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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] 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 1311 75-2692967
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
6300 Bridgepoint Parkway
Bldg. 2, Suite 500
Austin, Texas 78730
(512) 427-3300
(Name, address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
As of July 31, 1997, 12,253,574 shares of Common Stock, $.01 per share, were
outstanding.
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BRIGHAM EXPLORATION COMPANY
INDEX
PAGE
PART I. FINANCIAL INFORMATION: NUMBER
------
Item 1. Unaudited Condensed Consolidated Financial Statements
a) Balance Sheets - December 31, 1996 and
June 30, 1997 1
b) Statements of Operations - Three and six months ended
June 30, 1996 and 1997 2
c) Statements of Cash Flows - Six months ended
June 30, 1996 and 1997 3
d) Statement of Changes in Stockholders' Equity -
June 30, 1997 4
e) Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7 - 9
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10 - 11
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
BRIGHAM EXPLORATION COMPANY
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
December 31, June 30,
1996 1997
----------- -----------
(Predecessor) (Company)
ASSETS
Current assets:
Cash and cash equivalents $ 1,447 $ 4,989
Accounts receivable 2,696 4,058
Prepaid expenses 152 278
----------- -----------
Total current assets 4,295 9,325
----------- -----------
Natural gas and oil properties, at cost, net 28,005 40,199
Other property and equipment, at cost, net 532 689
Drilling advances paid 419 545
Other noncurrent assets 363 288
=========== ===========
$ 33,614 $ 51,046
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,937 $ 2,139
Accrued drilling costs 915 2,577
Participant advances received 1,137 1,764
Other current liabilities 628 745
----------- -----------
Total current liabilities 5,617 7,225
----------- -----------
Notes payable 8,000 --
Subordinated notes payable - related party 16,000 --
Other noncurrent liabilities 753 89
Deferred income tax liability -- 4,813
Stockholders' equity:
Predecessor capital 3,244 --
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 30 million shares
authorized, 12,253,574 issued and outstanding -- 124
Additional paid-in capital -- 40,560
Unearned stock compensation -- (1,686)
Accumulated deficit -- (79)
----------- -----------
Total stockholders' equity 3,244 38,919
----------- -----------
$ 33,614 $ 51,046
=========== ===========
See accompanying notes to the unaudited condensed
consolidated financial statements.
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BRIGHAM EXPLORATION COMPANY
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
(Predecessor) (Company) (Predecessor) (Company)
Revenues:
Natural gas and oil sales $ 1,330 $ 1,718 $ 2,735 $ 3,854
Workstation revenue 126 160 292 324
-------- -------- -------- --------
1,456 1,878 3,027 4,178
-------- -------- -------- --------
Costs and expenses:
Lease operating 172 264 356 470
Production taxes 80 92 155 219
General and administrative 562 753 1,053 1,455
Amortization of stock compensation -- 86 -- 115
Depletion of natural gas and oil properties 787 708 1,297 1,395
Depreciation and amortization 121 64 245 172
-------- -------- -------- --------
1,722 1,967 3,106 3,826
-------- -------- -------- --------
Operating income (loss) (266) (89) (79) 352
-------- -------- -------- --------
Other income (expense):
Interest income 4 63 25 81
Interest expense (86) (156) (101) (372)
Interest expense - related party (200) -- (400) (174)
-------- -------- -------- --------
(282) (93) (476) (465)
-------- -------- -------- --------
Net loss before income taxes (548) (182) (555) (113)
Income tax benefit (expense):
Income tax provision -- 151 -- 187
Deferred income tax charge -- -- -- (5,000)
-------- -------- -------- --------
Net loss $ (548) $ (31) $ (555) $ (4,926)
======== ======== ======== ========
Net loss per common share $ (0.00)
========
Weighted average number of common
shares outstanding 11,082
========
Unaudited pro forma information:
Pro forma net loss $ (341) $ (326) $ (4,927)
======== ======== ========
Pro forma, as adjusted, net income (loss) $ (341) $ (326) $ 73
======== ======== ========
Pro forma net loss
per common share $ (0.04) $ (0.04) $ (0.49)
======== ======== ========
Pro forma, as adjusted, net income (loss)
per common share $ (0.04) $ (0.04) $ 0.01
======== ======== ========
Pro forma weighted average number of
common shares outstanding 9,170 9,170 10,131
======== ======== ========
See accompanying notes to the unaudited condensed
consolidated financial statements.
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BRIGHAM EXPLORATION COMPANY
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
Six Six
Months Ended Months Ended
June 30, June 30,
1996 1997
---------- ----------
(Predecessor) (Company)
Cash flows from operating activities:
Net loss $ (555) $ (4,926)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 1,297 1,395
Depreciation and amortization 245 172
Amortization of stock compensation -- 115
Changes in working capital and other items 2,621 3,049
---------- ----------
Net cash provided (used) by operating activities 3,608 (195)
---------- ----------
Cash flows from investing activities:
Additions to natural gas and oil properties (8,467) (11,796)
Proceeds from the sale of natural gas and oil properties 2,149 --
Additions to other property and equipment (26) (183)
Increase in drilling advances paid -- (126)
---------- ----------
Net cash used by investing activities (6,344) (12,105)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 23,929
Increase in notes payable 4,400 5,250
Repayment of notes payable -- (13,250)
Principal payments on capital lease obligations (129) (87)
---------- ----------
Net cash provided by financing activities 4,271 15,842
---------- ----------
Net increase in cash and cash equivalents 1,535 3,542
Cash and cash equivalents, beginning of period 1,802 1,447
========== ==========
Cash and cash equivalents, end of period $ 3,337 $ 4,989
========== ==========
See accompanying notes to the unaudited condensed
consolidated financial statements.
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BRIGHAM EXPLORATION COMPANY
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common Stock Additional Unearned
--------------------------- Paid-in Stock Accumulated Predecessor
Shares Amounts Capital Compensation Deficit Capital Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, -- $ -- $ -- $ -- $ -- $ 3,244 $ 3,244
December 31, 1996
Consummation of
the Exchange 8,928,574 89 19,581 -- -- (3,244) 16,426
Issuance of stock
options -- -- 1,932 (1,932) -- -- --
Issuance of common
stock 3,325,000 35 23,894 -- -- -- 23,929
Net loss for
period ended
February 27, 1997 -- -- (4,847) -- -- -- (4,847)
Net loss for
period from
February 27, 1997
to June 30, 1997 -- -- -- -- (79) -- (79)
Amortization of
unearned stock
compensation -- -- -- 246 -- -- 246
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30, 1997 12,253,574 $ 124 $ 40,560 $ (1,686) $ (79) $ -- $ 38,919
============ ============ ============ ============ ============ ============ ============
See accompanying notes to the unaudited condensed
consolidated financial statements.
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BRIGHAM EXPLORATION COMPANY
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Brigham Exploration Company (the "Company") is a Delaware corporation
formed on February 25, 1997 for the purpose of exchanging its common
stock for the common stock of Brigham, Inc. and the partnership
interests of Brigham Oil & Gas, L.P. (the "Partnership"). Brigham, Inc.
is a Texas corporation whose only asset is its ownership interest in the
Partnership. The Partnership was formed in May 1992 to explore and
develop onshore domestic natural gas and oil properties using 3-D
seismic imaging and other advanced technologies. Since its inception,
the Partnership has focused its exploration and development of natural
gas and oil properties in the Permian and Hardeman Basins of West Texas,
the Anadarko Basin and the onshore Gulf Coast.
Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange
Agreement") and upon the initial filing on February 27, 1997 of a
registration statement with the Securities and Exchange Commission for
the public offering of common stock (the "Offering"), the shareholders
of Brigham, Inc. transferred all of the outstanding stock of Brigham,
Inc. to the Company in exchange for 3,859,821 shares of common stock of
the Company. Pursuant to the Exchange Agreement, the Partnership's other
general partner and the limited partners also transferred all of their
partnership interests to the Company in exchange for 3,314,286 shares of
common stock of the Company. Furthermore, the holders of the
Partnership's subordinated convertible notes transferred these notes to
the Company in exchange for 1,754,464 shares of common stock. These
transactions are referred to as the "Exchange." In completing the
Exchange, the Company issued 8,928,571 shares of common stock to the
stockholders of Brigham, Inc., the partners of the Partnership and the
holder of the Partnership's subordinated notes payable. As a result of
the Exchange, the Company now owns all the partnership interests in the
Partnership.
In May 1997, the Company sold 3,325,000 shares of its common stock in
the Offering at a price of $8.00 per share. With a portion of the
proceeds from the Offering, the Company repaid the outstanding
borrowings, $13.3 million, under the Partnership's revolving credit
facility.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated balance sheets at December 31, 1996
and June 30, 1997 reflect the accounts of the Partnership at December
31, 1996 and the consolidated accounts of the Company at June 30, 1997,
respectively. The unaudited condensed consolidated statements of
operations and of cash flows for the six months ended June 30, 1996 and
1997 include the results of operations and cash flows of the Partnership
for the six months ended June 30, 1996 and the period from January 1,
1997 to February 27, 1997 and for the Company the period from February
25, 1997, the date of its inception, to June 30, 1997. As the Exchange
was the conversion of a partnership into a corporation, the Exchange has
been accounted for by the Company as a reorganization.
The accompanying condensed consolidated financial statements are
unaudited, and in the opinion of management, reflect all adjustments
that are necessary for a fair presentation of the financial position and
results of operations for the periods presented. All such adjustments
are of a normal and recurring nature. The results of operations for the
periods presented are not necessarily indicative of the results to be
expected for the entire year. The unaudited condensed consolidated
financial statements should be read in conjunction with the
Predecessors' historical consolidated financial statements and notes
thereto as of and for the period ended December 31, 1996 as included in
the Company's Registration Statement on Form S-1 (333-22491) filed with
the Securities and Exchange Commission.
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BRIGHAM EXPLORATION COMPANY
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3. UNAUDITED PRO FORMA INFORMATION
The Partnership's legal form has no relation to the capital structure of
the Company after the Exchange. As a result, historical loss per unit
amounts are not relevant and have not been presented. Pro forma net loss
per common share and pro forma, as adjusted, net loss per common share
are presented giving effect to the number of shares outstanding
subsequent to the Exchange (8,928,574 shares) and giving effect to
employee stock options granted on March 4, 1997, as if these shares and
options had been issued at the beginning of each period presented. The
effect of the stock option grants on pro forma net loss per common share
and pro forma, as adjusted, net loss per common share was calculated
using the treasury stock method.
Pro forma net loss reflects pro forma exchange adjustments primarily
representing the amortization of compensation expense related to
employee stock options granted upon formation of the Company, the
reduction of interest expense related to the transfer of the
subordinated notes payable to the Company as part of the Exchange, and
related income tax effects. In addition to the effect of these pro forma
adjustments, pro forma, as adjusted, net loss has been adjusted to
exclude the $5.0 million deferred tax charge recorded by the Company on
February 27, 1997 (see Note 4), as this was a nonrecurring charge
related to the Exchange.
4. INCOME TAXES
Prior to the consummation of the Exchange, the Partnership was not
subject to federal income taxes. Income and losses were passed through
to its partners on the basis of the allocation provisions established by
the partnership agreement. Upon consummation of the Exchange, the
Partnership became subject to federal income taxes through its ownership
by the Company. Also, in conjunction with the Exchange, the Company
recorded a deferred income tax liability of $5.0 million to recognize
the temporary differences between the financial statement and tax bases
of the assets and liabilities of the Partnership at the Exchange date,
February 27, 1997, given the provisions of enacted tax laws.
5. FUTURE REPORTING REQUIREMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share ("EPS"). SFAS 128 replaces the presentation of
primary EPS with a presentation of basic EPS and requires a dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. Basic EPS
excludes dilutive securities and is computed by dividing income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if dilutive securities were
converted into common stock and is computed similarly to fully diluted
EPS pursuant to previous accounting pronouncements. SFAS 128 is
effective for periods ending after December 15, 1997, including interim
periods, and earlier application is not permitted. SFAS 128 requires
restatement of all prior period EPS data presented.
For the six months ended June 30, 1996 and 1997, the Company reported
pro forma net loss per common share of $0.04 per share and $0.49 per
share, respectively. Under SFAS 128, basic pro forma net loss per common
share for the respective periods would have been $0.04 and $0.50,
respectively, and diluted pro forma net loss per common share would have
been $0.04 and $0.49, respectively.
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BRIGHAM EXPLORATION COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Comparison of three month periods ended June 30, 1996 and June 30, 1997
Natural gas and oil sales. Natural gas and oil sales increased 29%
from $1.3 million in the second quarter of 1996 to $1.7 million in the second
quarter of 1997. Of this increase, $372,000 or 96% was attributable to an
increase in production, and $16,000 or 4% was attributable to an increase in
the average sales price for natural gas and oil. Production volumes for natural
gas increased 45% from 148,000 Mcf in the second quarter of 1996 to 215,000 Mcf
in the second quarter of 1997. The average price received for natural gas
decreased 2% from $2.10 per Mcf in the second quarter of 1996 to $2.07 per Mcf
in the second quarter of 1997. Production volumes for oil increased 20% from
53,000 Bbls in the second quarter of 1996 to 64,000 Bbls in the second quarter
of 1997. The average price received for oil increased 4% from $19.13 per Bbl in
the second quarter of 1996 to $19.93 per Bbl in the second quarter of 1997.
Natural gas and oil sales were increased by production from wells completed
since the second quarter of 1996 partially offset by the natural decline of
existing production.
Lease operating expenses. Lease operating expense increased 54% from
$172,000 ($.37 per Mcfe) in the second quarter of 1996 to $264,000 ($.44 per
Mcfe) in the second quarter of 1997. This increase is primarily due to an
increase in the number of producing wells and certain extraordinary well
operations costs.
General and administrative expenses. General and administrative
expenses increased 34% from $562,000 ($1.20 per Mcfe) in the second quarter of
1996 to $753,000 ($1.26 per Mcfe) in the second quarter of 1997. The increase
is a result of payroll costs related to additional employees and charges
related to the relocation of the principal executive offices to Austin, Texas.
Certain of the additional employees have been hired to extend the Company's
control of its drilling and post drilling operations.
Depletion of natural gas and oil properties. Depletion of natural gas
and oil properties decreased 10% from $787,000 ($1.68 per Mcfe) in the second
quarter of 1996 to $708,000 ($1.18 per Mcfe) in the second quarter of 1997 as a
result of higher production volumes.
Interest expense. Interest expense decreased 46% from $286,000 in the
second quarter of 1996 to $156,000 in the second quarter of 1997. This decrease
was due to a lower average outstanding balance in the second quarter of 1997
offset partially by a higher effective interest rate. The weighted average
outstanding debt balance decreased 68% from $19.5 million in the second quarter
of 1996 to $6.1 million in the second quarter of 1997. The effective interest
rate increased 58% from 5.4% in the second quarter of 1996 to 8.5% in the
second quarter of 1997. The decrease in the average outstanding balance was a
result of the exchange of the RIMCO 5% subordinated notes in February 1997 and
the repayment of the entire outstanding revolving credit facility with the
proceeds from the IPO in May 1997. The revolving credit facility had an
effective interest rate of 8.5% at June 30, 1997.
Comparison of six month periods ended June 30, 1996 and June 30, 1997
Natural gas and oil sales. Natural gas and oil sales increased 41%
from $2.7 million in the first six months of 1996 to $3.9 million in the first
six months of 1997. Of this increase, $720,000 or 64% was attributable to an
increase in production, and $399,000 or 36% was attributable to an increase in
the average sales price for natural gas and oil. Production volumes for natural
gas increased 59% from 288,000 Mcf in the first six months of 1996 to 457,000
Mcf in the first six months of 1997. The average price received for natural gas
increased 25% from $2.10 per Mcf in the first six months of 1996 to $2.62 per
Mcf in the first six months of 1997. Production volumes for oil increased 12%
from 113,000 Bbls in the first six months of 1996 to 127,000 Bbls in the first
six months of 1997. The average price received
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for oil increased 11% from $18.82 per Bbl in the first six months of 1996 to
$20.87 per Bbl in the first six months of 1997. Natural gas and oil sales were
increased by production from wells completed since the first six months of 1996
partially offset by the natural decline of existing production. Natural gas and
oil sales in the first six months of 1996 include one month of production
related to certain properties sold at the end of January 1996.
Lease operating expenses. Lease operating expense increased 32% from
$356,000 ($.37 per Mcfe) in the first six months of 1996 to $470,000 ($.38 per
Mcfe) in the first six months of 1997. This increase is primarily due to an
increase in the number of producing wells.
General and administrative expenses. General and administrative
expenses increased 38% from $1.1 million ($1.09 per Mcfe) in the first six
months of 1996 to $1.4 million ($1.19 per Mcfe) in the first six months of
1997. The increase is a result of payroll costs related to additional employees
and charges related to the relocation of the principal executive offices to
Austin, Texas.
Depletion of natural gas and oil properties. Depletion of natural gas
and oil properties increased 8% from $1.3 million ($1.34 per Mcfe) in the first
six months of 1996 to $1.4 ($1.14 per Mcfe) in the first six months of 1997 as
a result of higher production volumes.
Interest expense. Interest expense increased 9% from $501,000 in the
first six months of 1996 to $546,000 in the first six months of 1997. This
increase was primarily due to a higher effective interest rate. The weighted
average outstanding debt balance decreased 12% from $17.7 million in the first
six months of 1996 to $15.6 million in the first six months of 1997. The
effective interest rate increased 25% from 5.2% in the first six months of 1996
to 6.5% in the first six months of 1997. The increase in the effective interest
rate is a result of the exchange of the RIMCO 5% subordinated notes in February
1997 and the increase in the balance outstanding under the revolving credit
facility in 1997.
Income taxes. Prior to consummation of the Exchange, the Partnership
was not subject to federal income taxes. Income and losses were passed through
to its partners on the basis of the allocation provisions established by the
partnership agreement. Upon consummation of the Exchange, the Partnership
became subject to federal income taxes through its ownership by the Company.
Also in conjunction with the Exchange, the Company recorded a deferred income
tax liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at the Exchange date, February 27, 1997, given the provisions of
enacted laws.
Liquidity and Capital Resources
The Company's primary sources of capital have been borrowings
(revolving credit facility and private placement debt), working capital and the
sale of interests in projects. During May 1997, as described in Note 1 to the
Unaudited Condensed Consolidated Financial Statements included herein, the
Company completed an initial public offering of Common Stock of the Company
that generated proceeds of approximately $24 million, net of offering costs,
that was used to repay all outstanding debt ($13.25 million) under the
revolving credit facility and to fund capital expenditures.
In the first six months of 1997, the Company used $195,000 in cash
flow from operations primarily as a result of the net reduction in working
capital offset partially by an increase in natural gas and oil revenues, net of
production taxes, lease operating expenses and general and administrative
expenses. Cash flow used in investing activities was $12.1 million in the first
six months of 1997 primarily as a result of capital expenditures. Cash flow
provided by financing activities was $15.8 million in the first six months of
1997 as a result of the proceeds from the IPO in May 1997 offset by the
reduction of the balance outstanding under the revolving credit facility.
The Company expects to continue its exploration and production
activities during the remainder of 1997 and expects to finance those activities
with proceeds from the initial public offering, borrowings under the revolving
credit facility and cash flow from operations.
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11
Forward Looking Information
The Company may make forward looking statements, oral or written,
including statements in this report, press releases and other filings with the
SEC, relating to the Company's drilling plans, its potential drilling
locations, capital expenditures, use of offering proceeds, the ability of
expected sources of liquidity to support working capital and capital
expenditure requirements and the Company's financial position, business
strategy and other plans and objectives for future operations. Such statements
involve risks and uncertainties, including those relating to the Company's
dependence on exploratory drilling activities, the volatility of natural gas
and oil prices, the risks associated with growth (including the risk of reduced
availability of seismic gathering and drilling services in the face of growing
demand), the substantial capital requirements of the Company's exploration and
development projects, operating hazards and uninsured risks and other factors
detailed in the Company's registration statement and other filings with the
SEC. All subsequent oral and written forward looking statements attributable to
the Company are expressly qualified in their entirety by these factors.
The Company assumes no obligation to update these statements.
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PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings per Share
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto, duly authorized, in the City of Austin, State of Texas,
on the 13th day of August, 1997.
BRIGHAM EXPLORATION COMPANY
By: /s/ BEN M. BRIGHAM
------------------------------------
Ben M. Brigham
President , Chief Executive Officer
and Chairman of the Board
By: /s/ CRAIG M. FLEMING
------------------------------------
Craig M. Fleming
Chief Financial Officer
10
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SEQUENTIALLY
EXHIBIT NUMBERED
NO. INDEX TO EXHIBITS PAGE
--- ----------------- ----
11.1 Computation of Earnings per Share Tabbed by
Exhibit
27 Financial Data Schedule No.
11