            |  |   |       |       |   |   |        |        |  |   |        |       
|Issuance of stock options                                                |                                            |                      |       |   |            |   |    |          |  |          | 296     |             |               |              |       |          |              |   | (296   | )            |  |   |       |       |   |   |        |        |  |   |        |       
|Exercise of employee stock options                                       |                                            |                      | 310    |   |            |   | 3   |          |  |          | 826     |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 829     |       
|Expiration of employee stock options                                     |                                            |                      |       |   |            |   |    |          |  |          | (19     | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (19     | )     
|Forfeitures of restricted stock                                          |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              | (10    | )        |              |   | 2      |              |  |   |       |       |   |   |        |        |  |   | (8      | )     
|Repurchases of common stock                                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              | (110   | )        |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (110    | )     
|Warrants exercised for common stock                                      |                                            |                      | 11,935 |   |            |   | 119 |          |  |          | 18,415  |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 18,534  |       
|In kind dividends on Series A mandatorily redeemable
    preferred stock |                                            |                      |       |   |            |   |    |          |  |          | (2,350  | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (2,350  | )     
|Accretion on Series A mandatorily redeemable preferred stock             |                                            |                      |       |   |            |   |    |          |  |          | (355    | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (355    | )     
|In kind dividends on Series B mandatorily redeemable
    preferred stock |                                            |                      |       |   |            |   |    |          |  |          | (711    | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (711    | )     
|Accretion on Series B mandatorily redeemable preferred stock             |                                            |                      |       |   |            |   |    |          |  |          | (32     | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (32     | )     
|Amortization of unearned stock compensation                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 521    |              |  |   |       |       |   |   |        |        |  |   | 521     |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|Balance, December 31, 2003                                               |                                            |                      | 40,247 |   |            | $ | 402 |          |  | $        | 151,263 |             |               | $            | (4,402 | )        |              | $ | (1,816 | )            |  | $ | (1,040 | )     |   | $ | (5,296  | )      |  | $ | 139,111 |       
|Comprehensive income (loss):                                             |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |       
|                                                                         | Net income                                 |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        |      |   |   |         | 19,650 |  |   |         | 19,650 |       
|                                                                         | Unrealized gains on cash flow hedges       |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | 1,485 |   |   |         |       |  |   |         | 1,485  |       
|                                                                         | Tax provisions related to cash flow hedges |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | (290  | ) |   |         |       |  |   |         | (290   | )     
|                                                                         | Net gains included in net income           |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | (658  | ) |   |         |       |  |   |         | (658   | )     
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|                                                                         |                                            | Comprehensive income |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |        | 20,187 | 
|Issuance of common stock                                                 |                                            |                      | 2,598  |   |            |   | 26  |          |  |          | 22,079  |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 22,105  |       
|Issuance of restricted stock                                             |                                            |                      |       |   |            |   |    |          |  |          | 514     |             |               |              |       |          |              |   | (514   | )            |  |   |       |       |   |   |        |        |  |   |        |       
|Vesting of restricted stock                                              |                                            |                      | 72     |   |            |   | 1   |          |  |          | (1      | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   |        |       
|Exercise of employee stock options                                       |                                            |                      | 314    |   |            |   | 3   |          |  |          | 969     |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 972     |       
|Forfeitures of restricted stock                                          |                                            |                      |       |   |            |   |    |          |  |          | (131    | )           |               |              | (4     | )        |              |   | 131    |              |  |   |       |       |   |   |        |        |  |   | (4      | )     
|Tax benefit from the exercise of stock options                           |                                            |                      |       |   |            |   |    |          |  |          | 577     |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 577     |       
|Repurchases of common stock                                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              | (301   | )        |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (301    | )     
|Amortization of unearned stock compensation                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 629    |              |  |   |       |       |   |   |        |        |  |   | 629     |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|Balance, December 31, 2004                                               |                                            |                      | 43,231 |   |            | $ | 432 |          |  | $        | 175,270 |             |               | $            | (4,707 | )        |              | $ | (1,570 | )            |  | $ | (503   | )     |   | $ | 14,354  |        |  | $ | 183,276 |       
|Comprehensive income (loss):                                             |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |       
|                                                                         | Net income                                 |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        |      |   |   |         | 27,435 |  |   |         | 27,435 |       
|                                                                         | Unrealized losses on cash flow hedges      |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | (603  | ) |   |         |       |  |   |         | (603   | )     
|                                                                         | Tax provisions related to cash flow hedges |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | (43   | ) |   |         |       |  |   |         | (43    | )     
|                                                                         | Net losses included in net income          |                      |        |  |            |   |     |         |  |          |         |            |               |              |        |         |              |   |        |             |  |   |        | 723   |   |   |         |       |  |   |         | 723    |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|                                                                         |                                            | Comprehensive income |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |       |   |   |         |        |  |   |         |        | 27,512 | 
|Issuance of common stock                                                 |                                            |                      | 2,500  |   |            |   | 25  |          |  |          | 28,206  |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 28,231  |       
|Issuance of restricted stock                                             |                                            |                      |       |   |            |   |    |          |  |          | 1,435   |             |               |              |       |          |              |   | (1,435 | )            |  |   |       |       |   |   |        |        |  |   |        |       
|Vesting of restricted stock                                              |                                            |                      | 65     |   |            |   | 1   |          |  |          | (1      | )           |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   |        |       
|Exercise of employee stock options                                       |                                            |                      | 340    |   |            |   | 3   |          |  |          | 1,311   |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 1,314   |       
|Tax benefit from the exercise of stock options                           |                                            |                      |       |   |            |   |    |          |  |          | 791     |             |               |              |       |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   | 791     |       
|Repurchases of common stock                                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              | (190   | )        |              |   |       |              |  |   |       |       |   |   |        |        |  |   | (190    | )     
|Retirement of treasury stock                                             |                                            |                      | (1,218 | ) |            |   | (12 | )        |  |          | (4,885  | )           |               |              | 4,897  |          |              |   |       |              |  |   |       |       |   |   |        |        |  |   |        |       
|Amortization of unearned stock compensation                              |                                            |                      |       |   |            |   |    |          |  |          |        |             |               |              |       |          |              |   | 706    |              |  |   |       |       |   |   |        |        |  |   | 706     |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      
|Balance, December 31, 2005                                               |                                            |                      | 44,918 |   |            | $ | 449 |          |  | $        | 202,127 |             |               | $            |       |          |              | $ | (2,299 | )            |  | $ | (426   | )     |   | $ | 41,789  |        |  | $ | 241,640 |       
|                                                                         |                                            |                      |        |   |            |   |     |          |  |          |         |             |               |              |        |          |              |   |        |              |  |   |        |      



F-6



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |        |        |         |         |        |        |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------------------------ | ------ | ------ | -------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                     |                                                                                          | Year Ended December 31,                                                                 |                               
|                                                     |                                                                                          |                                                                                         |                               
|                                                     |                                                                                          | 2005                                                                                    |                                |                                                  | 2004   |        |          | 2003    |       
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|                                                     |                                                                                          | (In thousands)                                                                          |                               
|Cash flows from operating activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |        |        |         |        
|                                                     | Net income                                                                               |                                                                                         | $                              | 27,435                                           |        |        | $        | 19,650  |        |        | $       | 18,030  |       
|                                                     | Adjustments to reconcile net income to cash provided
    (used) by operating activities: |                                                                                         |                                |                                                  |        |        |          |         |        |        |         |         |       
|                                                     |                                                                                          | Depletion of oil and natural gas properties                                             |                                |                                                  | 33,268 |        |          |         | 23,844 |        |         |         | 16,819 |       
|                                                     |                                                                                          | Depreciation and amortization                                                           |                                |                                                  | 762    |        |          |         | 722    |        |         |         | 629    |       
|                                                     |                                                                                          | Interest paid through issuance of additional senior subordinated
    notes              |                                |                                                  |       |        |          |         |       |        |         |         | 1,196  |       
|                                                     |                                                                                          | Interest paid through issuance of additional mandatorily
    redeemable preferred stock |                                |                                                  | 581    |        |          |         | 726    |        |         |         | 340    |       
|                                                     |                                                                                          | Amortization of deferred loan fees                                                      |                                |                                                  | 491    |        |          |         | 766    |        |         |         | 1,053  |       
|                                                     |                                                                                          | Accretion of discount on asset retirement obligations                                   |                                |                                                  | 180    |        |          |         | 159    |        |         |         | 142    |       
|                                                     |                                                                                          | Market value adjustment for derivative instruments                                      |                                |                                                  | 814    |        |          |         | (625   | )      |         |         | 669    |       
|                                                     |                                                                                          | Deferred income taxes                                                                   |                                |                                                  | 15,037 |        |          |         | 10,863 |        |         |         | (1,223 | )     
|                                                     |                                                                                          | Provision for doubtful accounts                                                         |                                |                                                  | 456    |        |          |         |       |        |         |         |       |       
|                                                     |                                                                                          | Other noncash items                                                                     |                                |                                                  | 134    |        |          |         |       |        |         |         |       |       
|                                                     |                                                                                          | Cumulative effect of change in accounting principle                                     |                                |                                                  |       |        |          |         |       |        |         |         | (268   | )     
|                                                     |                                                                                          | Changes in working capital and other items:                                             |                                |                                                  |        |        |          |         |        |        |         |         |        |       
|                                                     |                                                                                          |                                                                                         | Accounts receivable            |                                                  |        | (3,766 | )        |         |        | (6,430 | )       |         |        | 218    |        
|                                                     |                                                                                          |                                                                                         | Other current assets           |                                                  |        | (61    | )        |         |        | 2,848  |         |         |        | 3,037  |        
|                                                     |                                                                                          |                                                                                         | Accounts and royalties payable |                                                  |        | (9,456 | )        |         |        | 3,451  |         |         |        | 6,092  |        
|                                                     |                                                                                          |                                                                                         | Other current liabilities      |                                                  |        | (989   | )        |         |        | 552    |         |         |        | (4,975 | )      
|                                                     |                                                                                          |                                                                                         | Noncurrent assets              |                                                  |        | (514   | )        |         |        |       |         |         |        |       |        
|                                                     |                                                                                          |                                                                                         | Noncurrent liabilities         |                                                  |        | 7      |          |         |        | (145   | )       |         |        | (68    | )      
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash provided by operating activities        |        |        | 64,379   |         |        |        | 56,381  |         |        |        | 41,691  |  
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|Cash flows from investing activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |        |        |         |        
|                                                     | Additions to oil and natural gas properties                                              |                                                                                         |                                | (112,856                                         | )      |        |          | (84,439 | )      |        |         | (45,842 | )     
|                                                     | Proceeds from sale of oil and natural gas properties                                     |                                                                                         |                                | 9                                                |        |        |          | 92      |        |        |         | 427     |       
|                                                     | Additions to other property and equipment                                                |                                                                                         |                                | (345                                             | )      |        |          | (378    | )      |        |         | (349    | )     
|                                                     | (Increase) decrease in drilling advances paid                                            |                                                                                         |                                | (28                                              | )      |        |          | 80      |        |        |         | (325    | )     
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash used by investing activities            |        |        | (113,220 | )       |        |        | (84,645 | )       |        |        | (46,089 | )
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|Cash flows from financing activities:                |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |        |        |         |        
|                                                     | Proceeds from issuance of common stock, net of issuance costs                            |                                                                                         |                                | 28,231                                           |        |        |          | 22,105  |        |        |         | 40,000  |       
|                                                     | Redemption of Series B mandatorily redeemable preferred
    stock                        |                                                                                         |                                |                                                 |        |        |          |        |        |        |         | (704    | )     
|                                                     | Proceeds from issuance of senior subordinated notes and warrants                         |                                                                                         |                                | 10,000                                           |        |        |          |        |        |        |         |        |       
|                                                     | Proceeds from exercise of employee stock options                                         |                                                                                         |                                | 1,314                                            |        |        |          | 972     |        |        |         | 829     |       
|                                                     | Repurchases of common stock                                                              |                                                                                         |                                | (190                                             | )      |        |          | (301    | )      |        |         | (110    | )     
|                                                     | Increase in senior credit facility                                                       |                                                                                         |                                | 63,100                                           |        |        |          | 33,000  |        |        |         | 6,000   |       
|                                                     | Repayment of senior credit facility                                                      |                                                                                         |                                | (51,000                                          | )      |        |          | (31,000 | )      |        |         | (47,000 | )     
|                                                     | Principal payments on senior subordinated notes                                          |                                                                                         |                                |                                                 |        |        |          |        |        |        |         | (2,993  | )     
|                                                     | Deferred loan fees paid                                                                  |                                                                                         |                                | (920                                             | )      |        |          | (10     | )      |        |         | (1,163  | )     
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|                                                     |                                                                                          |                                                                                         |                                | Net cash provided (used) by financing activities |        |        | 50,535   |         |        |        | 24,766  |         |        |        | (5,141  | )
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                                                                         | 1,694                          |                                                  |        |        | (3,498   | )       |        |        | (9,539  | )      
|Cash and cash equivalents, beginning of year         |                                                                                          |                                                                                         | 2,281                          |                                                  |        |        | 5,779    |         |        |        | 15,318  |        
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       
|Cash and cash equivalents, end of year               |                                                                                          | $                                                                                       | 3,975                          |                                                  |        | $      | 2,281    |         |        | $      | 5,779   |        
|                                                     |                                                                                          |                                                                                         |                                |                                                  |        |        |          |         |       



F-7



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




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

3-D


Summary of Significant Accounting Policies




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





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





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





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





unit-of


F-8



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


unit-of


3-D


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





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







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





F-9



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





|                           |                                                       |      |      |        |      |   |        |        |   |   |        |        |  
|-------------------------- | ----------------------------------------------------- | ---- | ---- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                           |                                                       | 2005 |      |        | 2004 |   |        | 2003   |  
|                           |                                                       |      |      |        |      |   |        |        |  
|Balance, beginning of year |                                                       | $    | (503 | )      |      | $ | (1,040 | )      |   | $ | (3,047 | )     
|                           | Current period settlements reclassified to earnings   |      |      | 4,174  |      |   |        | 4,694  |   |   |        | 6,692  |  
|                           | Current period change in fair value of hedges         |      |      | (4,777 | )    |   |        | (3,209 | ) |   |        | (5,701 | )
|                           | Tax benefits (provisions) related to cash flow hedges |      |      | (43    | )    |   |        | (290   | ) |   |        | 561    |  
|                           | Net (gains) losses included in earnings               |      |      | 723    |      |   |        | (658   | ) |   |        | 455    |  
|                           |                                                       |      |      |        |      |   |        |        |  
|Balance, end of year       |                                                       | $    | (426 | )      |      | $ | (503   | )      |   | $ | (1,040 | )     
|                           |                                                       |      |      |        |      |   |        |        |  



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





|                                                            |  |      |      |   |      |   |      |      |  |   |      |  
|----------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                            |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                                                            |  |      |      |   |      |   |      |      | 
|Risk-free interest rate                                     |  |      | 4.3  | % |      |   | 3.7  | %    |  |   | 3.7  | %
|Expected life (in years)                                    |  |      | 4.2  |   |      |   | 3.9  |      |  |   | 5.0  |  
|Expected volatility                                         |  |      | 43   | % |      |   | 43   | %    |  |   | 48   | %
|Expected dividend yield                                     |  |      |     |   |      |   |     |      |  |   |     |  
|Weighted average fair value per share of stock compensation |  | $    | 4.78 |   |      | $ | 3.31 |      |  | $ | 2.98 |  

F-10



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |      |  |   |        |      | 
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                       |                                                                                                                  | Year Ended December 31, |  
|                                                                       |                                                                                                                  |                         |  
|                                                                       |                                                                                                                  | 2005                    |   |        | 2004 |  |   | 2003   |     
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|Net income (loss) available to common stockholders (in
    thousands): |                                                                                                                  |                         |   |        |      |  |   |        |      |  |   |       
|                                                                       | As reported                                                                                                      |                         | $ | 27,435 |      |  | $ | 19,650 |      |  | $ | 14,582 |     
|                                                                       | Add back: Stock compensation expense previously included in net
    income                                       |                         |   | 462    |      |  |   | 434    |      |  |   | 282    |     
|                                                                       | Effect of total employee stock-based compensation expense,
    determined under fair value method for all awards |                         |   | (1,330 | )    |  |   | (3,189 | )    |  |   | (528   | )   
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|                                                                       | Pro forma                                                                                                        |                         | $ | 26,567 |      |  | $ | 16,895 |      |  | $ | 14,336 |     
|                                                                       |                                                                                                                  |                         |   |        |      |  |   |        |     
|                                                                       | Basic:                                                                                                           |                         |   |        |      |  |   |        |      |  |   |        |     
|                                                                       |                                                                                                                  | As reported             |   | $      | 0.65 |  |   | $      | 0.49 |  |   | $      | 0.63 | 
|                                                                       |                                                                                                                  | Pro forma               |   |        | 0.63 |  |   |        | 0.42 |  |   |        | 0.62 | 
|                                                                       | Diluted:                                                                                                         |                         |   |        |      |  |   |        |      |  |   |        |     
|                                                                       |                                                                                                                  | As reported             |   | $      | 0.63 |  |   | $      | 0.47 |  |   | $      | 0.52 | 
|                                                                       |                                                                                                                  | Pro forma               |   |        | 0.61 |  |   |        | 0.41 |  |   |        | 0.52 | 



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





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



F-11



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





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





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





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







F-12



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














F-13



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|2. | Property and Equipment



|                               |                                                      |              |          |        |      |   |          |        |  
|------------------------------ | ---------------------------------------------------- | ------------ | -------- | ------ | ---- | - | -------- | ------ | -
|                               |                                                      | December 31, |         
|                               |                                                      |              |         
|                               |                                                      | 2005         |          |        | 2004 |  
|                               |                                                      |              |          |        |      |  
|Oil and natural gas properties |                                                      | $            | 521,808  |        |      | $ | 403,190  |       
|Accumulated depletion          |                                                      |              | (174,479 | )      |      |   | (141,211 | )     
|                               |                                                      |              |          |        |      |  
|                               |                                                      |              | 347,329  |        |      |   | 261,979  |       
|                               |                                                      |              |          |        |      |  
|Other property and equipment:  |                                                      |              |          |        |      |   |          |       
|                               | 3-D seismic interpretation workstations and software |              |          | 1,673  |      |   |          | 2,725  |  
|                               | Office furniture and equipment                       |              |          | 2,714  |      |   |          | 2,784  |  
|                               | Accumulated depreciation                             |              |          | (3,360 | )    |   |          | (4,300 | )
|                               |                                                      |              |          |        |      |  
|                               |                                                      |              | 1,027    |        |      |   | 1,209    |       
|                               |                                                      |              |          |        |      |  
|                               |                                                      | $            | 348,356  |        |      | $ | 263,188  |       
|                               |                                                      |              |          |        |      |  



|                                                     |  |                         |       |  |      |   |       |      |  |   |       | 
|---------------------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                     |  | Year Ended December 31, |      
|                                                     |  |                         |      
|                                                     |  | 2005                    |       |  | 2004 |   |       | 2003 | 
|                                                     |  |                         |       |  |      |   |       |      | 
|Capitalized certain payroll and other internal costs |  | $                       | 4,847 |  |      | $ | 4,872 |      |  | $ | 4,621 | 
|Capitalized interest costs                           |  |                         | 1,604 |  |      |   | 1,195 |      |  |   | 818   | 
|                                                     |  |                         |       |  |      |   |       |      | 
|                                                     |  | $                       | 6,451 |  |      | $ | 6,067 |      |  | $ | 5,439 | 
|                                                     |  |                         |       |  |      |   |       |      | 



|   |                                                     
|-- | ----------------------------------------------------
|3. | Senior Credit Facility and Senior Subordinated Notes

|                          |                          |                |        |        |      |   |        |        | 
|------------------------- | ------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                          |                          | December 31,   |       
|                          |                          |                |       
|                          |                          | 2005           |        |        | 2004 |  
|                          |                          |                |        |        |      |  
|                          |                          | (In thousands) |       
|Senior Credit Facility    |                          | $              | 33,100 |        |      | $ | 21,000 |       
|Senior Subordinated Notes |                          |                | 30,000 |        |      |   | 20,000 |       
|                          |                          |                |        |        |      |  
|Total Debt                |                          | $              | 63,100 |        |      | $ | 41,000 |       
|                          | Less: Current Maturities |                |        |       |      |   |        |       | 
|                          |                          |                |        |        |      |  
|                          | Total Long-Term Debt     |                | $      | 63,100 |      |   | $      | 41,000 | 
|                          |                          |                |        |        |      |  



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



F-14



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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







F-15



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                
|-- | ---------------
|4. | Preferred Stock



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



|                           |  |                   |         |  |                   |   |        |        |  |  |         |  |  |   |       | 
|-------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------ | ------ |  |  | ------- |  |  | - | ----- | 
|                           |  | Year Ended        |         |  | Year Ended        |  
|                           |  | December 31, 2005 |         |  | December 31, 2004 |  
|                           |  |                   |         |  |                   |  
|                           |  | Shares            |         |  | Amounts           |   |        | Shares |  |  | Amounts | 
|                           |  |                   |         |  |                   |   |        |        |  |  |         | 
|Balance, beginning of year |  |                   | 475,986 |  |                   | $ | 9,520  |        |  |  | 439,722 |  |  | $ | 8,794 | 
|Dividends paid in kind     |  |                   | 29,065  |  |                   |   | 581    |        |  |  | 36,264  |  |  |   | 726   | 
|                           |  |                   |         |  |                   |   |        |        |  |  |         | 
|Balance, end of year       |  |                   | 505,051 |  |                   | $ | 10,101 |        |  |  | 475,986 |  |  | $ | 9,520 | 
|                           |  |                   |         |  |                   |   |        |        |  |  |         | 





|   |                         
|-- | ------------------------
|5. | Issuance of Common Stock













F-16



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                             
|-- | ----------------------------
|6. | Asset Retirement Obligations







|                                                        |  |              |       |   |      |   |       |  
|------------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                        |  | Year Ended   |      
|                                                        |  | December 31, |      
|                                                        |  |              |      
|                                                        |  | 2005         |       |   | 2004 |  
|                                                        |  |              |       |   |      |  
|Beginning asset retirement obligations                  |  | $            | 2,896 |   |      | $ | 2,320 |  
|Liabilities incurred for new wells placed on production |  |              | 469   |   |      |   | 512   |  
|Liabilities settled                                     |  |              | (10   | ) |      |   | (95   | )
|Revisions to estimates                                  |  |              | 855   |   |      |   |      |  
|Accretion of discount on asset retirement obligations   |  |              | 180   |   |      |   | 159   |  
|                                                        |  |              |       |   |      |  
|                                                        |  | $            | 4,390 |   |      | $ | 2,896 |  
|                                                        |  |              |       |   |      |  



|   |             
|-- | ------------
|7. | Income Taxes



|                       |         |                         |        |        |      |   |        |        |  |   |        |        |  
|---------------------- | ------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|                       |         | Year Ended December 31, |       
|                       |         |                         |       
|                       |         | 2005                    |        |        | 2004 |   |        | 2003   | 
|                       |         |                         |        |        |      |   |        |        | 
|Current income taxes:  |         |                         |        |        |      |   |        |        |  |   |        |       
|                       | Federal |                         | $      |       |      |   | $      |       |  |   | $      |       |  
|                       | State   |                         |        |       |      |   |        |       |  |   |        |       |  
|Deferred income taxes: |         |                         |        |        |      |   |        |        |  |   |        |       
|                       | Federal |                         |        | 15,037 |      |   |        | 10,863 |  |   |        | (1,223 | )
|                       | State   |                         |        |       |      |   |        |       |  |   |        |       |  
|                       |         |                         |        |        |      |   |        |        | 
|                       |         | $                       | 15,037 |        |      | $ | 10,863 |        |  | $ | (1,223 | )     
|                       |         |                         |        |        |      |   |        |        | 

F-17



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |  |                         |        |   |      |   |        |      |  |   |        |  
|----------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                              |  | Year Ended December 31, |       
|                              |  |                         |       
|                              |  | 2005                    |        |   | 2004 |   |        | 2003 | 
|                              |  |                         |        |   |      |   |        |      | 
|Tax at statutory rate         |  | $                       | 14,865 |   |      | $ | 10,679 |      |  | $ | 5,789  |  
|Add the effect of:            |  |                         |        |   |      |   |        |      |  |   |        |  
|Nondeductible expenses        |  |                         |       |   |      |   | 5      |      |  |   | 5      |  
|Deductible stock compensation |  |                         | (91    | ) |      |   | (194   | )    |  |   | (118   | )
|Preferred stock dividends     |  |                         | 257    |   |      |   | 373    |      |  |   |       |  
|Valuation allowance           |  |                         |       |   |      |   |       |      |  |   | (7,554 | )
|Unrealized hedging losses     |  |                         |       |   |      |   |       |      |  |   | 561    |  
|Other                         |  |                         | 6      |   |      |   |       |      |  |   | 94     |  
|                              |  |                         |        |   |      |   |        |      | 
|                              |  | $                       | 15,037 |   |      | $ | 10,863 |      |  | $ | (1,223 | )
|                              |  |                         |        |   |      |   |        |      | 



|                    |              |                                  |             |   |        |        |        |   |        |        | 
|------------------- | ------------ | -------------------------------- | ----------- | - | ------ | ------ | ------ | - | ------ | ------ | 
|                    |              | December 31,                     |            
|                    |              |                                  |            
|                    |              | 2005                             |             |   | 2004   |       
|                    |              |                                  |             |   |        |       
|Deferred tax assets |              |                                  |             |   |        |        |        |  
|                    | Current:     |                                  |             |   |        |        |        |   |       
|                    |              | Unrealized hedging losses        |             | $ | 229    |        |        | $ | 271    |       
|                    |              | Derivative assets                |             |   | 268    |        |        |   | 11     |       
|                    |              |                                  |             |   |        |       
|                    |              |                                  | Current     |   |        | 497    |        |   |        | 282    | 
|                    |              |                                  |             |   |        |       
|                    | Non-current: |                                  |             |   |        |        |        |   |       
|                    |              | Net operating loss carryforwards |             |   | 39,393 |        |        |   | 36,743 |       
|                    |              | Capital loss carryforwards       |             |   | 61     |        |        |   | 634    |       
|                    |              | Stock compensation               |             |   | 942    |        |        |   | 816    |       
|                    |              | Asset retirement obligations     |             |   | 1,536  |        |        |   | 1,014  |       
|                    |              | Other                            |             |   | 196    |        |        |   | 31     |       
|                    |              |                                  |             |   |        |       
|                    |              |                                  | Non-current |   |        | 42,128 |        |   |        | 39,238 | 
|                    |              |                                  |             |   |        |       
|                    |              |                                  | 42,625      |   |        |        | 39,520 |  
|                    |              |                                  |             |   |        |       

F-18



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                 |                                           |                                     |                                      |         |         |         |         |        |         |        |  
|------------------------------------------------ | ----------------------------------------- | ----------------------------------- | ------------------------------------ | ------- | ------- | ------- | ------- | ------ | ------- | ------ | -
|                                                 |                                           | December 31,                        |                                     
|                                                 |                                           |                                     |                                     
|                                                 |                                           | 2005                                |                                      |         | 2004    |        
|                                                 |                                           |                                     |                                      |         |         |        
|Deferred tax liabilities                         |                                           |                                     |                                      |         |         |         |         |       
|                                                 | Current:                                  |                                     |                                      |         |         |         |         |        |        
|                                                 |                                           | Derivative liabilities              |                                      | $       |        |         |         | $      | (28     | )     
|                                                 |                                           | Gas imbalances                      |                                      |         | (15     | )       |         |        | (15     | )     
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 |                                           |                                     | Current                              |         |         | (15     | )       |        |         | (43    | )
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 | Non-current:                              |                                     |                                      |         |         |         |         |        |        
|                                                 |                                           | Depreciable and depletable property |                                      |         | (65,630 | )       |         |        | (47,635 | )     
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 |                                           |                                     | (65,645                              | )       |         |         | (47,678 | )     
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 |                                           | Net deferred tax asset (liability)  |                                      |         | (23,020 | )       |         |        | (8,158  | )     
|                                                 |                                           | Valuation allowance                 |                                      |         | (61     | )       |         |        | (634    | )     
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 |                                           |                                     | Total deferred tax asset (liability) |         | $       | (23,081 | )       |        | $       | (8,792 | )
|                                                 |                                           |                                     |                                      |         |         |        
|Reflected in the accompanying balance sheets as: |                                           |                                     |                                      |         |         |         |         |       
|                                                 | Current deferred income tax asset         |                                     | $                                    | 482     |         |         | $       | 239    |        
|                                                 | Non-current deferred income tax liability |                                     |                                      | (23,563 | )       |         |         | (9,031 | )      
|                                                 |                                           |                                     |                                      |         |         |        
|                                                 |                                           | $                                   | (23,081                              | )       |         | $       | (8,792  | )     
|                                                 |                                           |                                     |                                      |         |         |        





F-19



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                 |                   |         |         |        |      |   |        |        | 
|---------------- | ----------------- | ------- | ------- | ------ | ---- | - | ------ | ------ | 
|                 |                   | Regular |         |        | AMT  |  
|                 |                   | NOLs    |         |        | NOLs |  
|                 |                   |         |         |        |      |  
|Expiration Date: |                   |         |         |        |      |   |        |       
|                 | December 31, 2012 |         | $       | 13,311 |      |   | $      | 8,687  | 
|                 | December 31, 2018 |         |         | 27,031 |      |   |        | 23,790 | 
|                 | December 31, 2019 |         |         | 20,329 |      |   |        | 19,719 | 
|                 | December 31, 2020 |         |         | 13,559 |      |   |        | 8,634  | 
|                 | December 31, 2021 |         |         | 18,990 |      |   |        | 18,314 | 
|                 | December 31, 2022 |         |         | 5,287  |      |   |        | 4,949  | 
|                 | December 31, 2023 |         |         | 5,047  |      |   |        | 5,117  | 
|                 | December 31, 2024 |         |         | 3,909  |      |   |        | 4,345  | 
|                 | December 31, 2025 |         |         | 5,088  |      |   |        | 5,331  | 
|                 |                   |         |         |        |      |  
|                 |                   | $       | 112,551 |        |      | $ | 98,886 |       
|                 |                   |         |         |        |      |  



Built-in




|   |                            
|-- | ---------------------------
|8. | Net Income (Loss) Per Share



F-20



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |        |  |        |        |        | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                   |                                                                                                     | Year Ended December 31,                        |       
|                                                   |                                                                                                     |                                                |       
|                                                   |                                                                                                     | 2005                                           |        |        | 2004   |  |        | 2003   |       
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       
|                                                   |                                                                                                     | (In thousands,                                 |       
|                                                   |                                                                                                     | except per share amounts)                      |       
|Basic EPS:                                         |                                                                                                     |                                                |        |        |        |  |        |        |        |  |        |       
|                                                   | Income (loss) available to common stockholders before cumulative
    change in accounting principle |                                                | $      | 27,435 |        |  | $      | 19,650 |        |  | $      | 14,314 |       
|                                                   | Cumulative change in accounting principle                                                           |                                                |        |       |        |  |        |       |        |  |        | 268    |       
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       
|                                                   |                                                                                                     | Income (loss) available to common stockholders |        | $      | 27,435 |  |        | $      | 19,650 |  |        | $      | 14,582 | 
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       
|Weighted average common shares outstanding  basic |                                                                                                     |                                                | 42,481 |        |        |  | 40,445 |        |        |  | 23,363 |       
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       
|                                                   | Basic EPS:                                                                                          |                                                |        |        |        |  |        |        |        |  |        |        |       
|                                                   | Income (loss) available to common stockholders before cumulative
    change in accounting principle |                                                | $      | 0.65   |        |  | $      | 0.49   |        |  | $      | 0.62   |       
|                                                   | Cumulative change in accounting principle                                                           |                                                |        |       |        |  |        |       |        |  |        | 0.01   |       
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       
|                                                   |                                                                                                     | Income (loss) available to common stockholders |        | $      | 0.65   |  |        | $      | 0.49   |  |        | $      | 0.63   | 
|                                                   |                                                                                                     |                                                |        |        |        |  |        |        |       

F-21



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|             |                                                                                                               |                                                                          |        |        |        |  |        |        |        |  |       |        |        | 
|------------ | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ----- | ------ | ------ | 
|             |                                                                                                               | Year Ended December 31,                                                  |       
|             |                                                                                                               |                                                                          |       
|             |                                                                                                               | 2005                                                                     |        |        | 2004   |  |        | 2003   |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|Diluted EPS: |                                                                                                               |                                                                          |        |        |        |  |        |        |        |  |       |       
|             | Income (loss) available to common stockholders before cumulative
    change in accounting principle           |                                                                          | $      | 27,435 |        |  | $      | 19,650 |        |  | $     | 14,314 |       
|             | Cumulative change in accounting principle                                                                     |                                                                          |        |       |        |  |        |       |        |  |       | 268    |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             |                                                                                                               | Income (loss) available to common stockholders                           |        |        | 27,435 |  |        |        | 19,650 |  |       |        | 14,582 | 
|             | Adjustments for assumed conversions:                                                                          |                                                                          |        |        |        |  |        |        |        |  |       |        |       
|             |                                                                                                               | Dividends and accretion on mandatorily redeemable preferred
    stock(1) |        |        |       |  |        |        |       |  |       |        | 3,290  | 
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             |                                                                                                               |                                                                          | 27,435 |        |        |  | 19,650 |        |        |  | 3,290 |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             | Income (loss) available to common stockholders before cumulative
    change in accounting principle  diluted |                                                                          |        | 27,435 |        |  |        | 19,650 |        |  |       | 17,604 |       
|             | Cumulative change in accounting principle                                                                     |                                                                          |        |       |        |  |        |       |        |  |       | 268    |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             |                                                                                                               | Income (loss) available to common stockholders 
    diluted             |        | $      | 27,435 |  |        | $      | 19,650 |  |       | $      | 17,872 | 
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             | Common shares outstanding                                                                                     |                                                                          |        | 42,481 |        |  |        | 40,445 |        |  |       | 23,363 |       
|             | Effect of dilutive securities:                                                                                |                                                                          |        |        |        |  |        |        |        |  |       |        |       
|             |                                                                                                               | Warrants                                                                 |        |        |       |  |        |        |       |  |       |        | 317    | 
|             |                                                                                                               | Mandatorily redeemable preferred stock                                   |        |        |       |  |        |        |       |  |       |        | 9,971  | 
|             |                                                                                                               | Stock options and restricted stock                                       |        |        | 1,247  |  |        |        | 1,171  |  |       |        | 703    | 
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             | Potentially dilutive common shares                                                                            |                                                                          |        | 1,247  |        |  |        | 1,171  |        |  |       | 10,991 |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             |                                                                                                               | Adjusted common shares outstanding  diluted                             |        |        | 43,728 |  |        |        | 41,616 |  |       |        | 34,354 | 
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             | Diluted EPS:                                                                                                  |                                                                          |        |        |        |  |        |        |        |  |       |        |       
|             | Income (loss) available to common stockholders before cumulative
    change in accounting principle           |                                                                          | $      | 0.63   |        |  | $      | 0.47   |        |  | $     | 0.51   |       
|             | Cumulative change in accounting principle                                                                     |                                                                          |        |       |        |  |        |       |        |  |       | 0.01   |       
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       
|             |                                                                                                               | Income (loss) available to common stockholders                           |        | $      | 0.63   |  |        | $      | 0.47   |  |       | $      | 0.52   | 
|             |                                                                                                               |                                                                          |        |        |        |  |        |        |       






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



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




| |           
| | ----------
| | Litigation



F-22



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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



|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 709   | 
|2007       |  |   | 698   | 
|2008       |  |   | 687   | 
|2009       |  |   | 703   | 
|2010       |  |   | 720   | 
|Thereafter |  |   | 1,117 | 
|           |  |   |      
|           |  | $ | 4,634 | 
|           |  |   |      







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



|            |  |      |    |   |      |  |    |      |  |  |    |  
|----------- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|            |  | 2005 |    |   | 2004 |  |    | 2003 | 
|            |  |      |    |   |      |  |    |      | 
|Purchaser A |  |      |   |   |      |  | 11 | %    |  |  |   |  
|Purchaser B |  |      |   |   |      |  | 12 | %    |  |  | 13 | %
|Purchaser C |  |      | 20 | % |      |  |   |      |  |  |   |  





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





|    |                                              
|--- | ---------------------------------------------
|10. | Derivative Instruments and Hedging Activities



F-23



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|            |                                                               |                         |   |       |      |  |   |       |  |  |   |       | 
|----------- | ------------------------------------------------------------- | ----------------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|            |                                                               | Year Ended December 31, |  
|            |                                                               |                         |  
|            |                                                               | 2005                    |   |       | 2004 |  |   | 2003  | 
|            |                                                               |                         |   |       |      |  |   |       | 
|Natural gas |                                                               |                         |   |       |      |  |   |       |  |  |   |      
|            | Average price per Mcf as reported (including hedging results) |                         | $ | 7.97  |      |  | $ | 5.84  |  |  | $ | 4.92  | 
|            | Average price per Mcf realized (excluding hedging results)    |                         | $ | 8.29  |      |  | $ | 6.05  |  |  | $ | 5.68  | 
|            | Decrease in revenue (in thousands)                            |                         | $ | 2,925 |      |  | $ | 1,853 |  |  | $ | 4,807 | 
|Oil         |                                                               |                         |   |       |      |  |   |       |  |  |   |      
|            | Average price per Bbl as reported (including hedging results) |                         | $ | 51.95 |      |  | $ | 35.17 |  |  | $ | 28.17 | 
|            | Average price per Bbl realized (excluding hedging results)    |                         | $ | 54.73 |      |  | $ | 40.13 |  |  | $ | 30.79 | 
|            | Decrease in revenue (in thousands)                            |                         | $ | 1,249 |      |  | $ | 2,841 |  |  | $ | 1,885 | 





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



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





|                                       |  |              |      |   |      |   |     |  
|-------------------------------------- |  | ------------ | ---- | - | ---- | - | --- | -
|                                       |  | December 31, |     
|                                       |  |              |     
|                                       |  | 2005         |      |   | 2004 |  
|                                       |  |              |      |   |      |  
|Fair value of undesignated derivatives |  | $            | (125 | ) |      | $ | (33 | )



|                                                                                             |  |              |     |   |      |   |     |      |  |   |   | 
|-------------------------------------------------------------------------------------------- |  | ------------ | --- | - | ---- | - | --- | ---- |  | - | - | 
|                                                                                             |  | Year Ended  
|                                                                                             |  | December 31,
|                                                                                             |  |             
|                                                                                             |  | 2005         |     |   | 2004 |   |     | 2003
|                                                                                             |  |              |     |   |      |   |     |     
|Increase (decrease) in earnings due to changes in fair value of
    undesignated derivatives |  | $            | (92 | ) |      | $ | (33 | )    |  | $ |  | 

F-24



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |                     |            |              |                |  |                 |              |           |  |           |         |         |  |  |        |        |  |  |       |       | 
|-------------------------- | ------------------- | ---------- | ------------ | -------------- |  | --------------- | ------------ | --------- |  | --------- | ------- | ------- |  |  | ------ | ------ |  |  | ----- | ----- | 
|                           |                     |            |              |                |  | Notional Amount |              |          
|                           |                     |            |              |                |  |                 |              | Nymex    
|                           |                     | Derivative |              |                |  | Gas             |              | Oil       |  | Reference
|Settlement Period          |                     | Instrument |              | Hedge Strategy |  | (MMBTU)         |              | (Barrels) |  | Price    
|                           |                     |            |              |                |  |                 |              |           |  |          
|Costless Collars           |                     |            |              |                |  |                 |              |           |  |           |         |         |  |  |        |        |  |  |       |      
|                           | 01/01/06 - 03/31/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 7,500  |  |  | $     | 62.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 7,500  |        |  |  | 74.50 |      
|                           | 04/01/06 - 10/31/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 490,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 490,000 |         |  |  |        |        |  |  | 14.85 |      
|                           | 04/01/06 - 06/30/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 16,500 |  |  | $     | 54.80 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 16,500 |        |  |  | 75.00 |      
|                           | 04/01/06 - 7/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 360,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 360,000 |         |  |  |        |        |  |  | 15.60 |      
|                           | 04/01/06 - 7/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 360,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 360,000 |         |  |  |        |        |  |  | 17.00 |      
|                           | 04/01/06 - 09/30/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 42,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 42,000 |        |  |  | 75.60 |      
|                           | 11/01/06 - 03/31/07 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 450,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 450,000 |         |  |  |        |        |  |  | 21.20 |      
|                           | 08/01/06 - 10/31/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 360,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 360,000 |         |  |  |        |        |  |  | 16.65 |      
|                           | 10/01/06 - 12/31/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 27,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 27,000 |        |  |  | 77.50 |      
|                           | 11/01/06 - 01/31/07 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 540,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 540,000 |         |  |  |        |        |  |  | 23.25 |      
|                           | 01/01/07 - 03/31/07 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 24,000 |  |  | $     | 50.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 24,000 |        |  |  | 78.25 |      
|Three Way Costless Collars |                     |            |              |                |  |                 |              |           |  |           |         |         |  |  |        |        |  |  |       |      
|                           | 01/01/06 - 3/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 150,000 |  |  |        |        |  |  | $     | 6.75  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 150,000 |         |  |  |        |        |  |  | 8.80  |      
|                           |                     |            | Written put  |                |  |                 | Undesignated |           |  |           | 150,000 |         |  |  |        |        |  |  | 5.50  |      
|                           | 01/01/06 - 3/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 210,000 |  |  |        |        |  |  | $     | 8.00  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 210,000 |         |  |  |        |        |  |  | 9.75  |      
|                           |                     |            | Written put  |                |  |                 | Undesignated |           |  |           | 210,000 |         |  |  |        |        |  |  | 6.50  |      
|                           | 01/01/06 - 3/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 240,000 |  |  |        |        |  |  | $     | 10.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 240,000 |         |  |  |        |        |  |  | 13.08 |      
|                           |                     |            | Written put  |                |  |                 | Undesignated |           |  |           | 240,000 |         |  |  |        |        |  |  | 8.50  |      
|                           | 01/01/06 - 3/31/06  |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         |         |  |  |        | 18,000 |  |  | $     | 48.00 | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           |         |         |  |  | 18,000 |        |  |  | 60.70 |      
|                           |                     |            | Written put  |                |  |                 | Undesignated |           |  |           |         |         |  |  | 18,000 |        |  |  | 38.00 |      
|                           | 04/01/06 - 10/31/06 |            |              | Purchased put  |  |                 |              | Cash flow |  |           |         | 420,000 |  |  |        |        |  |  | $     | 7.50  | 
|                           |                     |            | Written call |                |  |                 | Cash flow    |           |  |           | 420,000 |         |  |  |        |        |  |  | 9.15  |      
|                           |                     |            | Written put  |                |  |                 | Undesignated |           |  |           | 420,000 |         |  |  |        |        |  |  | 6.25  |      

F-25



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                    |  |            |               |                |  |                 |              |           |  |           |         |  |  |  |        |  |  |   |       | 
|------------------- |  | ---------- | ------------- | -------------- |  | --------------- | ------------ | --------- |  | --------- | ------- |  |  |  | ------ |  |  | - | ----- | 
|                    |  |            |               |                |  | Notional Amount |              |          
|                    |  |            |               |                |  |                 |              | Nymex    
|                    |  | Derivative |               |                |  | Gas             |              | Oil       |  | Reference
|Settlement Period   |  | Instrument |               | Hedge Strategy |  | (MMBTU)         |              | (Barrels) |  | Price    
|                    |  |            |               |                |  |                 |              |           |  |          
|04/01/06 - 10/31/06 |  |            | Purchased put |                |  |                 | Cash flow    |           |  |           | 490,000 |  |  |  |        |  |  | $ | 8.50  | 
|                    |  |            | Written call  |                |  |                 | Cash flow    |           |  |           | 490,000 |  |  |  |        |  |  |   | 9.96  | 
|                    |  |            | Written put   |                |  |                 | Undesignated |           |  |           | 490,000 |  |  |  |        |  |  |   | 7.00  | 
|04/01/06 - 6/30/06  |  |            | Purchased put |                |  |                 | Cash flow    |           |  |           |         |  |  |  | 7,500  |  |  | $ | 63.00 | 
|                    |  |            | Written call  |                |  |                 | Cash flow    |           |  |           |         |  |  |  | 7,500  |  |  |   | 75.25 | 
|                    |  |            | Written put   |                |  |                 | Undesignated |           |  |           |         |  |  |  | 7,500  |  |  |   | 48.00 | 
|07/01/06 - 9/30/06  |  |            | Purchased put |                |  |                 | Cash flow    |           |  |           |         |  |  |  | 15,000 |  |  | $ | 63.00 | 
|                    |  |            | Written call  |                |  |                 | Cash flow    |           |  |           |         |  |  |  | 15,000 |  |  |   | 75.65 | 
|                    |  |            | Written put   |                |  |                 | Undesignated |           |  |           |         |  |  |  | 15,000 |  |  |   | 48.00 | 



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







| |            
| | -----------
| | Fair values



|                             |                                        |              |        |        |      |   |      |      |  
|---------------------------- | -------------------------------------- | ------------ | ------ | ------ | ---- | - | ---- | ---- | -
|                             |                                        | December 31, |       
|                             |                                        |              |       
|                             |                                        | 2005         |        |        | 2004 |  
|                             |                                        |              |        |        |      |  
|Other current liabilities    |                                        | $            | (2,112 | )      |      | $ | (870 | )   
|Other noncurrent liabilities |                                        |              | (61    | )      |      |   | (1   | )   
|Other current assets         |                                        |              | 224    |        |      |   | 142  |     
|Other noncurrent assets      |                                        |              | 654    |        |      |   | 3    |     
|                             |                                        |              |        |        |      |  
|                             | Net fair value of derivative contracts |              | $      | (1,295 | )    |   | $    | (726 | )
|                             |                                        |              |        |        |      |  

F-26



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                      
|--- | ---------------------
|11. | Financial Instruments







|    |                       
|--- | ----------------------
|12. | Employee Benefit Plans





|    |                         
|--- | ------------------------
|13. | Stock Based Compensation





F-27



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                         |                        |        |           |           |       |   |      |        |           |  |           |          |   |           |      |       |       |  |           |           |   |   |      |       |  
|---------------------------------------- | ---------------------- | ------ | --------- | --------- | ----- | - | ---- | ------ | --------- |  | --------- | -------- | - | --------- | ---- | ----- | ----- |  | --------- | --------- | - | - | ---- | ----- | -
|                                         |                        | 2005   |           |           | 2004  |   |      | 2003   |          
|                                         |                        |        |           |           |       |   |      |        |          
|                                         |                        |        |           | Weighted- |       |   |      |        | Weighted- |  |           |          |   | Weighted- |     
|                                         |                        |        |           | Average   |       |   |      |        | Average   |  |           |          |   | Average   |     
|                                         |                        |        |           | Exercise  |       |   |      |        | Exercise  |  |           |          |   | Exercise  |     
|                                         |                        | Shares |           |           | Price |   |      | Shares |           |  | Price     |          |   | Shares    |      |       | Price | 
|                                         |                        |        |           |           |       |   |      |        |           |  |           |          |   |           |      |       |       | 
|Options outstanding at beginning of year |                        |        | 2,977,600 |           |       | $ | 6.01 |        |           |  | 2,582,675 |          |   | $         | 4.78 |       |       |  | 1,788,135 |           |   | $ | 3.00 |      
|                                         | Granted                |        |           | 350,000   |       |   | $    | 12.13  |           |  |           | 790,000  |   |           | $    | 8.75  |       |  |           | 1,127,500 |   |   | $    | 6.46  |  
|                                         | Forfeited or cancelled |        |           | (40,800   | )     |   | $    | 6.92   |           |  |           | (80,894  | ) |           | $    | (4.72 | )     |  |           | (23,200   | ) |   | $    | (3.49 | )
|                                         | Exercised              |        |           | (340,467  | )     |   | $    | 3.88   |           |  |           | (314,181 | ) |           | $    | (3.06 | )     |  |           | (309,760  | ) |   | $    | (2.68 | )
|                                         |                        |        |           |           |       |   |      |        |           |  |           |          |   |           |      |       |       | 
|Options outstanding at end of year       |                        |        | 2,946,333 |           |       | $ | 6.96 |        |           |  | 2,977,600 |          |   | $         | 6.01 |       |       |  | 2,582,675 |           |   | $ | 4.78 |      
|                                         |                        |        |           |           |       |   |      |        |           |  |           |          |   |           |      |       |       | 
|Options exercisable at end of year       |                        |        | 1,085,133 |           |       | $ | 5.31 |        |           |  | 792,557   |          |   | $         | 4.30 |       |       |  | 656,633   |           |   | $ | 3.14 |      
|                                         |                        |        |           |           |       |   |      |        |           |  |           |          |   |           |      |       |       | 





|                |  |                     |           |  |                     |  |           |                |  |        |                |  |  |                |           |  |  |   |      | 
|--------------- |  | ------------------- | --------- |  | ------------------- |  | --------- | -------------- |  | ------ | -------------- |  |  | -------------- | --------- |  |  | - | ---- | 
|                |  | Options Outstanding |           |  | Options Exercisable | 
|                |  |                     |           |  |                     | 
|                |  | Number              |           |  | Weighted-           |  |           |                |  | Number |                |  | 
|                |  | Outstanding at      |           |  | Average             |  |           | Weighted-      |  |        | Exercisable at |  |  | Weighted-      |          
|                |  | December 31,        |           |  | Remaining           |  |           | Average        |  |        | December 31,   |  |  | Average        |          
|Exercise Price  |  | 2005                |           |  | Contractual Life    |  |           | Exercise Price |  |        | 2005           |  |  | Exercise Price |          
|                |  |                     |           |  |                     |  |           |                |  |        |                |  |  |                |          
|$1.55 to $1.83  |  |                     | 101,000   |  |                     |  | 0.1 years |                |  | $      | 1.83           |  |  |                | 101,000   |  |  | $ | 1.83 | 
|2.38 to 3.41    |  |                     | 268,033   |  |                     |  | 3.0 years |                |  | $      | 3.33           |  |  |                | 154,333   |  |  | $ | 3.32 | 
|3.66 to 5.08    |  |                     | 540,400   |  |                     |  | 3.1 years |                |  | $      | 4.21           |  |  |                | 328,300   |  |  | $ | 4.17 | 
|6.46 to 6.73    |  |                     | 879,000   |  |                     |  | 4.8 years |                |  | $      | 6.68           |  |  |                | 330,000   |  |  | $ | 6.69 | 
|7.88 to 8.89    |  |                     | 747,900   |  |                     |  | 5.6 years |                |  | $      | 8.72           |  |  |                | 157,500   |  |  | $ | 8.67 | 
|8.93 to 12.31   |  |                     | 410,000   |  |                     |  | 6.0 years |                |  | $      | 11.59          |  |  |                | 14,000    |  |  | $ | 8.97 | 
|                |  |                     |           |  |                     |  |           |                |  |        |                |  |  |                |          
|$1.55 to $12.31 |  |                     | 2,946,333 |  |                     |  | 3.7 years |                |  | $      | 6.96           |  |  |                | 1,085,133 |  |  | $ | 5.31 | 
|                |  |                     |           |  |                     |  |           |                |  |        |                |  |  |                |          



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



F-28



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |                                                            |                                                      |  |           |                   |  |   |           |           |  |         |         |         |  |   |      |      | 
|------------------------ | ---------------------------------------------------------- | ---------------------------------------------------- |  | --------- | ----------------- |  | - | --------- | --------- |  | ------- | ------- | ------- |  | - | ---- | ---- | 
|                         |                                                            | Year Ended                                           |  |           | Year Ended        | 
|                         |                                                            | December 31, 2005                                    |  |           | December 31, 2004 | 
|                         |                                                            |                                                      |  |           |                   | 
|                         |                                                            |                                                      |  | Weighted- |                   |  |   |           | Weighted- | 
|                         |                                                            | Number of                                            |  |           | Average           |  |   | Number of |           |  | Average |        
|                         |                                                            | Shares                                               |  |           | Price             |  |   | Shares    |           |  | Price   |        
|                         |                                                            |                                                      |  |           |                   |  |   |           |           |  |         |        
|Restricted Stock Awards: |                                                            |                                                      |  |           |                   |  |   |           |           |  |         |         |         |  |   |     
|                         | Restricted shares outstanding at the beginning of the year |                                                      |  | 325,000   |                   |  | $ | 5.65      |           |  |         | 350,000 |         |  | $ | 5.23 |     
|                         | Shares granted                                             |                                                      |  | 137,650   |                   |  | $ | 10.42     |           |  |         | 70,000  |         |  | $ | 7.35 |     
|                         | Lapse of restrictions                                      |                                                      |  | (65,000   | )                 |  | $ | 5.23      |           |  |         | (72,083 | )       |  | $ | 5.23 |     
|                         | Forfeitures                                                |                                                      |  |          |                   |  | $ |          |           |  |         | (22,917 | )       |  | $ | 5.69 |     
|                         |                                                            |                                                      |  |           |                   |  |   |           |           |  |         |        
|                         |                                                            | Restricted shares outstanding at the end of the year |  |           | 397,650           |  |   | $         | 7.22      |  |         |         | 325,000 |  |   | $    | 5.65 | 
|                         |                                                            |                                                      |  |           |                   |  |   |           |           |  |         |        



|    |                           
|--- | --------------------------
|14. | Related Party Transactions

3-D






F-29



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                   
|--- | ----------------------------------
|15. | Supplemental Cash Flow Information

|                                                   |                                                                            |                         |       |       |      |   |       |       |  |   |       |        | 
|-------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ------ | 
|                                                   |                                                                            | Year Ended December 31, |      
|                                                   |                                                                            |                         |      
|                                                   |                                                                            | 2005                    |       |       | 2004 |   |       | 2003  | 
|                                                   |                                                                            |                         |       |       |      |   |       |       | 
|Cash paid for interest, net of capitalized amounts |                                                                            | $                       | 2,575 |       |      | $ | 1,634 |       |  | $ | 2,447 |       
|Noncash investing and financing activities:        |                                                                            |                         |       |       |      |   |       |       |  |   |       |       
|                                                   | Dividends and accretion on mandatorily redeemable preferred stock          |                         |       | 581   |      |   |       | 726   |  |   |       | 3,448  | 
|                                                   | Capitalized asset retirement obligations                                   |                         |       | 1,324 |      |   |       | 512   |  |   |       | 1,630  | 
|                                                   | Conversion of preferred stock to common stock via exercise of
    warrants |                         |       |      |      |   |       |      |  |   |       | 18,534 | 
|                                                   | Accrued drilling costs                                                     |                         |       | 6,119 |      |   |       | 2,183 |  |   |       | 1,189  | 
|                                                   | Capitalized stock compensation                                             |                         |       | 337   |      |   |       | 291   |  |   |       | 229    | 
|                                                   | Issuance of restricted stock                                               |                         |       | 1,435 |      |   |       | 514   |  |   |       | 1,831  | 
|                                                   | Forfeitures of restricted stock                                            |                         |       |      |      |   |       | 131   |  |   |       |       | 
|                                                   | Issuance of stock options                                                  |                         |       |      |      |   |       |      |  |   |       | 296    | 



|    |                             
|--- | ----------------------------
|16. | Other Assets and Liabilities



|                  |  |             |       |  |      |   |     | 
|----------------- |  | ----------- | ----- |  | ---- | - | --- | 
|                  |  | December 31 |      
|                  |  |             |      
|                  |  | 2005        |       |  | 2004 |  
|                  |  |             |       |  |      |  
|Prepayments       |  | $           | 593   |  |      | $ | 531 | 
|Derivative assets |  |             | 224   |  |      |   | 142 | 
|Other             |  |             | 226   |  |      |   | 228 | 
|                  |  |             |       |  |      |  
|                  |  | $           | 1,043 |  |      | $ | 901 | 
|                  |  |             |       |  |      |  



|                          |  |             |       |  |      |   |       | 
|------------------------- |  | ----------- | ----- |  | ---- | - | ----- | 
|                          |  | December 31 |      
|                          |  |             |      
|                          |  | 2005        |       |  | 2004 |  
|                          |  |             |       |  |      |  
|Derivative liabilities    |  | $           | 2,236 |  |      | $ | 870   | 
|Other accrued liabilities |  |             | 1,883 |  |      |   | 1,355 | 
|                          |  |             |       |  |      |  
|                          |  | $           | 4,119 |  |      | $ | 2,225 | 
|                          |  |             |       |  |      |  

F-30



---



##### 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, |        
|                             |                                                          |              |        
|                             |                                                          | 2005         |         |        | 2004 |   |        | 2003   | 
|                             |                                                          |              |         |        |      |   |        |        | 
|Costs incurred for the year: |                                                          |              |         |        |      |   |        |        |  |   |        |       
|                             | Exploration (including geological and geophysical costs) |              | $       | 54,338 |      |   | $      | 30,327 |  |   | $      | 20,243 | 
|                             | Property acquisition                                     |              |         | 15,701 |      |   |        | 6,226  |  |   |        | 4,850  | 
|                             | Development                                              |              |         | 48,588 |      |   |        | 50,872 |  |   |        | 22,437 | 
|                             |                                                          |              |         |        |      |   |        |        | 
|                             |                                                          | $            | 118,627 |        |      | $ | 87,425 |        |  | $ | 47,530 |       
|                             |                                                          |              |         |        |      |   |        |        | 



|                                                         |       |              |       |        |       |   |       |       |  |   |       |       |  |       |        |        |  |   |        |        | 
|-------------------------------------------------------- | ----- | ------------ | ----- | ------ | ----- | - | ----- | ----- |  | - | ----- | ----- |  | ----- | ------ | ------ |  | - | ------ | ------ | 
|                                                         |       | December 31, |       |        |       |   |      
|                                                         |       |              |       |        | Prior |   |       |      
|                                                         |       | 2005         |       |        | 2004  |   |       | 2003  |  |   | Years |       |  | Total |       
|                                                         |       |              |       |        |       |   |       |       |  |   |       |       |  |       |       
|Property acquisition                                     |       | $            | 5,328 |        |       | $ | 2,256 |       |  | $ | 1,726 |       |  | $     | 4,521  |        |  | $ | 13,831 |       
|Exploration (including geological and geophysical costs) |       |              | 4,658 |        |       |   | 6,344 |       |  |   | 1,213 |       |  |       | 10,804 |        |  |   | 23,019 |       
|Capitalized interest                                     |       |              | 1,198 |        |       |   |      |       |  |   |      |       |  |       |       |        |  |   | 1,198  |       
|                                                         |       |              |       |        |       |   |       |       |  |   |       |       |  |       |       
|                                                         | Total |              | $     | 11,184 |       |   | $     | 8,600 |  |   | $     | 2,939 |  |       | $      | 15,325 |  |   | $      | 38,048 | 
|                                                         |       |              |       |        |       |   |       |       |  |   |       |       |  |       |       

Oil and Natural Gas Reserves and Related Financial Data






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



F-31



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


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




|                                          |                                             |         |         |         |         |  |       |       |  
|----------------------------------------- | ------------------------------------------- | ------- | ------- | ------- | ------- |  | ----- | ----- | -
|                                          |                                             | Natural |         |         |        
|                                          |                                             | Gas     |         |         | Oil     | 
|                                          |                                             | (MMcf)  |         |         | (MBbls) | 
|                                          |                                             |         |         |         |         | 
|Proved reserves at December 31, 2002      |                                             |         | 99,428  |         |         |  | 3,607 |      
|                                          | Revisions of previous estimates             |         |         | (6,148  | )       |  |       | 176   |  
|                                          | Extensions, discoveries and other additions |         |         | 22,479  |         |  |       | 1,067 |  
|                                          | Production                                  |         |         | (6,356  | )       |  |       | (720  | )
|                                          |                                             |         |         |         |         | 
|Proved reserves at December 31, 2003      |                                             |         | 109,403 |         |         |  | 4,130 |      
|                                          | Revisions of previous estimates             |         |         | (11,142 | )       |  |       | (642  | )
|                                          | Extensions, discoveries and other additions |         |         | 12,444  |         |  |       | 321   |  
|                                          | Production                                  |         |         | (8,830  | )       |  |       | (573  | )
|                                          |                                             |         |         |         |         | 
|Proved reserves at December 31, 2004      |                                             |         | 101,875 |         |         |  | 3,236 |      
|                                          | Revisions of previous estimates             |         |         | (595    | )       |  |       | (11   | )
|                                          | Purchases of reserves in place              |         |         | 4,054   |         |  |       | 65    |  
|                                          | Extensions, discoveries and other additions |         |         | 17,143  |         |  |       | 486   |  
|                                          | Production                                  |         |         | (9,213  | )       |  |       | (450  | )
|                                          |                                             |         |         |         |         | 
|Proved reserves at December 31, 2005      |                                             |         | 113,264 |         |         |  | 3,326 |      
|                                          |                                             |         |         |         |         | 
|Proved developed reserves at December 31: |                                             |         |         |         |         |  |       |      
|                                          | 2002                                        |         |         | 42,161  |         |  |       | 2,330 |  
|                                          | 2003                                        |         |         | 49,920  |         |  |       | 2,863 |  
|                                          | 2004                                        |         |         | 47,494  |         |  |       | 2,124 |  
|                                          | 2005                                        |         |         | 55,664  |         |  |       | 2,069 |  





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



F-32



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY


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




|                                                         |  |              |           |   |      |   |          |      |  |   |          |  
|-------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                         |  | December 31, |          
|                                                         |  |              |          
|                                                         |  | 2005         |           |   | 2004 |   |          | 2003 | 
|                                                         |  |              |           |   |      |   |          |      | 
|Future cash inflows                                      |  | $            | 1,259,009 |   |      | $ | 766,344  |      |  | $ | 737,544  |  
|Future production costs                                  |  |              | (220,499  | ) |      |   | (159,697 | )    |  |   | (123,176 | )
|Future development costs                                 |  |              | (122,419  | ) |      |   | (79,868  | )    |  |   | (58,978  | )
|Future income tax expense                                |  |              | (237,268  | ) |      |   | (116,254 | )    |  |   | (138,118 | )
|                                                         |  |              |           |   |      |   |          |      | 
|Future net cash inflows                                  |  |              | 678,823   |   |      |   | 410,525  |      |  |   | 417,272  |  
|10% annual discount for estimated timing of cash flows   |  |              | (282,482  | ) |      |   | (170,816 | )    |  |   | (155,674 | )
|                                                         |  |              |           |   |      |   |          |      | 
|Standardized measure of discounted future net cash flows |  | $            | 396,341   |   |      | $ | 239,709  |      |  | $ | 261,598  |  
|                                                         |  |              |           |   |      |   |          |      | 



|                  |  |         |      |  |       |   |       | 
|----------------- |  | ------- | ---- |  | ----- | - | ----- | 
|                  |  | Natural |      |  |      
|                  |  | Gas     |      |  | Oil   |  
|                  |  | (MMbtu) |      |  | (Bbl) |  
|                  |  |         |      |  |       |  
|December 31, 2005 |  | $       | 9.44 |  |       | $ | 61.04 | 
|December 31, 2004 |  |         | 6.19 |  |       |   | 43.46 | 
|December 31, 2003 |  |         | 5.83 |  |       |   | 32.55 | 



|                    |                                                                   |              |         |         |      |   |         |         |   |   |         |         |  
|------------------- | ----------------------------------------------------------------- | ------------ | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                    |                                                                   | December 31, |        
|                    |                                                                   |              |        
|                    |                                                                   | 2005         |         |         | 2004 |   |         | 2003    |  
|                    |                                                                   |              |         |         |      |   |         |         |  
|Beginning of period |                                                                   | $            | 239,709 |         |      | $ | 261,598 |         |   | $ | 239,698 |        
|                    | Sales of oil and natural gas produced, net of production costs    |              |         | (90,480 | )    |   |         | (67,127 | ) |   |         | (50,559 | )
|                    | Previously estimated development costs incurred during the period |              |         | 17,524  |      |   |         | 37,109  |   |   |         | 14,370  |  
|                    | Extensions and discoveries                                        |              |         | 78,184  |      |   |         | 27,053  |   |   |         | 91,383  |  
|                    | Net change of prices and production costs                         |              |         | 171,764 |      |   |         | 38,027  |   |   |         | 20,434  |  
|                    | Change in future development costs                                |              |         | (32,838 | )    |   |         | (40,086 | ) |   |         | (11,281 | )
|                    | Changes in production rates (timing)                              |              |         | 32,284  |      |   |         | (33,579 | ) |   |         | (40,287 | )
|                    | Revisions of previous quantity estimates                          |              |         | (2,871  | )    |   |         | (47,327 | ) |   |         | (15,063 | )
|                    | Accretion of discount                                             |              |         | 29,447  |      |   |         | 34,381  |   |   |         | 30,737  |  
|                    | Change in income taxes                                            |              |         | (68,711 | )    |   |         | 27,452  |   |   |         | (14,537 | )
|                    | Purchases of reserves in place                                    |              |         | 14,221  |      |   |         |        |   |   |         |        |  
|                    | Other                                                             |              |         | 8,108   |      |   |         | 2,208   |   |   |         | (3,297  | )
|                    |                                                                   |              |         |         |      |   |         |         |  
|End of period       |                                                                   | $            | 396,341 |         |      | $ | 239,709 |         |   | $ | 261,598 |        
|                    |                                                                   |              |         |         |      |   |         |         |  

F-33



---



##### Table of Contents



BRIGHAM EXPLORATION COMPANY





SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION


Quarterly Financial Data (Unaudited)


|                      |         |                              |        |      |         |   |        |         |  |   |         |      |  |   |        |      | 
|--------------------- | ------- | ---------------------------- | ------ | ---- | ------- | - | ------ | ------- |  | - | ------- | ---- |  | - | ------ | ---- | 
|                      |         | Year Ended December 31, 2005 |       
|                      |         |                              |       
|                      |         | Quarter                      |        |      | Quarter |   |        | Quarter |  |   | Quarter |     
|                      |         | 1                            |        |      | 2       |   |        | 3       |  |   | 4       |     
|                      |         |                              |        |      |         |   |        |         |  |   |         |     
|Revenue               |         | $                            | 16,746 |      |         | $ | 18,490 |         |  | $ | 25,226  |      |  | $ | 36,578 |     
|Operating income      |         |                              | 5,954  |      |         |   | 8,003  |         |  |   | 13,447  |      |  |   | 19,379 |     
|Net income            |         |                              | 3,048  |      |         |   | 4,810  |         |  |   | 7,678   |      |  |   | 11,899 |     
|Net income per share: |         |                              |        |      |         |   |        |         |  |   |         |      |  |   |        |     
|                      | Basic   |                              | $      | 0.07 |         |   | $      | 0.11    |  |   | $       | 0.18 |  |   | $      | 0.27 | 
|                      | Diluted |                              | $      | 0.07 |         |   | $      | 0.11    |  |   | $       | 0.18 |  |   | $      | 0.26 | 

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

F-34



---



##### Table of Contents



INDEX TO EXHIBITS


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



---



##### Table of Contents



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



---



##### Table of Contents



|       |       |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ----- |  |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  |  | Description
|       |       |  |  |            
|       | 10.24 |  |  |            |  | Agreement dated March 6, 2000 by and between RIMCO
    Production Co., Tigre Energy Corporation and Brigham
    Oil & Gas, L.P. regarding modifications to the Proposed
    Trade Structure, RIMCO/Tigre Project, dated January 31,
    1997 (filed as Exhibit 10.31.2 to Brighams Annual
    Report on Form 10-K for the year ended December 31,
    1999 and incorporated by reference herein).                               
|       | 10.25 |  |  |            |  | Form Change of Control Agreement dated as of September 20,
    1999 between Brigham Exploration Company and certain Officers
    (filed as Exhibit 10.3 to Brighams Quarterly Report
    on Form 10-Q for the fiscal quarter ended
    September 30, 1999 and incorporated by reference herein).                                                                                                                                
|       | 10.26 |  |  |            |  | Joint Development Agreement, dated as of February 10, 1999,
    by and between Brigham Oil & Gas, L.P. and Aspect
    Resources LLC. (filed as Exhibit 10.65 to Brighams
    Annual Report on Form 10-K for the year ended
    December 31, 1999, and incorporated herein by reference).                                                                                                                                        
|       | 10.27 |  |  |            |  | First Amendment, dated as of May 10, 1999, to that certain
    Joint Development Agreement entered into effective as of
    February 10, 1999, by and between Brigham Oil &
    Gas, L.P. and Aspect Resources LLC. (filed as
    Exhibit 10.65.1 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 1999, and
    incorporated herein by reference).                                                   
|       | 10.28 |  |  |            |  | Acquisition and Participation Agreement dated October 21,
    1999, by and between Brigham Oil & Gas, L.P. and Aspect
    Resources LLC. (filed as Exhibit 10.65.2 to Brighams
    Annual Report on Form 10-K for the year ended
    December 31, 1999, and incorporated herein by reference).                                                                                                                                  
|       | 10.29 |  |  |            |  | Letter agreement, dated as of December 30, 1999, regarding
    amendments to Joint Development Agreement, dated as of
    February 10, 1999, as amended, by and between Brigham
    Oil & Gas, L.P. and Aspect Resources LLC. (filed as
    Exhibit 10.65.3 to Brighams Annual Report on
    Form 10-K for the year ended December 31, 1999, and
    incorporated herein by reference).                                         
|       | 10.30 |  |  |            |  | Letter agreement dated as of September 6, 1999 between
    Brigham Oil & Gas, L.P. and Brigham Land Management
    Company, Inc. regarding work to be performed within
    Brighams Angelton Project. (filed as Exhibit 10.66 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 1999, and incorporated herein by
    reference).                                                                  
|       | 10.31 |  |  |            |  | Registration Rights Agreement dated November 1, 2000 by and
    between Brigham Exploration Company, DLJ MB Funding III,
    Inc., and DLJ ESC II, LP. (filed as Exhibit 10.10 to
    Brighams Current Report on Form 8-K, as amended
    (filed November 8, 2000), and incorporated herein by
    reference).                                                                                                                  
|       | 10.32 |  |  |            |  | First Amendment to Registration Rights Agreement, dated
    March 5, 2001, by and among Brigham Exploration Company,
    DLJMB Funding III, Inc., DLJ Merchant Banking
    Partners III, LP, DLJ ESC II, LP and DLJ Offshore
    Partners III, CV (filed as Exhibit 10.71 to
    Brighams Annual Report on Form 10-K for the year
    ended December 31, 2000 (filed March 23, 2001), and
    incorporated herein by reference).
|       | 10.33 |  |  |            |  | 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).                                                                                                                                                     
|       | 10.34 |  |  |            |  | 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).                                                                                                            
|       | 10.35 |  |  |            |  | 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).                                                                                                                                           
|       | 10.36 |  |  |            |  | Third Amended and Restated Credit Agreement, dated
    January 21, 2005 between Brigham Oil & Gas, L.P.,
    Société Générale, Societe Generale, The
    Royal Bank of Scotland plc and Bank of America, N.A.                                                                                                                                                                                                                    
|       | 10.37 |  |  |            |  | Amended and Restated Subordinated Credit Agreement, dated
    March 21, 2003 between Brigham Oil & Gas, L.P.,
    and The Royal Bank of Scotland plc (filed as Exhibit 10.54
    to Brighams Annual Report on Form 10-K for the year
    ended December 31, 2002 and incorporated herein by
    reference).                                                                                                                     



---



##### Table of Contents



|       |        |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ------ |  |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        |  |  | Description
|       |        |  |  |            
|       | 10.38  |  |  |            |  | Second Amendment to Amended and Restated Subordinated Credit
    Agreement dated May 4, 2004 between Brigham Oil &
    Gas, L.P., and The Royal Bank of Scotland plc (filed as
    Exhibit 99.3 to Brighams Current Report on
    Form 8-K (filed July 20, 2004), and incorporated
    herein by reference).                                                                          
|       | 10.39  |  |  |            |  | Second Amended and Restated Subordinated Credit Agreement dated
    January 21, 2005 between Brigham Oil & Gas, L.P.,
    and The Royal Bank of Scotland plc.                                                                                                                                                                                                                          
|       | 10.40  |  |  |            |  | 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).
|       | 10.41  |  |  |            |  | 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
    Générale 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).     
|       | 10.42  |  |  |            |  | 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).                                       
|       | 10.43  |  |  |            |  | 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).                                                                                                                    
|       | 10.44  |  |  |            |  | 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).                                                                                                                     
|       | 10.45* |  |  |            |  | 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).                                                                                                                                                                             
|       | 10.46 |  |  |            |  | 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.                                                                                                                                                                                                          
|       | 21    |  |  |            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                        
|       | 23.1  |  |  |            |  | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                                                                                                                              
|       | 23.2  |  |  |            |  | Consent of Cawley Gillespie & Associates, Inc.                                                                                                                                                                                                                                                                                                                                         
|       | 31.1  |  |  |            |  | Certification of Chief Executive Officer pursuant to Sec. 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                    
|       | 31.2  |  |  |            |  | Certification of Chief Financial Officer pursuant to Sec. 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                    
|       | 32.1  |  |  |            |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. SECTION 1350                                                                                                                                                                                                                                                                                                        
|       | 32.2  |  |  |            |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. SECTION 1350                                                                                                                                                                                                                                                                                                        






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



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